How can businesses prepare for the new Apprenticeship Levy? The Government wants to increase the number and quality of apprenticeships in the UK to address what it sees as a, ‘critical need for millions of new technical and professional skilled workers over the next decade’ . Part of its plan to achieve this is the introduction of the Apprenticeship Levy that will come into force on 6th April 2017. There has been a rise in the number of apprenticeship in recent years. In 2015/16, a total of 509,400 new apprenticeships started in England, an increase of 9,500 compared with the previous year. But the Government has set a target of three million apprenticeships in England by 2020, and it hopes that the Apprenticeship Levy will help to achieve this. Who will pay the Levy? The levy will require employers with a paybill of more than £3 million a year (around 2% of businesses in the UK), to pay 0.5% of this to fund apprenticeship costs. All businesses that pay the levy will have access to their contribution to pay for apprenticeships in their business. In addition, employers in England will receive a 10% top up from the government. The levy will apply to employers across the UK, however, each of the UK nations will manage their own apprenticeship programmes, including how their funding is spent. The apprenticeship service will support the English apprenticeship system, with Scotland, Wales and Northern Ireland having their own arrangements for supporting employers to access apprenticeships - these arrangements have not yet been finalised. Employers that operate in England and that pay the apprenticeship levy will be able to access funding through a digital apprenticeship service account. Each employer will be able to register its own individual account, linked to its PAYE scheme. The Government will pay funds into individual accounts monthly. The employer can use the money to pay for the training and assessment of apprentices in England. Employers that do not have to pay the levy will still be able to access government funding to help towards the costs of apprenticeships. Are employers ready?
legislation. New research from XpertHR’s Young Workers Survey 2017 found that many smaller businesses are unprepared for the levy, even though many of them may well have to pay it, and that the levy is unlikely to result in a major change to the number of apprentices taken on by smaller businesses. The research found that while two-fifths (39.2%) of employers surveyed see the levy as an opportunity either to increase their recruitment of young apprentices or to take them on for the first time, 37.9% say that it will have no impact on their recruitment of young workers in particular. A breakdown of survey data by organisation size suggests that small and medium-sized enterprises (SMEs) may be less well prepared for the impact of the levy, while large employers are more likely to be putting plans in place to use young apprentices to cover the cost of the levy. Just over half (53%) of medium-sized employers and a quarter (25%) of small employers say that the levy will result in them either increasing their use of young apprentices or employing them for the first time. This compares to three-fifths (60%) of employers with more than 1,000 staff planning to either to increase the recruitment of young apprentices or to take them on for the first time. It’s possible that some SMEs will find they need to increase their recruitment of apprentices in future in order to benefit fully from the levy they have paid. Other research from XpertHR on the impact of the apprenticeship levy found that almost three-quarters of medium-sized employers (with 250 to 999 employees) and 29.3% of small employers (one to 249 employees) expected to pay the levy due to the size of their wage bill. This compares to 81.1% of large employers – those with more than 1,000 staff – who will be liable. Skills shortage in the UK According to a Government report , ‘English Apprenticeships: 2020 Vision’, despite the skills shortages reported by employers, the investment of UK employers in training is low compared to our international competitors and there has been a rapid decline in this kind of training over the last 20 years.
A recent City & Guilds survey that found a third of employers who must pay the new levy are not aware that it exists, and out of those that were aware of the levy, only a third felt “fully informed” about how the resulting employer-led system will work.
Apprenticeships are one way for companies to address any skills shortages they have, and the levy is an opportunity for all employers, especially those that haven’t traditionally taken on apprentices, to think about how their business could benefit from introducing apprenticeships.
There is also uncertainty about how prepared businesses are for the new
Apprenticeships are a valuable part of the UK economy, and many employers
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are successfully using them as a way of boosting the skills of their employees. As well as ensuring they have the financial capability to pay the levy, it’s also important that organisations are proactive, and they identify areas where training is most needed, to ensure the apprenticeship levy works in favour of their organisation. Businesses could also think more broadly about apprenticeships and not just use them to recruit new starters. Other training that they have perhaps put off due to cost could be undertaken as an apprenticeship, providing it meets the new criteria set out by Government. What can the Apprenticeship Levy funding be spent on? Employers will be able to spend apprenticeship levy funding on apprenticeship training and endpoint assessment (the assessment of apprentices by an independent organisation is required before they can complete the apprenticeship), either under an apprenticeship standard or an apprenticeship framework. The funding can be spent only with an approved training provider or an approved assessment organisation. Employers will have 24 months in which to spend their levy funds – although they will be reminded when funds are about to expire. The Government has also said that it recognises that some employers would like to fund apprenticeships for other employers, for example, those in their supply chain. Therefore, from 2018 the Government has committed to allowing employers to transfer 10% of their funds to another employer or to an apprenticeship training agency. Employers will not be able to use the apprenticeship levy to fund other costs of apprenticeships or other training costs, and Government guidance states that the levy cannot be spent on such things; as wages, travel and subsidiary costs, managerial costs, traineeships, work placement programmes or the cost of setting up an apprenticeship programme. Apprentices are entitled to be paid the national minimum wage, with the rate applicable from 1 April 2017 set at £3.50 an hour. Also, employers will not be able to use the levy to fund apprentices who have already been accepted onto an apprenticeship programme before the new system funding in England comes into effect on 1st May 2017. XpertHR offers guidance on the apprenticeship levy. Further information can be found at: www.xperthr.co.uk/editors-choice/ apprenticeship-levy/155333/ Sheila Attwood, Managing Editor, Pay and HR Practice, XpertHR