The new Apprenticeship Levy will apply to all employers with an annual pay bill in excess of £3 million and is set at 0.5% of the annual pay bill, paid through PAYE. The purpose of the Levy is to help fund new apprenticeships and will support the Government’s commitment to improving productivity by increasing the quantity and quality of apprenticeships.
The Levy payment will be taken monthly and as the pay bill changes each month, the levy amount collected will change.
Each employer will receive a training allowance of £15,000 to offset the cost against their Levy payment, which will mean in practice that the £15,000 will only be payable on pay bills in excess of £3 million a year (£2,785). This funding will be valid for a period of 24 months and can be used to pay for training and assessment (not salary) of new apprentices within the business.
While some are calling it a tax on business, the main aim is to persuade employers to take on more apprentices. They can be from outside the organisation, but they can also retrain current employees to take the next step on their career ladder, or to change direction. But if some of these companies do not take the levy seriously it would be a real missed opportunity, not just for our country, but for most importantly for those companies themselves to play their part in changing our business culture. So it’s important for your business to get the best return on investment out of the Levy and it is viewed strategically in the short, medium and long term.
Now that the Levy is here, the business should be making monthly payments and if they fail to spend all of the payments, they will go unclaimed and will be lost. The organisation has 24 months to spend the digital funds. What’s more, is that any unclaimed payments will then be available to other businesses looking to spend more.
The Government forecasts that the levy will lead to greater levels of investment in training and employers will be given more influence over how apprenticeships are designed and paid for. This in turn will encourage employers to seek out high quality, relevant apprenticeship training that meets their business needs.
The funds can be spent only on the training for the apprentice. It cannot be spent on recruitment, wages, travel costs or accommodation.
While it is recognised that the traditional apprenticeship programmes are successful and provide proven benefits to both employers and apprentice. The Richards Review in 2013 did identify that there were key areas of the programme where significant improvements could be made to make it more rigorous and responsive to the needs of employers. The proposed reforms were originally set out in The Future of Apprenticeships in England: Implementation Plan, the key measures of this plan aim to:
- Put employers in the driving seat. Apprenticeships will be based on standards designed by employers, making them more relevant and therefore more attractive to existing and new employers.
- Increase the quality of apprenticeships. An apprentice will need to demonstrate their competence through rigorous and holistic assessment. This will focus on the end of the apprenticeship to ensure that the apprentice is ready to progress.
- Simplify the system. The new employer-designed standards will be short and easy to understand. They will describe the knowledge, skills and behaviour (KSBs) that an individual needs to be fully competent in an occupation.
- Give employers purchasing power. Putting control of government funding for the external training of apprentices in the hands of employers, to empower businesses to act as customers, driving up the quality and relevance of such training.
In response to these measures all apprenticeships are being replaced by new Trailblazer Standards that have been created by employers rather than Government. The Apprenticeship Levy is a key element in delivering the Government’s “20/20 vision” which has set an ambitious target of training 3 million apprenticeships starting in 2020.
Spending your levy funds
Apprenticeships are now placed in a band, therefore the apprenticeship will have different levels (similar to what we have now). There will be a limit to how much can be spent on training, as this is dependent on the level that the apprentice is at. The levels start from a minimum of £1,500 and a maximum of £27,000 across the whole apprenticeship. And there is a duty for the employer to negotiate a price with the training provider. If the price is below the cap then all the funding will be covered. If the prices is above the cap then the employer is expected to pay the excess.
What pay will we get back?
The Government has advised that employers that pay into the levy will get back more than they pay in. This is by way of a ‘Top-Up’ of 10% on a monthly basis directly into the Levy account (for organisations based just in England).
What are incentive payments?
Employers employing individuals of 16-18 years old will receive and incentive payment of £1000. If the employer employs 19-24 year olds (who are on a care plan ie who have been in some sort of care provision), will get £1000.
Losing the digital funds
You can choose when you want to start the training. But your funds arrive into the digital account after May 2017. But, they only last for 24 months. In the first year, the employer cannot transfer the unused digital funds (to an Apprenticeship Training Agency). In 2018 you will be able to transfer 10% of the amount of digital funds.
The digital funds are spent before the apprenticeship is completed so you can’t take on any more apprentices
If you spend all of your funds, you will move into ‘Co-investment’. Whereby you will pay 10% and the Government will pay the balance of 90%.
Failure to appoint an individual to manage the apprenticeship scheme and levy fund and to have a levy strategy
As there are these minimum requirements and a levy account to manage. This would be a difficult task for a variety of individuals to keep on top of. Therefore it’s recommended that all apprenticeship programmes have an individual appointed to manage it.
Failure to follow a few of the rules
In order to maintain the digital funds, the SFA (Skills Funding Agency) expects the employer to follow a few basic rules:
- Must be an apprenticeship agreement between the employer and the employee
- Employer is to provide a commitment statement (required by funding rules)
- Apprentice must be working over 30 hrs/wk and paid at least the minimum wage
- Sign the SFA contract and the funding rules and regulations