EEF has today submitted its response to the Low Pay Commission (LPC) on national minimum wage rates for 2015-16. We will be blogging about our submission over the next couple of days. Today we focus on Apprentice pay.
Our key recommendation to the LPC on apprentice pay is simple:
Scrap the Apprentice Rate and align apprentice pay to the age-specific national minimum wage.
Why are we calling for this? Well, here’s what we think....
The Apprentice Rate
The Apprentice Rate was introduced in 2010 and aimed to strike a balance between a minimum wage level that prevents the exploitation of Apprentices and wage costs being so high that they reduce the opportunity for employers to offer young people’s training and employment.
The Apprentice Rate is applicable for under-19s as well as those 19 and above and in the first year of their Apprenticeship. Beyond this the learner is entitled to the NMW in accordance to their age. Therefore, the NMW rate entitlement changes depending on the age of the apprentice and the duration of the Apprenticeships
The Apprentice Rate has had a very mild increase since its introduction, with increases often lower than the adult national minimum wage rates. For example in 2014, the Apprentice Rate will increase by just 2%, compared to the adult rate which will increase by 3%.
Table 1: Change to Apprentice pay since its introduction
The Apprentice Pay structure is complex and confusing for employers
In other sectors, Apprenticeships may last just the 12 month minimum and therefore those employers will only have to pay the Apprentice Rate. However, in manufacturing and engineering, high-quality apprenticeships are associated with longer duration periods. Indeed, the majority of EEF members say their apprenticeships last an average of four years. Therefore the pay for apprentices, depending on their starting age, would be as follows:
Table 2: Apprentice Rate for a four year Apprenticeship by age
Such a structure is confusing and complex and as such, EEF members do not use the Apprentice Rate as a basis to set their Apprentice pay but instead use alternative ways to determine wages which we discuss later in this section.
Apprentice Rate has limited or no impact on apprentice pay
Qualitative research conducted on behalf of the LPC in 2012 found that no national programme officer or training provider recalls any employer reporting that there were going to offer fewer Apprenticeships following the introduction of the Apprentice Rate.
The Apprentice Rate has increased since its introduction, yet does not remain a barrier for manufacturers in offering apprenticeships. Indeed less than 1% of manufacturers say they would offer more apprenticeships if the Apprentice NMW was reduced.
Moreover, since asking this question to EEF members we have tracked trends of apprenticeship opportunities and have found plans to recruit manufacturing and engineering apprenticeships have continued with some 66% of employers planning to recruit a manufacturing and engineering apprentice and some 38% of EEF members plan to recruit a non-manufacturing and engineering apprentice in the next 12 months.
The Apprentice Rate has no impact on the wages paid to apprentices by EEF members. EEF’s own Pay Benchmark shows a steady increase in Apprentice Pay over recent years, far above the Apprentice Rate and indeed over many of the NMW rate brackets. Anecdotal evidence from our membership suggests that EEF members set Apprentice pay based on the market rate – often referring to EEF’s Pay Benchmark. Many members ensure they are, at the very least, paying the Apprentice the age-specific minimum wage rate.
Apprenticeship numbers, and indeed pay, continue to increase
Apprenticeship numbers have increased significantly in recent years. This is true when looking at manufacturing and engineering apprenticeships also – although the increases have not been so significant. (See Chart 1)
Chart 1: Apprenticeship starts have increased in recent years- number of engineering and manufacturing apprenticeship starts, and total number of apprenticeship starts
Source: The Data Service - 2013
We have also seen a shift towards higher-level apprenticeships. Whilst a couple of years ago intermediate level apprenticeships dominated the figures, in manufacturing and engineering we are seeing a move towards advanced and higher apprenticeships. Manufacturers are increasingly demanding higher-level skills and advanced and higher apprenticeships give employers access to these higher-level skill-sets.
Therefore, they are willing to pay more for such skills. We have seen this in our own Workforce Pay Benchmark (See Chart 2). This is particularly the case for first year and final year apprentices, as manufacturing and engineering employers continue to offer competitive pay to attract apprentices into their companies, and retain them upon completion of their training.
Chart 2: Average salary for Craft Apprentice
Source: Various EEF Workforce Pay Benchmarks 2010 -2014
BIS’ Apprentice Pay Survey 2012 found that the average pay for an Apprentice is now £6.21, this increases to £7.03 for engineering apprenticeships – a figure above the adult national minimum wage rate. This again reaffirms the extremely limited impact that the Apprentice Rate has on actual wages for Apprentices.
The Apprentice Rate pay structure should be scrapped
Given this, and the complicated pay structure currently for apprentices, we are recommending that the Apprentice Rate is abolished and instead learners are paid their age-specific national minimum wage rate. This would simplify what is a complicated structure currently, and is likely to result in better compliance from employers across all sectors. A generally higher wage rate would also raise the status of vocational learning, drive up the quality of apprenticeships as employers would be required to make a larger investment, and may increase learner demand for Apprentices overall.
Apprentices would see a significant boost to pay
Under our recommendation to scrap the Apprentice Rate and instead aligned apprentice pay with age-specific national minimum wage rates, apprentices would see their pay increase significantly – in particular first year Apprentices and under 19s. For example a 19 year old Apprentice in their first year would see pay jump from £2.68 per hour to £5.03
Table 3: Apprentice way if Apprentice Rate was abolished and learners paid age-specific rate
These rates would be those used by employer if recruiting a young person under 21 for a role outside of an Apprenticeship and so employers would be familiar with this structure.
There is an opportunity to create some clear winners such as young apprentices by abolishing the apprentice pay structure and replacing the Apprentice Rate with a learner’s age specific rate. Apprentices would see a significant boost to pay and employers will no longer be faced with a complex and confusing pay structure.