The Apprenticeship Levy: the unknown opportunities

The Apprenticeship Levy: the unknown opportunities

Published:

Author: Simon Fennell

Applies to: UK wide

The Apprenticeship Levy comes into force on 6 April 2017 but is not just aimed at educating young people through on the job training. We explore some alternative routes employers can take to recover the cost of this new 'employment tax'.

Background

The Office for National Statistics estimates that the UK is around a third less productive than Germany, France and the USA. Perhaps an even more worrying suggestion is that despite a growing economy and increasing employment, the UK is less efficient and less productive than it was prior to the financial crisis in 2007/8. As part of its drive to increase the UK's productivity, the government aims to increase skills in technical and vocational training through significant investment in 'on the job training'.

Its main strategy for increasing productivity is the introduction of the Apprenticeship Levy - a charge on all employers of 0.5% of their total wage bill in excess of £3m. The levy is payable by all employers regardless of whether they actually use apprentices.

How is it calculated?

Employers who have to pay the levy will receive an allowance of £15,000 each year with the balance of their levy payable to the government. For example, an employer with a total wage bill of £10m will have to pay £35,000 as a levy payment (0.5% of the wage bill (£50,000) less the £15,000 allowance = £35,000).

The wage bill is calculated as the total amount of employee earnings that are subject to Class 1 National Insurance Contributions. The levy will not be charged on other payments to employee such as benefits in kind.

So what is the levy?

The levy is a charge for training that is allocated to a central fund which is accessible by employers through an online government portal ('digital account'). Employers will be able to access funds that they have paid via the digital account in order to fund the cost of all training associated with the employment of an apprentice.

Employers will contract with registered training providers to deliver courses that have been designed with specific job requirements in mind.

Employers will also be able to register as training providers themselves and deliver those courses in house, giving the employer the advantage of tailoring the course to the specific needs of its business (subject to government standards).

What can the money be used for?

The fund can be used to pay for all training (subject to funding band caps - see below) and assessment costs. However the funds cannot be used for wages, travel and subsistence (whether connected to the training or not), managerial costs, traineeships or set up costs.

What if I can't afford to hire an apprentice?

You don't have to. The apprentice label is perhaps rather unfortunate and leads many employers to believe that apprenticeships are only available for younger workers. In reality the levy is all about up-skilling and the term apprenticeship in this context is better identified as a training programme that is potentially relevant to all staff.

That is not to say that employers can simply allocate training to existing staff without any restrictions. In order to be eligible for funding through the levy:

  • the apprentice/employee must be employed in a real job - they can be an existing employee or a new hire;
  • they must work towards achieving an approved apprenticeship standard;
  • the training must be for a period of at least 12 months; and
  • the employee must spend at least 20% of their time on off-the-job training.

An example given in government publications suggests that an experienced employee who has recently been promoted to a managerial position could undertake an apprenticeship in management to assist them with their new role. The 20% of time to be spent on-off-the job training could be their attendance at external training courses with a chosen training provider.

Do I have to enter complicated contracts with my staff?

No. The new apprenticeships do not attract any different status than a typical employee. You are therefore able to use your normal terms and conditions. The only requirement is for the employer and employee to enter into an apprenticeship agreement, a simple short document produced by the government which outlines the promises made by each party to undertake the relevant training.

What courses are available?

All sorts of courses at all levels with more courses becoming available over time. The apprenticeships are known as standards and are split into seven different levels:

Name

Level

Equivalent

Intermediate

2

5 GCSE passes at Grade A* to C

Advanced

3

2 A level pesses

Higher

4, 5, 6 and 7

Foundation degree and above

Degree

6 and 7

Bachelor's or Master's degree


Apprenticeship standards are being developed all the time but already cover over 120 different sectors including: accountancy, actuarial, agriculture, business, construction, digital industries, fashion, financial services, food and drink, healthcare, HR, law, recruitment, surveying and transport.

It is possible to undertake an apprenticeship at a lower level than existing qualifications provided that it satisfies the other requirements. For example, in the management scenario given above, the individual may already be trained to masters (or higher) level but this would not prevent them from undertaking an apprenticeship to gain a qualification at a lower level in a different subject area, provided it was relevant to their role.

I've heard that I can spend more on training than the amount of levy I pay - how?

The government will 'top up' all levy contributions by an additional 10% from public funds. In the example above where the employer paid a levy contribution of £35,000, the government would pay an additional £3,500 meaning that the employer could spend £38,500 with approved suppliers.

In addition, employers wishing to spend more than is available within their online account, can do so with an additional (very generous) benefit. For such training the employer will only need to pay for 10% of the additional cost because the government will pay the additional 90%.

How much is the training?

Each apprenticeship standard will be allocated a funding band which will set the maximum amount that can be paid for that training from the digital account. There are 15 bands that run from £1,500 to £27,000.

Employers can negotiate the amount that they pay for their training with the approved suppliers but the bands will determine the maximum amount of the levy fee that can be spent within each band. Employers are permitted to top up outside of the digital account if they so wish but any such payment will not attract any of the additional benefits otherwise provided under the scheme.

There is no lower limit for each funding band.

Can we provide the training in house?

Yes but, in order to do so you must become an approved supplier. This step will mean that your business would become subject to inspections from Ofsted. However, rather than passing money from your digital account on to an approved supplier, you would be able to directly recover the costs.

How long do I have to spend the money in my digital account?

Money will remain in the digital account for 24 months after which it will be withdrawn.

We do not pay the levy, does that mean we miss out?

No. For all training accessed through the levy scheme, employers who do not currently pay the levy benefit from the same discounts as those who spend more than their levy i.e. they pay 10% of the costs and the government pays the other 90%.

How does this fit with existing apprenticeships?

Existing apprenticeship arrangements will carry on for as long as required but moving forwards they will be replaced with the new standards.

Comment

While the Apprenticeship Levy has been criticised in some quarters as yet another cost for employers, at a time when they are facing numerous other financial pressures, the ability for employers to get something back to enhance their business is an opportunity it seems silly to miss out on. It would be a shame if the 'apprentice' label put organisations off from exploring their options.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the Author

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Simon Fennell

Senior Associate

03700 86 8371

Simon is an experienced employment specialist works with both the private and public sector in relation to contentious and non-contentious work. He provides advice on all aspects of employment law. Simon has many years of experience working with public sector clients but is also the main point of contact for employment advice with a variety of commercial and retail clients, many of which are household names.

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