From education to employment

National Minimum Wage & Apprenticeship Levy changes

Andi Brown, director and founder of SAAF Education, a provider of financial management and business support services to schools, academies and multi-academy trusts, discusses what the national minimum wage increase and what the apprenticeship levy guidelines means for employers.

Apprenticeships provide employers with an opportunity to grow and strengthen their workforce with fresh insight and enthusiasm from the next generation of workers. To take advantage, employers need to stay up to speed with the latest legislative updates and developments.

Latest National Minimum Wage increase comes into force

The National Minimum Wage (NMW) is the minimum pay per hour most workers are entitled to earn by law.

From the start of October 2016, the NMW increased for all apprentices and workers under the age of 25.

The new rates, are as follows:

  • £7.20 per hour – 25 years old and over
  • £6.95 per hour – 21 to 24 years old
  • £5.55 per hour – 18 to 20 years old
  • £4 per hour – 16 to 17 years old
  • £3.40 – for apprentices in year one of their apprenticeship, including those aged over 19

New Apprenticeship Levy guidelines

In addition to the new NMW rates being released, the Apprentice Levy guidance has also been updated. This means that there will be changes to apprenticeship funding.

What is the Apprentice Levy?

The Apprentice Levy is a mechanism by which the government raises money to fund apprenticeship training across England, effective from 1st April 2017.

Apprenticeship funding will change as of 1st May 2017 and all employers will be subject to both the Apprentice Levy rules and framework of funding for apprenticeships.

How will you be charged and will you have to pay the Levy?

The Levy will be charged at a rate of 0.5% of an employer’s payroll if the value exceeds £3 million per annum. As such, the payroll value is to be defined as the total gross of all employees pay.

For example, if a company employed 200 employees and paid each employee £20,000 then the value of the payroll would be £4,000,000 and the company would be subject to the levy (£4,000,000 x 0.5% = £20,000).

If the employer is a local authority, Multi-Academy Trust, Charity or Connected Company, the combined value of all payrolls will be considered when assessing the liability for the Levy.

So, if 200 employees were split across connected, then each company would still be liable for the Levy even though each individual payroll does not exceed £3 million.

All employers will receive an allowance of £15,000 per annum that can be used to offset the levy charge. Using the previous example, the £20,000 would be reduced by £15,000. This means that only £5,000 would be due from the employer.

However, only one allowance will be given to each employer and not for each company or payroll.

Otherwise the allowance will be split into monthly installments of £1,250 and if the gross value of the payroll exceeds this amount then the levy will be charged at the 0.5%.

Once again using the previous example, if employees receive £20,000 per annum and are paid monthly, then they will receive £1666.66 per month. So, 200 employees will equate to: (200 x £1666.67) x 0.5% – £1250 allowance = £416.67 monthly levy charge.

What do employers gain from the levy?

If the employer is liable to the levy, the funds will be taken by HMRC as part of the PAYE, paid monthly and credited into a Digital Apprentice Service (DAS) account.

In addition to this, the government will pay 10% of the levy paid by the employer and the funds can be used as e-vouchers to pay for accredited apprentice training.

It’s important to note that employers will need to create a DAS account to ensure monies deducted by the levy can be credited to the account for use in funding Apprenticeships.

If the employer is not liable to pay the levy charge, as the payroll bill is less than £3 million, then the employer will not use the apprenticeship service until at least 2018, for which the government will provide further guidance.

However, the new apprenticeship funding system will take affect from May 2017, whereby, provided the training is approved by the apprenticeship service, then the government will contribute 90% of the cost training, leaving the employer to pay the final 10%.

For more information on these changes, connect with Andi on LinkedIn

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