House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Skills and Training, the Hon Brendan O'Connor MP)

Chapter One: Introduction and Context

The aim of the Regulatory Impact Statement (RIS) is to identify the option that most effectively and efficiently improves the Australian Apprenticeships system to address skill shortages and encourage more individuals to take up apprenticeships in priority areas.

1.1 What is an Australian Apprenticeship

An Australian Apprenticeship is a pathway to a nationally recognised qualification that allows anyone of working age to earn an income while they learn. It combines learning in the workplace (on-the-job) and structured learning (off-the-job) resulting in a Vocational Education and Training (VET) qualification.

The Australian Government definition of an Australian Apprenticeship incorporates both apprenticeships and traineeships. ^[1] Generally, apprenticeships are in a skilled trade, and usually take three to four years to complete, for example: electricians, plumbers and hairdressers. Traineeships are generally in non-trade occupations (with some exceptions), but are often shorter in duration and take one to two years to complete. Traineeships are primarily in retail, hospitality and many of the caring qualifications including aged and disability carers, childcare workers, and enrolled nurses. Individual state and territory governments identify which qualifications are apprenticeships or traineeships under their own legislative frameworks. Data from the National Centre for Vocational Education Research (NCVER) shows the split of Australian Apprentices in-training between trades and non-trade is around 63 per cent to 37 per cent. ^[2]

1.2 Who are Australian Apprentices?

As of 30 June 2021, there were 341,385 Australian Apprentices in-training. This equates to just over two per cent of workers across the country who were employed as an apprentice or trainee. In trade occupations alone, almost 12 per cent of employed workers were an apprentice or trainee. ^[3] Australian Apprenticeships can be completed by anyone of working age, regardless of their level of educational attainment. Apprentices can be still at school, school-leavers, people re-entering the workforce or an adult worker who is changing careers. As of 30 June 2021, of all Australian Apprentices in training:

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Almost two-thirds were aged 24 years or younger;

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Around 72 per cent identified as male and 28 per cent as female;

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34 per cent were in regional locations and four per cent in remote locations;

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Around six per cent identified as Indigenous Australians; and

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Three per cent reported having a disability. ^[4]

1.3 Delivery of Australian Apprenticeships

The Australian Apprenticeships system is a responsibility shared between the Australian Government and state and territory governments. The Australian Government contracts and manages the Australian Apprenticeship Support Network (AASN) to deliver services to apprentices and their employers and provides incentives through the Australian Apprenticeships Incentives Program (AAIP). The state and territory government role relates to funding VET training (which includes the off-the-job training component for apprentices), regulation and management of legislative requirements in their jurisdictions. States and territories also locally administer jurisdictional apprenticeships incentives systems, which eligible employers and apprentices may access in addition to those incentives provided under AAIP.

An Australian Apprenticeship is underpinned by a legally binding document under the relevant state or territory legislation called a Training Contract. This contract specifies roles and responsibilities, including training provision both on and off the job, the payment of wages under relevant awards, and is supported by the employment agreement between the employee and employer.

Table 1: Overview of the key individuals and organisations involved in the apprenticeship process

Current regulatory and administrative framework

The stakeholders listed in Table 1 each have their own roles and responsibilities on the Australian Apprenticeship pathway. The AASN is often the first point of contact for employers and prospective apprentices to support them in navigating the Australian Apprenticeship system.

Before an apprenticeship can formally commence, an employer must offer to support a new or existing employee in an apprenticeship pathway and sign a Training Contract. The Training Contract also needs to detail an RTO to provide the formal training component. Each state and territory maintains a list of approved RTOs to deliver particular qualifications. Once signed, the Training Contract needs to be approved by the STA. Eligible apprentices and employers for Australian Government incentives apply, with the support of the AASN.

Employers are required to meet legal obligations associated with hiring under an Australian Apprenticeship, and to conform with Australian Government and state and territory legislation. They must also provide a safe working environment, support structured training on site and in the classroom, provide adequate supervision and support, and ensure Australian Apprentices are aware of their rights and responsibilities.

Eligibility for payments under the AAIP may depend on whether an employer or Australian Apprentice is receiving other Australian Government assistance. Generally, employers are not eligible for wage subsidies under the AAIP if they are already in receipt of an equivalent Australian Government wage subsidy, including the JobMaker Hiring Credit and the previous JobKeeper Payment. As an example, the Social Security Act 1991 and the AAIP program guidelines prohibit an Australian Apprentice from attracting the Living Away From Home Allowance (LAFHA) and Youth Allowance, Austudy, or ABSTUDY at the same time. For further information on the history of the AAIP, please see Attachment A.

Figure 1: Role of different stakeholders in the Australian Apprenticeships Incentives Program system

1.4 Programs across the Department

Australian Apprenticeships are only one pathway across the Australian Government's Skills and Training Portfolio designed support employment and a skilled workforce as the economy recovers. Young people can be encouraged to take up an apprenticeship pathway through schools and other programs such as Workforce Australia; the Transition to Work (TtW) youth employment program. Promotion of pre-apprenticeship programs through these services can increase the likelihood of successful transition into and completion of an apprenticeship. Young people may also choose to study a VET qualification without completing an apprenticeship, for example through JobTrainer, which offers free, or low fee training for any Australian aged between 17 and 24.

Australian apprentices make up only around two per cent of the Australian workforce ^[5] and eight per cent of total participation in the Australian VET sector. ^[6] As such, it is important to consider the impact of shifting apprenticeship incentives as one component of the broader economy. For example, a reduction in estimated apprentice and trainee commencements does not cause a reduction in job opportunities, rather a reduction in the use of an apprenticeship or traineeship pathway to develop a skilled workforce. Jobs will still be available, and demand of labour will still exist but there will be greater competition for skilled and qualified labour, rather than employers investing in workforce development.

The pricing elasticity research used in this RIS seeks to estimate the impact of incentive levels and various support models, and to determine anticipated changes in apprentice commencements, that is to ascertain at what point employers believe it is worth the cost to take on an additional apprentice.

Importantly, the impact is different depending on the occupation that the apprenticeship or traineeship leads to. In particular, for some occupations, an apprenticeship is the primary entry pathway and may be mandated as part of the industrial relations system. A drop in commencements in those occupations will likely lead to skill shortages in the future. However for occupations where there is an optional traineeship pathway, a reduction in traineeship commencements may not necessarily result in skill shortages in the future, with employers electing to train staff in other ways outside of the formal traineeship model.

1.5 Incentives for Australian Apprenticeships

Since the Australian Government first delivered incentives for apprenticeships in the early 1960s, various rebates, subsidies, and incentive payments have been introduced, altered, or removed with differing goals depending on the policy objectives of the day. These have included commencement and completion payments for both employers and apprentices, wage subsidies and additional incentives for employers of specific cohorts, such as women and disadvantaged or long-term unemployed job seekers, as well as incentives aimed at specific skill areas, such as sports and technical education.

Australian Apprenticeships Incentives Program

Introduced in 1998, the AAIP sought to increase apprenticeship commencement and completion rates through the provision of a standard set of incentives and additional incentives for specific cohorts such as women in non-traditional occupations and apprentices with a disability.

Since the introduction of the AAIP, changes have been made to the program to respond to shifting policy priorities, economic cycles and emergency situations. Over time, the AAIP has included incentives targeted to:

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Meet specific skills shortages, both with a national and local focus;

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Grow skills in emerging policy priority areas;

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Support apprentices with costs associated with their work, such as protective equipment and tools;

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Include disaster recovery initiatives;

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Eliminate poaching (the employer's completion incentive payment had to be shared with other businesses making a major contribution to training the Australian Apprentice);

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Appeal to small and medium businesses; and

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Include employers of specific cohorts, such as school-based apprentices, mature-aged apprentices, women, apprentices with a disability, apprentices with a rural or regional background and Indigenous apprentices.

Incentives have been delivered through a combination of wage subsidies, flat rate payments, vouchers, loans and rebates. These supports have also varied in eligibility and administration. Alterations to the program and the addition of new payments have resulted in today's complex AAIP framework that includes over 30 payment types that primarily target employers.

AAIP: Main support categories

Support for employers:

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Standard and targeted incentives;

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Additional Identified Skills Shortage (AISS) payment;

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Australian Apprenticeships Wage Subsidy (AAWS) trial;

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Disabled Australian Apprentice Wage Support (DAAWS); and

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Boosting Apprenticeship Commencements (BAC) and Completing Apprenticeship Commencements (CAC) measures.

Support for apprentices:

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In-Training Support (ITS);

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Additional Identified Skills Shortage (AISS) payment; and

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Living Away From Home Allowance (LAFHA).

Specific information on current incentives for apprentices can be found at Attachment B.

Delivery of the Australian Apprenticeships Incentives Program

The AASN delivers the AAIP on behalf of the Australian Government. The AASN is responsible for delivery of all Australian Government apprenticeship programs, including payments under the AAIP and Trade Support Loans (TSL).

With over 400 locations nationwide, the AASN provides two service types to employers and apprentices throughout the apprenticeship lifecycle:

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Universal services for clients, including essential administrative support, payment processing and regular contact; and

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Targeted services, also known as gateway and ITS, that provide services such as mentoring for both employers and individuals requiring additional support to complete the apprenticeship.

Core services currently provided by AASN providers include undertaking and processing apprentice sign-ups to Training Contracts, facilitating access to Australian Government incentives and TSL, as well as marketing apprenticeships. Additional services include gateway screening services to support individuals interested in pursuing an apprenticeship pathway, and ITS to assist apprentices and trainees currently in training, to complete their apprenticeship or traineeship. The AASN provides free tailored support to new and existing apprentices and their employers, as well as those deciding on a career pathway.

COVID-19 economic response measures

The Supporting Apprentices and Trainees (SAT) and BAC wage subsidies were introduced in 2020 as short-term measures to support and protect apprenticeships during the COVID-19 pandemic. These interventions recognised that apprentices and trainees are often the first to lose their job during times of economic downturn and that many businesses are reluctant to take on new and/or inexperienced workers during uncertain economic situations.

Introduced in March 2020, the SAT was a retention measure designed to shield apprentices and trainees from the economic fallout of the COVID-19 pandemic. The estimated $1.4 billion expended on SAT contributed to retaining around 134,500 apprentices since its introduction. Early program data shows apprentices whose employers attracted the SAT wage subsidy were around 65 per cent more likely to complete and were twice as likely to resume their apprenticeship or traineeship from suspension than those eligible for SAT but who did not claim it. ^[7] The SAT ceased on 31 March 2021.

Announced in October 2020, the BAC wage subsidy is targeted at encouraging apprenticeship commencements during the COVID-19 economic recovery period and seeks to create apprenticeship pathways and new opportunities for school leavers, job seekers and those looking to change careers. The BAC wage subsidy provides support for 50 per cent of apprentice or trainee wages (up to $7,000 per quarter) and is paid to employers quarterly in arrears. The BAC is a broad-based wage subsidy available to apprentices and trainees undertaking Certificate II or higher qualifications in both trade and non-trade areas and can be accessed by employers taking on new workers or seeking to reskill and upskill their existing workforce.

Since the introduction of the BAC in October 2020, the number of Australian Apprenticeship commencements has increased significantly. In the first three months of the BAC, commencements more than doubled (71,335 commencements compared to 28,705 October to December 2019). ^[8] In 2022, the program continues to support an increase in commencements. NCVER reports a 59.5 per cent increase in commencements for the 12-month period ending 30 June 2021 when compared to the previous year. ^[9] The BAC will close to new commencements on 31 March 2022.

In October 2021, the Australian Government announced the CAC wage subsidy to ease the transition for all BAC eligible employers by providing transitional support for the second and third year of an Australian Apprenticeship.

Under this measure, eligible employers will receive a wage subsidy of 10 per cent of wages paid to an eligible apprentice or trainee in the second year of their apprenticeship, to a maximum of $1,500 per quarter, per apprentice. In the third year, eligible employers will also receive a wage subsidy of five per cent of wages paid to an eligible apprentice or trainee to a maximum of $750 per quarter, per apprentice.

The incoming Incentives for Australian Apprenticeships program

In the 2019-20 Budget the Australian Government announced it would simplify and streamline incentive payments by replacing the AAIP with the Incentives for Australian Apprenticeships (IAA) program on 1 July 2020. The IAA would introduce a simplified payment structure, significantly reduce number of payment types, and streamline eligibility requirements to make it easier for employers to understand and claim incentives. The introduction of the IAA was delayed until 1 July 2022 to minimise disruption for employers and apprentices during the COVID-19 pandemic. During this time, the AAIP has remained in place to continue to provide support to employers and apprentices.