London 21 January 2014
- Hair and beauty businesses most likely to be impacted
– Employers using a National Minimum Wage (NMW) loophole to pay their apprentices at a lower rate are at risk of a claim or fines by HMRC, warns employment law and pay experts, Croner, part of Wolters Kluwer.
The apprentice minimum wage (AMW, currently £2.68), which has been in place since October 2010, applies to contracted apprentices who are in their first 12 months of the apprenticeship and haven’t reached the age of 19. Apprentices who are 19 and over and have worked more than 12 months must be paid the appropriate NMW rate for their age (currently £5.03).
Some employers however are exploiting a loophole, which sees apprentices being paid the AMW for two years rather than one, which can be a significant detriment to the apprentice and a business risk for the employer.
The loophole centres on advice by the Pay and Work Rights Helpline run by HMRC. They are telling businesses that there is a further scenario in which the AMW can be given: where two apprenticeships are carried out at one workplace, providing that the second apprenticeship was unforeseen at the time of beginning the original apprenticeship.
Martin Jackson, Tax & Payroll Consultant at Croner, explains: “Essentially what this means is that an apprentice, who initially trains to Intermediate level and then decides with the agreement of their employer to progress to Advanced level, could be paid the apprentice minimum wage for a further year, rather than the NMW.
“While it is not expressly allowed within the National Minimum Wage Regulations 1999, it would appear that the Pay and Work Rights Helpline is relying on the fact that the Regulations only deal with the circumstance where the apprentice has previously been employed by someone else, and not where they have the same employer.
“Employers, particularly those in the hair and beauty industry who we know are already taking advantage of this loophole, are in danger of being seen as avoiding making payments of the appropriate NMW rate, and with it comes the risk of fines and arrears by HMRC. Aside from the financial risk, there is also a danger that the employment relationship will break down if the apprentice realises they are being paid at a lower rate, meaning they are out of pocket for a year.”
Croner is advising businesses that if they wish to take advantage of this opportunity, they should seek confirmation of their actions from Directgov or write to HMRC before implementing any scheme. In addition they will need to be able to show that the offer of a further apprenticeship was not envisaged at the start of the working relationship.