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  • International Workplace
  • 4 July 2017
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Will the Apprenticeship Levy take a toll on bigger businesses?

In April of this year, the Government introduced the Apprenticeship Levy, requiring employers across the UK with an annual salary bill of more than £3m to contribute to the apprenticeship pot. The impact of the Levy is unknown as yet, but the following is what we do know is in store for businesses.

The Conservative Government promised three million new apprenticeships by 2020 and therefore need businesses who fit this criteria to pay 0.5% of their annual pay bill into the scheme to fund the growth in apprenticeships. However, the participating employers also gain access to a £15,000 annual allowance to offset this bill.

Example:

An employer with an annual salary bill of £5,000,000

Levy sum: 0.5% x £5,000,000 = £25,000

Minus levy allowance £25,000 - £15,000 = £10,000 annual levy payment

Employers can access the funding they pay for through an online portal to fund apprenticeship training, paid with vouchers, taken from their Levy account. Payments are made up to a maximum banded amount. The Government also adds 10% into the digital ‘pot’ meaning, for example, a company paying £30,000 into the Levy will have access to £33,000.

What about smaller businesses?

Businesses who do not meet the £3m pay bill threshold will have 100% of their apprenticeship training costs covered by the Government’s scheme, if the apprentice is aged 16 to 18. For apprentices aged 19 and over, employers pay just 10% of the training costs of the apprenticeship and the remaining costs are covered by the Government, up to the set banded maximums.

For even smaller businesses, with just 50 employees or less who do not pay into the Levy, there is a further £1,000 incentive to fund apprenticeships for 16 to 18 year olds.

What does this mean for apprenticeships?

Essentially it should mean there is much more funding available, and therefore more of an incentive for employers to provide apprenticeships and train apprentices. For businesses to reap the rewards of their payments, and access the online funding, they will need to hire more apprentices to essentially access the money available that they themselves are contributing to. Excess money from unused Levy payments beyond the 18-month expiry, will be used to contribute to SME apprenticeships.

However, while the Levy covers apprenticeship training costs, businesses will still need to find the money for the additional salaries for these apprentices. This is the same for the smaller businesses; while they can access excess funding from the Levy they will still need to cover wage costs for the additional staff.

While funding is a major part of the reasoning behind the Levy, expected to raise £3bn a year, the intention is that it will also increase the quality of apprenticeships. With increased funding per apprenticeship this should enable better quality training and opportunities. The Government has also started registering apprenticeship providers to make the process more consistent and of a higher standard. This allows employers to choose who their apprentices train with and all providers registered have had to undergo quality testing and Ofsted rating. 

Does this mean we will lose ‘traditional’­­­­ apprenticeships?

Apprenticeship training can currently either be on a new apprenticeship standard or an existing apprenticeship framework. The new employer-developed apprenticeship standard will cover a specific role and set out the core skills, knowledge and behaviours an apprentice will need to be fully competent in the role. Standards are developed by employer groups called Trailblazers. The ‘traditional’ apprenticeship framework involves a series of work-related vocational and professional qualifications with workplace and classroom-based training. These will be phased out between now and 2020 as there is a move towards employer-led apprenticeship standards.

The apprenticeship experience itself will change very little; it is still an opportunity for ‘working, learning and earning’. The rules governing what an apprenticeship is are clear cut: the apprentice must be employed in a real job, must work towards achieving an approved standard, must be employed for at least 12 months and spend at least 20% of their time in off-the-job training. Employers can become training providers themselves or can outsource their requirement to approved training providers.

The model is not dissimilar to our current ‘traditional’ apprenticeship and hopefully apprenticeships will become an increasingly viable alternative to university and aid youth employment. By training apprentices, both young and older, employers are investing in future employment and their industry.

Is there more in store for the Apprenticeship Levy?

Down the line there is also the potential for businesses who are paying into the Levy to redirect their payments to support their suppliers or business ‘friends’. The Government is considering adding this to the scheme after the first year. This could help business relationships as a whole and allow those paying the Levy to take control of their payments and distribute it to businesses they know and support.

The new scheme also promises to cater for those who have been at a disadvantage when accessing apprenticeships with extra funding being set aside for the poorest areas, as well as those who are in or have been in care, young people with special needs; 20% extra funding has also been promised for 16 to 18 year olds.

Fundamentally, the Apprenticeship Levy is here and happening yet the true impact may not be seen for a while. No apprentices have yet completed their training cycle and therefore assessments on the effectiveness of the Levy are yet to be determined. In theory, it should increase access to apprenticeships and investment in future workforces while helping employers train and develop their employees. The financial toll and implications for those paying into the Levy, as well as those smaller businesses who do not have to pay but still have to cover apprentice wages, will also be more apparent after the system has completed its first full year.

Let’s hope this is a positive change for employers and apprentices alike and will fill the future employment market with talented and skilled employees for our future growth.

 

Pam Loch is Managing Partner of niche employment law practice, Loch Employment Law and Managing Director of Loch Associates Group incorporating HR Advise Me, Loch Mediation and Loch Health.

For more information on Loch Employment Law and the Loch Associates Group please go to www.lochlaw.co.uk or www.lochassociatesgroup.co.uk or email Pam at info@lochassociatesgroup.co.uk