# Does the apprenticeship levy apply to a recruitment agency? The £3 million pay bill test and why temps count > The apprenticeship levy is 0.5% of annual pay bill above £3 million, and agency temps paid through your PAYE count. A worked test for your own agency. - Page to cite: https://aeolookup.com/recruitment/apprenticeship-levy-recruitment-agency-temps-pay-bill-3-million/ - Publisher: AEO Lookup (https://aeolookup.com/) - Section: Recruitment agencies, Running the agency - Published 5 October 2026 - Key fact: The levy is 0.5% of annual pay bill with a £15,000 allowance, which is exactly zero at £3,000,000; at £15 an hour for 37.5 hours over 52 weeks a temp adds £29,250 to the pay bill, so 103 full-time temps on the agency's own PAYE (£3,012,750) is the first headcount to owe anything, and the levy then is £63.75 a year. - Sources: GOV.UK "Pay Apprenticeship Levy" (updated 6 April 2026), including the sections on how to work out your levy and on agency workers, read 2026-10-05. Arithmetic is ours. Not tax advice. Most small recruitment agencies do not pay the apprenticeship levy. A permanent-only desk with six consultants is nowhere near the line. A temp desk is different, because the levy is worked out on the whole pay bill and the temps you pay through your own payroll are part of it. ## The rule GOV.UK sets the levy at 0.5% of an employer's annual pay bill. Every employer gets an allowance of £15,000 a year, £1,250 a month, which reduces what is owed. You cannot carry unused allowance into the next tax year. Put those two figures together and the threshold falls out. 0.5% of £3,000,000 is £15,000, so an employer with a pay bill of £3 million or less owes nothing, and the levy only begins above it. GOV.UK describes it as applying to employers with a pay bill over £3 million. ## What counts as pay bill The pay bill is all payments subject to employer Class 1 secondary National Insurance contributions: wages, bonuses and commission. GOV.UK says it does not include the employer National Insurance itself, benefits in kind, or pay to employees who are not subject to UK National Insurance. For an agency, the part that matters is the page's statement on agency workers: if you are an employment or recruitment agency paying Class 1 secondary contributions on their earnings, those earnings go into your pay bill. So the question is who runs the payroll for each temp: - **Temps paid through your own PAYE.** Their pay counts, in full, including holiday pay and any rolled-up amount. - **Temps paid by an umbrella company.** The umbrella is the employer for that pay, so it is the umbrella's pay bill, not yours. Check this with the umbrella, because who is liable for what under that arrangement is covered in the [IR35 and umbrella guide](https://aeolookup.com/recruitment/ir35-recruitment-agencies-fee-payer-umbrella-liability/). - **Consultants and back office.** Salaries and commission count like anyone else's. - **Self-employed contractors and limited-company contractors.** Not on your payroll, so not in the pay bill. ## The worked sum Take a temp paid £15.00 an hour for 37.5 hours a week for 52 weeks. That is £29,250 a year. Divide £3,000,000 by £29,250 and you get 102.56, so 102 full-time temps on your own payroll stay under the line (£2,983,500) and 103 take you over it (£3,012,750). At 103 temps and no other staff the levy is 0.5% of £3,012,750, which is £15,063.75, less the £15,000 allowance: £63.75 for the year. That is small, but the registration and monthly reporting come with it. A bigger example, since a desk with 103 temps will also have staff. 110 temps at £29,250 plus nine consultants on an average £34,000 gives a pay bill of £3,523,500. The levy is £17,617.50 less £15,000, which is £2,617.50 a year, or about £218 a month. Part-time temps count by what they are paid, not by headcount. If half your temps work 20 hours a week, you need roughly twice as many of them. Add up the payroll rather than counting heads. ## Connected companies GOV.UK says connected companies and charities share one £15,000 allowance, and their pay bills are assessed together for the threshold. A group that runs a separate temp company and a separate permanent company cannot treat each as under £3 million if the two add up to more. You can split the allowance between them as you choose. ## What you do if you are over The levy is reported and paid to HMRC through the monthly payroll reporting you already do, so a payroll provider should be able to tell you the position. Once you pay it, the money can be used for apprenticeship training costs, which is where a firm with a graduate trainee scheme or a resourcer who wants a business qualification can get some value back. The terms for using it are on GOV.UK and we did not check them for this page. ## A five-minute check 1. Take last tax year's total of gross pay from your payroll summary, temps and staff. 2. Remove anyone paid through an umbrella. 3. If the total is under £3 million, you owe nothing and the allowance is irrelevant. 4. If it is within 10% of £3 million, work out the next 12 months with the temps you expect to add, because a good quarter can tip you over. 5. If you are over, ask your payroll provider whether you are registered. Growth is where this bites. An agency that has just won a managed-service contract can add 40 temps overnight, so the pay bill is worth checking against the pipeline, not only against last year. The [temp margin calculator](https://aeolookup.com/recruitment/temp-margin-calculator-charge-rate-employer-costs/) shows the employer costs of one temp, and the levy is not one of them until the total crosses the line. Overlyft ![](https://aeolookup.com/img/d/ours-badge.png) can set up an AI Compliance Clerk that totals the payroll each month, strips out the umbrella-paid temps and tells you how far you are from £3 million, so the first you hear of it is not a letter. This page is general information, not tax advice. --- ![](https://aeolookup.com/img/d/owner-line.png) General information for UK small firms, not legal, tax or financial advice.