Minimum wage loophole

Posted on 30 Mar 2023
Share Blog Post

Employers using a national minimum wage (NMW) loophole to pay their apprentices at a lower rate face the risk of a claim or fines by HMRC, employment law experts warn according to Harris & Co accountants Northampton who run the payroll for many of their small clients.

The apprentice minimum wage (AMW) - which has been in place since October 2010, and applies to contracted apprentices aged under 19 who are in their first 12 months of the apprenticeship - is currently £2.68. 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).

Research from employment law experts Croner - part of Wolters Kluwer UK - has revealed that some employers, such as those in the hair and beauty industry, 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.

However the loophole centres on advice by the Pay and Work Rights Helpline run by HMRC, which advises businesses of 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 and payroll consultant at Croner, said:

‘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.’

Jackson points out that while this approach is not expressly allowed within the National Minimum Wage Regulations 1999, the Pay and Work Rights Helpline seems to be relying on the fact that the regulations only deal with the circumstance where the apprentice has previously been employed by someone else, rather than situations where they have the same employer.

Jackson continued:

‘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.’

‘Businesses that wish to take advantage of this opportunity are advised consider that they would need to demonstrate that the offer of a further apprenticeship was not envisaged at the start of the working relationship. Additionally, they ought to seek confirmation of their actions from Directgov or write to HMRC before implementing any scheme.’

View more blog posts

SME lending increases
Posted on 19 Jun 2024
SME lending increases
read more
More tax awaits us
Posted on 12 Jun 2024
More tax awaits us
read more
High tax Britain
Posted on 05 Jun 2024
High tax Britain
read more
Biggest tax freeze in history
Posted on 29 May 2024
Biggest tax freeze in history
read more
Back To Top
01604 660661