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APPRENTICESHIP LEVY - BE PREPARED

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Apprenticeship Levy - Be Prepared

The way that Apprenticeship schemes are paid for in England is changing.

From April 2017, a new Apprenticeship Levy will be brought in to ensure that employers contribute to the cost of Apprenticeship training. Large employers will contribute as part of their PAYE, while the latest information from government is that SMEs and independent operators will be required to make a contribution to support government investment to support Apprenticeship training.

The Department for Business Innovation and Skills (BIS) had said that it planned to publish further guidance on the levy in June, October and December of 2016.

However, June has passed, and with it the responsibility for FE, Skills and Higher Education is now under the mandate of The Department for Education (DfE), which means a wider remit for the incoming education secretary Justine Greening.

Under her leadership, the new minister for apprenticeships and skills, Robert Halfon has a huge task ahead of him, tackling a major funding overhaul and skills gaps across many sectors - not to mention the uncertainty following the result of the EU Referendum.

With details on how the funding changes to Apprenticeships will impact on businesses and the economy still pending, in this White Paper, Remit Training’s levy experts review current information about how the Apprenticeship Levy will work in principle and how businesses should still be preparing for any eventual funding changes.

What is the new Apprenticeship Levy?

The Apprenticeship Levy in its current guise was first announced in George Osborne’s 2015 autumn statement when the Chancellor described it as “a huge reform to raise the skills of the nation”.

In essence, alongside the responsibility for creating new Apprenticeship standards, the new levy passes some of the cost of running the country’s Apprenticeship programme to employers. In the current model, all employers operating in the UK with a pay bill over £3m each year will have to make an investment of 0.5% of their wage bill, paid monthly through Pay As You Earn (PAYE), whether they have an apprenticeship training programme in place or not and whether or not they are making a profit. This wage bill calculation must also include any remuneration or profit coming from employment, such as wages, bonuses, commissions, and pension contributions that the employer pays National Insurance Contributions on.

Firms will then receive a levy allowance of £15,000 per year to offset against the levy they must pay. The levy allowance will be calculated on a monthly basis and will accumulate throughout the year with any unused allowance being carried over from one month to the next.

Once an employer has paid the levy, they will be able to access funding for Apprenticeships through a new Digital Apprenticeship Service account. Employers in England will be able to reclaim their levy contributions as digital vouchers to use to cover or subsidise the cost of delivering an Apprenticeship either as an employer provider, or through a registered training provider such as Remit Training.

“It is crucial that the we are able to work closely with potential clients to minimise the financial burden they are faced with while maximising the opportunity for young people up and down the country to take up the opportunity that an apprenticeship provides.”

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An employer with an annual pay bill of £5,000,000 will pay:Levy sum: 0.5% x £5,000,000 = £25,000Subtract levy allowance of £15,000 = £10,000 annual levy payment

An employer with an annual pay bill of £2,000,000 will pay:Levy sum: 0.5% x £2,000,000 = £10,000Subtract levy allowance of £15,000 = £0 annual levy payment

An employer with an annual pay bill of £10,000,000 will pay:Levy sum: 0.5% x £10,000,000 = £50,000Subtract levy allowance of £15,000 = £35,000

Is it worth it?

Simple answer yes! Research has shown that 80% of employers who employ apprentices agree they make their workplace more productive and 75% of employers who use an apprentice programme say it has helped cut their recruitment costs. Figures put the total annual benefit of all apprentices in training at about £1.4 billion to the English economy. And by enabling employers to have a much larger say in the design of apprenticeships, they can ensure that the resulting qualifications focus on the role-specific skills, knowledge and behaviours that they require of the workforce of the future.

What if you want more apprentices?

Some businesses may find that the value of their levy isn’t sufficient to cover the number of apprentices in their current business structure, creating a problem whereby they have to pay their levy bill, plus an additional bill if they want to maintain the number of apprentices they employ.

If a business expects to recruit or train more apprentices than the value of their levy bill, it can apply for co-investment whereby the employer will pay a contribution towards the cost of Apprenticeship training to their training provider and the government will pay the balance.

What is the government doing?

The broadly stated aim of David Cameron’s Government was to raise £3bn a year to meet its target of three million new apprenticeships by 2020. The Government said it wanted young people to see apprenticeships as a high quality and prestigious path to a successful career and for these opportunities to be available across all sectors of the economy. With a change in Prime Minister and Education Secretary, whilst the details may change or be delayed, we believe the Government’s fundamental commitment to apprenticeships and the levy will not.

Trail blazers

One of the most significant changes in the new system is that employers now have the ability to take control of the design and delivery of the apprenticeship training for their sector. Businesses and their trade bodies are being encouraged to develop apprenticeship ‘Trailblazers’ whereby a group of employers develop apprenticeship standards specific to job roles in their particular sector.

New employer-designed standards will replace current frameworks with end-point assessments testing the skills, knowledge and behaviours of the apprentice to ensure they are fully competent in their role. This could take the form of written examinations, interviews or assessments, observed practice in the workplace or simulation exercises.

How should businesses be preparing now?

Remit Training Levy expert Kathryn Gundle says, “The first thing businesses of all sizes need to do is work out if they are liable to pay into the Levy, what their levy payment will be. This may sound straightforward but it’s a little more complicated than simply calculating the value of 0.5% of their total wage bill since payments such as bonuses and car allowances must also be included along with PAYE.

“Neither is it simply a case of taking the total wage bill and calculating an average payment every month. The Apprenticeship Levy will operate on a monthly basis so, for example, at Christmas where a firm might pay an additional bonus to all of their staff, they may see an uplift in their levy payment at that time of year.

“To add further complexity, businesses that have staff based in Scotland or Wales will have to exclude these employees from their total PAYE bill since the Apprenticeship Levy applies only to England. But a percentage of their levy bill will be given to the devolved nations to support their Apprenticeship training. So if a business calculates its bill to be £5000 each month it won’t necessarily receive this amount. To offset this, however, there is an additional 10% levy top up payment from the government based on an organisation’s monthly payment. In the case of £5,000 that would mean an additional £500.

“Once they’ve calculated their levy bill, businesses should think about how many apprentices they wish to recruit and what functions within their business they want to support with Apprenticeships, as this could affect how they choose to deliver the training.

“If a business employs all apprentices in a single site, there may be an argument for that business to act as its own provider, but this decision is not a simple one as there are many levels of risk and complexity involved.

“For businesses spread between multiple stores, branches, restaurants or office sites that are uncomfortable with assuming the risk and compliance involved in delivering their own training, outsourcing to a third party may be a more attractive option. This enables them to benefit from the experience and support network of a professional provider which specialises in training and development.

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“In this case a business with many separate job functions may wish to engage with more than one provider. But remember, only one ‘Prime’ provider can access the digital vouchers and will have to subcontract and work in partnership with other providers.

“Using a recognised training provider does make a lot of sense and if this is the case, there are alternative delivery models that can be considered to offset some cost and ensure a business makes the most of its Apprenticeship investment.

“Really at this stage, many businesses won’t know the answers to these questions and in order to make an informed decision about the most appropriate delivery model for their business, they should take advice.

“Training providers like Remit Training, are able to offer informed advice about the next steps. We make it our businesses to keep abreast of further Government guidance on the Apprenticeship Levy as it becomes available.”

“Really at this stage, many businesses won’t know the

answers. In order to make an informed decision about the

most appropriate delivery model for their business, they should take advice.”