Bitter pill to swallow: the Apprenticeship Levy

On the surface, the Apprenticeship Levy seems like a good move for the UK and its workforce. But as DeeDee Doke reports, Randstad is leading the charge for common sense to prevail as its abiding principles don’t add up for recruiters, businesses and apprentices alike

Fri, 18 November 2016 | By DeeDee Doke

FROM DECEMBER'S RECRUITER MAGAZINE

On the surface, the Apprenticeship Levy seems like a good move for the UK and its workforce. But as DeeDee Doke reports, Randstad is leading the charge for common sense to prevail as its abiding principles don’t add up for recruiters, businesses and apprentices alike

“If the purpose of the Apprenticeship Levy is to upskill the UK workforce… it just doesn’t work.”

So says Mark Bull, chief executive of Randstad UK and the Middle East, in offering his bottom line view of the levy – or payroll tax as he sees it – that from April 2017 will add more than 8% to the UK organisation’s annual pay-outs to the government without it, clients or workers being able to realise any of the intended benefits.

Few would dispute apprenticeships are good for the UK. Certainly Bull is a believer in apprenticeships as a practical path for future workforces to earn as they learn career-building skills. They serve as a valuable pipeline for UK plc to build a solid bank of skills knowledge and expertise. Apprenticeships are also seen as a critical force in building UK productivity.

However, an Apprenticeship Levy announced last year to help fund 3m new apprenticeship starts by 2020 has received mixed reviews. And for large recruitment businesses running high numbers of temporary workers, the levy looms as a particularly bitter pill to swallow: the levy will be charged not only on their corporate staff but on temporary workers for whom they pay National Insurance Contributions (NICs). 

It’s certainly not a pill that Bull and Randstad UK and MENA legal director Chrissi Evans are agreeing to ingest just yet. “Many of us did not anticipate that this levy would be applied to an agency workforce,” Bull tells Recruiter during a meeting at the company’s new UK head office in Luton. 

“The whole premise is built around a fixed, static model of employment, and that’s not how the [recruitment] industry works,” Bull says.

A roundtable meeting of recruiters called by the Recruitment & Employment Confederation (REC) to discuss the levy with government representatives soon after it was announced found the conversation “much more around apprentices within the recruitment business”, recalls Evans. “We were all very comfortable about supporting that. All the other people around the table originally were very proactive about the concept of the Apprenticeship Levy… We just did not believe they intended this.”

Bull goes on to explain his view of how what he calls “the abiding principles” of the levy don’t fit with provision of a flexible workforce. The purpose of the Apprenticeship Levy is to upskill the UK workforce. If you’ve got 1.2m, 1.3m people a week working through agencies in the UK, you are striking out by definition a huge proportion that the apprenticeship scheme cannot work for. It cannot work for the clients employing them,” he says, “and it cannot work for the agencies employing them. And that’s our fundamental issue.”

His first point is, to reclaim the levy paid in return for providing an apprenticeship through an appropriate authorised body, the person taking the apprenticeship must be in the role for a minimum of 12 months. 

“Take Randstad UK as an example, and I’m sure we’re no different to any other recruiter; our average tenure is nine weeks. So we will pay the levy, but actually under the rules of the scheme itself, it’s effectively impossible for that individual to benefit from the apprenticeship sums we raise,” Bull says. “The principle of how flexible labour works when you have limited tenure in that role doesn’t lend itself to the way the levy funds are accessed back to provide the training. That’s point one.”

Secondly, he continues: “We don’t oversee the worker so we’re not directing them. The client clearly is. Many of our individual workers are on contracts for services, therefore they are working under the client’s direction, and then even identifying what the appropriate apprenticeship should be … is effectively impossible.”

In a view that might see smaller agencies enjoy this twist of fortune, Bull also sees the levy as creating an uneven playing ground within the industry itself. Clients will have to be charged more to cover Randstad’s higher costs, while smaller competitors won’t have to take that step. “We all know that a particular client will often go to multiple agencies to try and fill a role, and in many cases, they’ll often get the same candidates put forward. That’s how the industry works.

“If you’re a large agency like us, the levy will be charged. An agency with a payroll lower than £3m a year won’t be charged the levy. Same worker, same job – under one scenario, there’s a levy paid, under another there isn’t, purely determined by the size of a payroll,” he says. 

Last May, Bull was among 16 recruitment business leaders who signed an open letter organised by the REC to then-Chancellor George Osborne urging that the levy be charged only on recruitment companies’ permanent payroll and to ensure that recruitment and contingent labour experts were represented on the Institute for Apprenticeships.

REC head of policy Kate Shoesmith told Recruiter: “We have spent a significant amount of time explaining the labour supply chain to officials within the Treasury and the Department of Education over the last year – including securing two well-attended meetings for members where we made the industry’s views very clear.” She went on to say: “We will not stop pushing for a better solution for recruiters but it is almost certain the government intends to go ahead with the levy.”

For its part, Randstad has written to over 40 MPs, advisers and industry bodies to make the case, and submitted its own proposals directly to the government’s apprenticeships director, David Hill. Randstad has also met with advisers at the Skills Funding Agency, and last week met with members of the Treasury. Evans said of the latter meeting, “Their response to our proposals were negative.” A suggestion to have clients pay the levy on indirect staff was considered “too complicated” and another to exempt agency workers “would set a precedent”. Evans said she responded that exempting agency staff was “a fair exception as temp workers were our stock-in-trade, not our staff”.

When asked by Recruiter for comment, the Treasury referred the enquiry to the Department for Business, Innovation, Energy & Skills. The Department for Education had not responded to Recruiter’s enquiry for comment by press deadlines.

Bull says: “We’ve engaged from day one, trying to find a different way to look at this and putting some suggestions on the table that could work, or at least work a lot better than the current proposal, and we’re not getting anywhere with it.

“I think the final point, as an over-arching principle, is: is this really the time to introduce a payroll tax into the UK economy when there’s so much uncertainty with the Brexit scenario? Will it be hard, will it be soft, are we going to continue to have inward investment, what does it mean? There are so many unanswered questions, it seems foolhardy. At a time when UK plc needs to be at its most agile, fleet of foot, its most responsive and adaptive, this fixed-levy charge is coming in. And it does not seem to make sense.”

Facts – The Apprenticeship Levy

  • Takes effect from April 2017 with first payments to be made in May 2017
  • 0.5% levy to be collected each year, minus £15k allowance, on payrolls of over £3m
  • Levy to be paid by organisation that pays workers’ NICs
  • Aims to raise £3bn to fund 3m new apprenticeship starts by 2020
  • Organisations have 24 months to use their levy funds on approved apprenticeship training
  • Government will apply a 10% top-up on funds for every £1 paid in
  • Affects less than 6% of UK employers

CASE STUDY: RANDSTAD UK

The Apprenticeship Levy will be raised on a company’s corporate employee payroll. It also will be raised on the temporary worker payroll because the employment agency pays employers’ NICs on the temporary workers even when they are not employees of the agency, but instead are on contracts for services.

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