The apprenticeship levy, which the Government hopes will help create three million new apprentices by 2020, is due to come into force in April.
Introduction
There is no doubt that apprenticeships are a valuable part of the UK economy, with much of the business community initially welcoming a chance to develop this route into the workplace. It is worth noting:
- Apprentices can be anyone over the age of 16 not in full time education.
- Apprenticeships can be for school leavers, or those who are seeking to start a new career.
- Many of the protections for young workers in the Working Time Regulations will apply to apprentices.
There are 3 levels of Apprenticeship:
- Intermediate Level Apprenticeships – apprentices work towards work-based learning qualifications, such as a Level 2 Competence Qualification; Functional Skills; and in most cases, a relevant knowledge-based qualification.
- Advanced Level Apprenticeships – apprentices work towards work-based learning, such as a Level 3 Competence Qualification; Functional Skills; and in most cases, a relevant knowledge-based qualification.
- Higher Apprenticeships – apprentices undertake a framework at Level 4 and above, which will include a Competence-based Qualification; Functional Skills; and in some cases, a broader vocationally related qualification, which could be a Foundation degree.
Recruiting apprentices means a commitment to train and guide an apprentice as they learn to do the job in your working environment. To do this, you need to provide them with planned, structured training that will help them learn on the job. The training should be practical, logical and reflect the level and content of their college work.
You also have a commitment to treat them fairly as an employee. This means paying them a fair wage in line with industry standards, the NMW, as well as giving them the same benefits and entitlements as your other employees.
Employers will be able to spend apprenticeship levy funding on apprenticeship training and end-point assessment (the assessment of apprentices by an independent organisation, 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 not be able to use the apprenticeship levy to fund other costs of apprenticeships, or other training costs. Government guidance states that the levy cannot be spent on:
- wages;
- statutory licences to practice;
- travel and subsidiary costs;
- managerial costs;
- traineeships;
- work placement programmes; or
- the cost of setting up an apprenticeship programme;
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 for apprenticeship funding in England comes into effect on 1 May 2017.
Employers looking to employ apprentices should note that, if they are in a sector which has an approved apprenticeship standard, they must use a prescribed form of “approved English Apprenticeship Agreement” which complies with the conditions set out in the Apprenticeships, Skills, Children and Learning Act 2009. We can supply such Agreements, so please contact us.
Levy
The levy, which will raise an estimated £3 billion by the end of this Parliament, could have serious consequences for employers, many of whom see it simply as an additional tax. Regardless of such views, employers have just less than two months to prepare for the levy coming into force, which is not helped by the fact that the Government is still consulting on the details.
The Government estimates that 2% of UK employers, approximately 22,000 organisations, will be required to pay the levy. It is worth noting that it is not just large employers who will be affected. Some smaller employers will be impacted, as a workforce of 100 people and an average salary of just over £30,000 will take businesses over the threshold. If businesses have an annual payroll cost of less than £3 million, then they will not be required to pay the levy. For employers that have more than this, however, there will be a 0.5% tax on the total pay bill, which will be paid through Pay As You Earn.
Employers in England that pay the levy will be able to access the funds they have paid in via a new online portal called the Digital Apprenticeship Service (DAS). They will also receive a 10% top-up from the Government to their total monthly contributions in England. Any training must be provided through an accredited provider. Only employers in England will be able to benefit from the DAS.
The Apprenticeship Levy will need to be reported each month on the Employer Payment Summary (known as the EPS) and should include the following:
- the amount of the annual Apprenticeship Levy allowance which has been allocated to that PAYE scheme
- the amount of Apprenticeship Levy you owe to date in the current tax year
HMRC have confirmed that it is not necessary to report Apprenticeship Levy if the employer has not had to pay it in the current tax year. The levy will not affect the way you fund training for apprentices who started an apprenticeship programme before 1 May 2017. You’ll need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.
Calculations
The Government is introducing a ‘levy allowance’ of £15,000 per year. This means that the total amount you need to spend, if you qualify, is 0.5% of your pay bill, minus £15,000.
Work out what your total pay bill is. This is made up of the total amount of your employees’ earnings that are subject to Class 1 National Insurance contributions. Employees’ earnings include any money they make from employment, such as:
- wages;
- bonuses;
- commissions;
- pension contributions;
The levy is not charged on other payments to employees, such as benefits in kind. You should then work out what 0.5% of your total pay bill is, and then subtract the £15,000 allowance.
For example, an employer with an annual pay bill of £5,000,000 will need to spend £10,000 on the levy:
- Levy sum: 0.5% x £5,000,000 = £25,000
- Subtracting levy allowance: £25,000 – £15,000 = £10,000 annual levy payment
Preparations
Although some aspects of the changes to apprenticeships remain unclear, there are steps employers can take to prepare themselves for the introduction of the Levy. Employers who do not currently use apprentices, but who are likely to be net contributors to the Levy, should consider how best to use their Levy allowance so:
- Check the likely Levy contribution, and try to work out how much you will have to pay;
- If appropriate, consider how the Levy payment will be split across any Group companies, and how the funds will be allocated where the Group has multiple employers;
- For employers with operations in Northern Ireland, Scotland and Wales, consider what your ‘English fraction’ will be;
- Establish what apprenticeship funding you will receive from April 2017, including the value of any top-ups, and consider what your training obligations will be against funding and Levy spend;
- Decide who in the business will be responsible for managing the access to the DAS;
- For Levy paying employers, you can register with DAS from January 2017 to get used to the new system before the Levy is introduced in May 2017;
- For some employers, it will be essential to ensure that they have the financial capability to pay the levy;
How can the Apprenticeship Levy work for you?
It is possible that many employers will not recoup the levy that they pay, and will, therefore, simply see it as another employment tax, particularly those that have no need for structured training that could fall within the scope of an apprenticeship scheme.
Be proactive and identify areas in an organisation where training is most needed, to ensure that the apprenticeship levy works in favour of your organisation.
Find an appropriate training provider with a proven track record.
Ensure you have an appropriate agreement (contract) for each apprentice.
Employers that do not pay the levy will still be able to access Government support for apprenticeships.
There is an opportunity for other employers to get out of the levy more than they pay in, if they take the time now to look at their learning and development needs, and ascertain what could fall within the structure of an apprenticeship.
ACAS identify four reasons why employers should recruit apprentices:
- 90% of businesses engaging apprentices report improved productivity.
- Apprenticeships allow employers to fill skills gaps and reduce recruitment costs.
- The Government estimates that employers can recoup their investment within two years.
- They are the building blocks of the future, with new ideas and skills.
Additionally, employers should think more broadly than the immediate view of an “apprenticeship” as something for young starters. Consider what training has been have put off because of the possible cost, and ascertain what could be done by way of introducing apprenticeship to gain the best value from this new levy.
You are welcome to contact our Consultants who would be pleased to advise you on any element of the issues arising from this newsletter.
