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How the apprenticeship levy affects supply teachers – FCSA sets record straight

Schools Week have recently published an article with the headline “a leading umbrella company denies it is passing on the costs of the government’s new apprenticeship levy to employees.”

The article attempts to address the “concerns” of some teachers who have, we are told, seen a deduction for “apprenticeship levy” on their payslips. The article doesn’t state that the teachers in question noticed a reduction in their pay, only that they noticed a deduction. Here’s why that’s important:

The umbrella company receives assignment income paid by the agency for the work undertaken.  Like any employer, the umbrella must cover employment costs which includes employer’s national insurance, apprenticeship levy, holiday pay and pension contributions.  These employment costs are deducted from the assignment income.  

Umbrellas also retain a small margin to cover their costs for the services they provide.  This is also deducted from the assignment income, and the balance is the workers’ gross pay.  

Most umbrella employers provide their teaching staff with a pay reconciliation, showing how their gross pay is calculated.  This reconciliation will accompany the teacher’s payslip and is included for the sake of transparency.  It is likely that the reconciliation statement is where the teachers saw the apprenticeship levy listed as a deduction, and that there was some confusion regarding the difference between that reconciliation statement and their actual wage slip.

A compliant PAYE umbrella company would be correct in asserting that the Apprenticeship Levy, or any other employment costs, are not deducted from an employee’s pay.

If the rate is not sufficiently uplifted, the teacher’s pay will be impacted. We believe the Schools Week article is misleading in that it attempts to lay the blame at the umbrella company’s door. As the article focuses on the presence of a deduction and doesn’t confirm if teachers’ pay was reduced, we don’t know if an uplift was paid, or in fact if the teachers in question have been disadvantaged.

As predicted by many commentators, it is clear that the apprenticeship levy could ultimately have the effect of lowering an employee’s pay. Paying large volumes of supply teachers, or indeed any other flexible worker, inflates the payroll figures of small companies, meaning umbrella companies and recruitment agencies have to pay the levy whilst being unable to benefit from it. Effectively this makes the apprenticeship levy just another cost of employment.

Given that Apprenticeship Levy must be paid, there are four options.

  1. The school can pay the recruitment agency more, to take account of the additional cost.
  2. The agency can pay the umbrella company more. In the absence of an increased rate from the school, this would mean a reduction in the agency’s profit margin.
  3. The umbrella company can reduce their margin to take account of the cost.
  4. If none of the above happen, the teacher will be paid less.

In the wake of recent changes in legislation and their resulting effects on the supply chain, the umbrella margin has seen considerable pressure and many umbrella companies report that there is no further scope for reductions. Therefore, if the school or agency can’t or won’t increase rates, the apprenticeship levy will impact teachers’ pay, as umbrella companies simply have less money with which to pay them.