This week is National Apprenticeship Week. To try to deal with the ‘skills emergency’ that many UK businesses are facing, the Government has pledged to create three million more apprenticeships by 2020 partly funded by a new apprenticeship levy to be introduced in 2017.

With debts from university education at an all-time high, apprenticeships are now a real alternative for many young people. For the first time the number of university places outweighs the number of applicants.

With the commitment to create more apprenticeships it is increasingly important that employers are clear on their legal status and are aware of the future developments.

What are apprenticeships?

Apprenticeships are work-based training programmes which are often partly government funded. They usually last between one and four years on a fixed term basis.

Apprentices can be taken on under:

  1. A traditional contract of apprenticeship
  2. A statutory apprenticeship agreement/approved English apprenticeship agreement

The distinction between the type of apprenticeship can have a major effect on the relationship between employer and apprentice.

What are their rights?

Apprentices engaged under both forms of apprenticeships are likely to be employees for statutory employment purposes and will benefit from many statutory rights including statutory maternity, paternity, adoption, shared parental pay and sick pay.

However, a traditional contract of apprenticeship gives apprentices enhanced protection against dismissal with the potential to claim significant compensation (see below). As these enhancements are not available to those engaged under a statutory apprenticeship agreement this will be the preferred option for most employers.

Recruiting an apprentice

Government funding for apprentices’ training is tiered according to age, with greater funding allocated to younger apprentices. Employers might therefore be tempted to put an upper age limit on applicants for their schemes on the basis of funding eligibility. However, doing so could directly discriminate against older applicants unless the employer can show that the limit is objectively justified.

Employers should also be alive to possible age discrimination issues if the terms of employment offered to apprentices are less favourable than those offered to other employees of a similar status and length of service.

What if it doesn’t work out?

Employers should tread very carefully when considering termination of a traditional contract of apprenticeship as there is only a limited right of dismissal before the end of the term. Misconduct or poor performance in the normal employment context will not be sufficient to dismiss, unless the apprentice’s conduct is so extreme that they are effectively unteachable.

The early termination of a traditional contract of apprenticeship also carries the risk of a potentially valuable breach of contract claim, based on the balance of the term of the contract and loss of future career prospects.

By contrast, an apprentice engaged under a statutory apprenticeship agreement can be lawfully dismissed according to the principles relevant to an ordinary employee. The usual protections including breach of contract, unfair dismissal and discrimination will apply.

Apprenticeship levy – use it or lose it

The current English system under which apprenticeships are funded partly by government and partly by employers will continue for apprentices hired this September.

From 2017 this system will be replaced by funding on an ‘electronic voucher’ system, where the full cost of external training for apprentices will be met from funds held on a ‘use it or lose it’ basis in employer’s electronic apprenticeship accounts:

  • Small employers will receive a credit of £15,000 to their apprenticeship account which can be used for training without cost to the employer.
  • Larger employers will be obliged to pay 0.5% of their gross pay bill to HM Revenue and Customs through PAYE (less a £15,000 allowance) – the apprenticeship levy. The 0.5% contribution will then be available to spend through that employer’s electronic apprenticeship account.

Both small and large employers will need to use the funding in their accounts within a two year period, otherwise it will lapse. Government expectation is that much of the funding will lapse resulting in it being used to fund the costs of administration of the scheme, the £15,000 allowance and ‘top-up’ contributions for employers with high-quality apprenticeship schemes who will be allowed to draw down more funding than they contribute through the apprenticeship levy.

There is great uncertainty on how funding for apprenticeships will be accessed by employers in Wales, Scotland and Northern Ireland. Guidance on this is unlikely to be available until after the outcome of the elections in Scotland, Wales and Northern Ireland on 5 May 2016.

(Note the position in relation to employing apprentices in Scotland and Northern Ireland is different from England and Wales).