Older Workers' Development Rate and the Extension of the 12 Months Apprenticeship Exemption

3.61 In our 2005 Report, we reviewed the older workers' Development Rate and the 12 months minimum wage exemption for apprentices and concluded provisionally that the older workers' Development Rate should be abolished from October 2006, and that, simultaneously, the 12 months exemption from the minimum wage should be extended to cover all apprentices aged 19 and over. We were pleased that the Government decided to take forward its own review of both issues in good time for them to be addressed appropriately in the context of the forthcoming Equal Treatment Directive legislation. We also re-examined our provisional conclusions and provided input to the Government's review. Our considerations and conclusions are detailed below.

Older Workers' Development Rate

3.62 The older workers' Development Rate applies to workers aged 22 and over in a new job with a new employer and who are doing accredited training on at least 26 days (not necessarily full days) during the first six months of employment.

3.63 At the outset of the minimum wage, we wanted to ensure that older workers returning to the labour market or seeking to acquire new skills and develop their career were not disadvantaged by the minimum wage. We recognised that the acquisition of skills was not simply an issue for the young, but that people of all ages may need access to training and development. We did not want the minimum wage to become a barrier to the provision of structured training for older workers.

3.64 To provide an incentive for employers to take on older workers and provide good quality training, an older workers' Development Rate was included in the National Minimum Wage provisions from the outset. Its purpose was to strike a balance between the interests and productivity expectations of both employer and worker. To date the rate has been set in line with the youth Development Rate.

3.65 However, take-up of the older workers' Development Rate has been consistently low and since our Third Report (2001) we have questioned the value of maintaining it if it remained little used. In preparing our 2005 Report, it was clear that the position had not changed and that only a small minority of employers were making use of the rate. We also found little support from stakeholders to maintain the rate, with the complexity and costs associated with operating accredited training schemes a principal deterrent to its use. This led us to make our provisional recommendation that the rate should be abolished.

3.66 It is not possible to tell from the official data how many employers use the older workers' Development Rate or how many workers it applies to. We have, however, ascertained that in April 2005 there were about 162,000 workers aged 22 or over paid between the then older workers' Development Rate (£4.10) and the adult rate (£4.85) who were not in the same job as in the previous year. Some of these workers could have been on the older workers' Development Rate. However, the reason for these workers being paid below the adult rate of the minimum wage could also be due to a variety of other factors, such as use of the accommodation offset or the apprenticeship exemption. We therefore relied on our consultation with stakeholders to gain a better understanding of the extent to which the rate is used. We look at stakeholders' views next.

Stakeholders' Views

3.67 In our consultation this year, we asked stakeholders to comment specifically on the Commission's provisional conclusion to recommend the abolition of the older workers' Development Rate. Overall there was virtually no support for it to be maintained.

3.68 We also asked about use of the rate during our visits to meet individual firms throughout the UK. None of the firms we met made use of the rate, and some did not know of its existence, suggesting awareness continues to be low. No firms indicated that they would be likely to make use of the rate in the future and their general view was that they would find it difficult to recruit older workers at a rate below the adult rate of the minimum wage. The problems associated with operating accredited training schemes were also cited as a key reason for the low uptake.

'We join with the TUC and other unions in requesting that the Adult Development rate is abolished as it is too easily abused by some employers.'

T&G evidence

3.69 The trade unions that submitted evidence to us, including the TUC and Usdaw, were generally in favour of abolishing the older workers' Development Rate. The reasons they cited included the low use of the rate and that it would cut off a potential avenue for abuse.

3.70 The majority of employer organisations responding to our consultation that gave a view on the older workers' Development Rate were also in favour of it being abolished, with the exception of the CBI, The Newspaper Society and BUPA Care Services. It was clear from the responses that take-up of the rate continues to be extremely low. The Association of Licensed Multiple Retailers, who were previously advocates of the rate, advised that no responses to its survey of members suggested the use of, or the need for, a specially reduced rate for older workers undergoing training and that it would be content if it were abolished. The Small Business Service noted that the rate was used so infrequently that it saw no difficulty arising if it were abolished. The CBI, while accepting that use of the rate was low, was concerned that abolishing it would be a loss of an important flexibility for employers. The Newspaper Society also noted that the rate was rarely used, but that their members would prefer to see it continued. BUPA Care Services argued that historical use of the rate was not an indicator of its future use and that the proposed extension of the 12 months apprenticeship exemption did not offer a suitable replacement for the rate.

'... we have been unable to trace any member using the older workers' Development Rate.'

British Hospitality Association evidence

3.71 These consultation responses are in line with the findings of research we commissioned from Incomes Data Services (2004) and Cronin and Thewlis (2004) for our 2005 Report. The IDS research on the impact of the October 2003 upratings found no reported use of the older workers' Development Rate and the Cronin and Thewlis research on firms' adjustments to the minimum wage found only one company using the Development Rate.

Extension of the 12 Months Apprenticeship Exemption

3.72 The 12 months minimum wage exemption for apprentices was introduced for those aged 19 and over but under the age of 26 to encourage employers to continue to offer good quality apprenticeships to this age group following the introduction of the minimum wage. The age limit on the exemption was in line with government apprenticeship schemes at the time, which were only available to those aged 25 or under. The minimum wage exemption recognised that pay for apprentices was often low in the first year, reflecting the extent to which the apprentice is in training rather than productive work during this early stage of the apprenticeship. Wages often increase to well above the applicable minimum wage level in subsequent years.

3.73 We noted in our 2005 Report that the current 'below age 26' threshold applied to the exemption might be open to challenge in terms of the forthcoming implementation of the Equal Treatment Directive (2000/78/EC) outlawing age discrimination at work. Moreover, the Government was itself making changes to the age limits that applied to apprenticeship schemes. These factors led us to review the exemption. We remained of the view that there was a need to exempt apprentices in the first 12 months of employment to take account of their lower productivity, and concluded that it was appropriate for the current upper age limit for the 12 months apprenticeship exemption to be removed. However, we made our recommendation provisional to allow time to consult and consider the issue further.

3.74 The key driver for change to the apprenticeship exemption remains the absence of any obvious objective justification for the retention of the requirement for apprentices to be aged below 26 for the 12 months exemption from the minimum wage to apply. We, and the Government as stated in its evidence to us, continue to believe the current upper age limit is incompatible with the Age Directive legislation due to be implemented in 2006.

3.75 It is not possible to tell accurately from the official data how many apprentices are over the age of 25. However, our best estimate is that there are no more than 10,000 such apprentices. This suggests that the impact of removing the 26 year old threshold would be minimal.

Stakeholders' Views

3.76 The majority of trade unions were against extending the 12 months apprenticeship exemption to older apprentices. The TUC and the Transport and General Workers' Union were concerned that the exemptions could lead to exploitation of apprentices with very low wages being paid during the exemption period. They were also concerned about the high drop out rate for apprentices and believed that the exemption from the minimum wage acted as a disincentive for apprentices to complete their training. They proposed that we should instead undertake a wider review of all apprenticeship exemptions to check whether they were still justified.

'NIPSA supports the abolition of both the Older Workers' Development Rate and the 12 month apprentice exemption. There is no justification for either exemption. All workers entering apprenticeships for skilled trades and crafts or professions should be receiving wages in excess of the statutory minimum wage.'

Northern Ireland Public Service Alliance evidence

3.77 Some unions, including the Northern Ireland Public Service Alliance and Unison, suggested that the apprenticeship exemption be abolished altogether, not extended. The GMB advocated the abolition of the apprenticeship exemption in favour of a single development rate to cover all apprentices, regardless of age, for the first six months. Usdaw did not consider there to be a need to extend the exemption to cover older apprentices, and was concerned that it could lead to older workers with family responsibilities being paid less than the adult minimum wage rate.

3.78 Employers and their representative organisations were in favour
of the extension of the apprenticeship exemption, although a few, such as the British Hospitality Association, advised that the use of the apprenticeship exemption in their sectors was low. The Scottish Grocers Federation commented that they were operating in a competitive labour market and that low pay rates only hindered recruitment. Conversely, Business in Sport and Leisure and the Employers' Organisation for Local Government believed the exemption would help encourage recruitment of older workers. During our Commission visits some employers also made this point.

'Our members consider that, to coincide with the changes taking place in the provision of apprenticeship schemes, the 12-month exemption should be extended to those aged 25 and over, in order to reduce the risk of litigation and support in the employment of this age group.'

The Newspaper Society evidence

3.79 The hairdressing sector in particular sought to have the exemption further extended. The National Hairdressers' Federation argued that apprentices and those on accredited training programmes, verifiable by a relevant sector body, should be treated in the same way irrespective of age and be exempt from the minimum wage for the duration of their apprenticeship or accredited training. It stressed that the current exemption periods for apprentices were too short and that they acted as a deterrent to employers to take on and train new staff.

3.80 The Scottish Low Pay Unit and Citizens Advice Scotland were both against the extension of the apprenticeship exemption. A primary concern was that exemptions to the minimum wage could lead to exploitation and abuse of the rules. The Scottish Low Pay Unit believed that the minimum wage should be the absolute minimum which no worker's pay should fall below, even in training. The Equal Opportunities Commission was concerned that such exemptions could lead to inequalities in pay between men and women.

3.81 In conclusion, the consultation responses suggested near unanimous support for abolishing the older workers' Development Rate. But the views on extending the apprenticeship exemption were mixed, with employers and employer organisations largely in favour of extending the exemption, while trade unions and voluntary organisations were pressing for a reduction or abolition of the exemption period.