“Thousands” of workers have been forced to pay the apprenticeship levy from their wages owing to a loophole in government rules, according to a union.

Unite alleges to have received “increasing” evidence that some employment agencies, umbrella companies and other “unscrupulous operators” are “corrupting” the policy in this way.

They say the construction industry is the main culprit, and the union claims it is now taking legal action against the companies involved.

Since April 2017, companies with a pay bill of more than £3 million have had to pay an apprenticeship levy to the government, equating to 0.5 per cent of their payrolls.

Wage deductions found by Unite often amount to less than £2 a week per employee, but rules state companies cannot deduct the levy from the wages of an earner.

The union would not reveal the names of these “unscrupulous” employers, or how many they have found to be deploying the practice.

The union’s assistant general secretary Gail Cartmail said: “The levy is entirely clear that it is the duty of the employer to pay it, the fact that it is being passed on to workers is entirely unacceptable and taints the entire system.”

During National Apprenticeship Week, Cartmail called on the government “to step in and ensure that no employer can pass the levy onto its workforce”.

“If it fails to do so then the general public will consider it a punitive tax on workers and the good intentions behind the apprentice levy will be entirely undermined,” she added.

Unite, which has warned about the practice since 2018, said although it is “highly immoral” to pass levy costs on to workers, it is not illegal provided the worker has agreed to the deduction.

A spokesperson said construction workers are usually compelled into operating via an umbrella or payroll company, and in order to obtain work they “don’t get an option how they are paid”.

Payslips are “then made so complicated that workers frequently struggle to understand what deductions are being made from their pay”.

And even if they are aware of the charge, most sign up in order not to lose the work they have been offered.

Unite added that there is a “double whammy” if an agency or umbrella company charges their entire workforce the apprentice levy because they will be making an additional profit, as they don’t pay the levy on their first £3 million of payroll.

Mark Dawe, chief executive of the Association of Employment and Learning Providers, said: “It’s really disturbing to hear that this is still going on.

“Employers are under contractual obligations with the ESFA to draw down the levy in the intended way with no requirement on the part of the apprentice to make a financial contribution and the government needs to crack down on any malpractice once and for all.”

It is not just construction companies that appear to be making their employees pay the levy for them. In 2017, FE Week’s sister paper Schools Week found that pay slips for supply teachers from umbrella company RACs Group included a percentage deduction attributed to the “apprenticeship levy”.

The group claimed at the time it was following the law and deducted the levy costs as a “business overhead” from the income it earns through agencies that send out supply teachers, rather than employee’s earnings.

An HMRC spokesperson said: “Employers cannot deduct the apprenticeship levy from the gross salary of their employees.

“However, an umbrella company can deduct amounts to cover its administration and other costs, including the apprenticeship levy, from their overall rates.”

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  1. Philip Gorst

    The levy does not work. It never did and it never will.
    Another crackpot scheme dreamt up by people with no idea.
    Scrap it, say sorry, and leave the subject of learning and development to the employers who recognise the need.
    It cannot be forced upon employers, they have enough to do battling through the compliance that this and every previous government imposed upon them
    Enough is more than enough.

  2. Paul Higgins

    Does anyone know what the percentage for the NI-Alers is as the company I am paid through take around 10% for this off me per week, if i earn £619 they take around £65 for it, I cant seem to find anywhere what an employee should pay out of thier wages per week

  3. Krassimira Jordanova White

    I am going through an argument with my umbrella company over deductions they are stopping.
    1. Employers N.I…I do not pay N.I.myself, as i am in receipt of a pension £48.20
    2. Apprenticeship Levy. £2.56
    3 Holiday pay accrued £28.50
    4. Margin £13
    All of these payment are deducted by them, prior to me receiving my net pay, then adding the holiday pay again, and taxing all of it..the payslip is not right and needs a mathematician to work it out.. they alsom pulled the wool over the eyes of an ACAS employee as well, so i am now going to a tribunal, and hopefully there will be someone there who is an employment based whizz kid lol..these umbrellas are not only trying to avoid their expenses, but possibly taxation as well, and employees are being ripped off..i could be £80 a week better off..there is more to this story but will leave it there for now.

    • Steve H

      I also have the same issue as you. I have spoken to HMRC, ACAS and Unite. I have also become a member of Unite as they seem to have the knowledge re unlawful deductions. I have also written to my local MP. Something needs to change, drastically. Agencies are winning business on low day rate/hourly rate margins because they are offsetting THEIR liabilities to that of the employee.
      The end client is happy as it keeps their costs to a minimum, all the while good honest people, such as us, are as you say, getting ripped off.

    • I have just started working for an agency that uses an umbrella company as I wanted to earn a higher hourly rate by not accrueing holiday pay. And apart from being told that I would only be deducted £10 per week by the umbrella company for use of their services (along with the usual tax/NI deductions), I was NEVER made aware that there would be further deductions for this Apprenticeship Levy each week from my weekly payslip.

      I have read through the umbrella company’s contract, and all it states is “We will make all necessary deductions from your pay as required by law.”

      I have since learned that only companys that have an annual TURNOVER of £3,000,000 are subject to collecting this levy.

      My question is, if the umbrella company knows that their business falls under that category because their turnover £3,000,000 per annum, surely they must then inform people using their services of what those “lawful deductions” would entail so as to allow people to make an informed decision prior to agreeing to use their services?

    • David Armory

      Same here. Education Staffbank, the agency, use an umbrella company, NASA, who are passing on the same charges to me, including NI which I do not have to pay.
      Their reply to my issues is that as an umbrella company is used then it is all acceptable.
      Clearly it is a way for recruitment agencies to avoid their costs and responsibilities and umbrella companies to do the same.
      Unscrupulous doesn’t really cover it…

    • David Armory

      An opportunity for someone to step in and take a lot of business off the agencies who use umbrella companies to avoid costs.

      Employers should also take some responsibility when choosing agencies to work with…

      I am moving to the lower Bank rate of colleges in protest at the practice. Fortunately I can afford to as only work to keep my brain working.

  4. George Jones

    The author of this article doesn’t understand the full picture. Agencies usually offer contractors a choice about how they can be engaged. Agencies will offer one rate when the contractor is employed-by-agency, the ‘PAYE rate.’ Agencies will offer a much higher rate when the contractor is employed-by-umbrella, the ‘assignment rate.’ The all-inclusive assignment rate is usually around 15+% higher than the paye rate. The difference in the headline value of these rates is because the umbrella company must pay the employment costs that the agency would have otherwise paid if the worker were their direct employee. Employment businesses must also issue a Key Information Document which details all deductions, including the Apprenticeship Levy. There is no scandal. Contractors are making informed decisions about how they are engaged and paid.