Apprenticeship Levy

The recent changes to apprenticeship funding as well as a range of robust new apprenticeship standards are an opportunity for organisations to achieve a step-change in how they recruit and develop their people. At Damar we are here to help.

What’s happening?

  • A key element of the government’s strategy for improving the nation’s skills and productivity is significant growth in the number of people starting apprenticeships, with a target of three million between 2015 and 2020 (up from 2.4 million).
  • To stimulate demand and pay for this growth, significant changes have been made to apprenticeships and how they are funded:
    1. New employer-designed apprenticeship standards (including some up to post-graduate level) are being created. About 350 new standards are being developed currently. At Damar, we are already actively involved in the development and delivery of several apprenticeship standards.
    2. Most of the funding now comes from larger employers who pay the “apprenticeship levy” (a new payroll tax). These employers can then use the money in their levy accounts to pay for apprenticeship training. Unused levy receipts will be used to support apprenticeships in smaller organisations.
    3. Most public-sector employers are now expected to demonstrate progress towards an apprenticeship quota set at 2.3% of their workforce.
    4. Smaller employers, as well as larger employers who have spent all of their levy, can access a 90% subsidy for apprenticeship training. So, an apprenticeship standard with fee of £5,000 will only cost £500.

For apprentices enrolled up to 30th April 2017, the old funding arrangements apply through to the end of their apprenticeships. The old apprenticeship frameworks are gradually being replaced by new apprenticeship standards.

Since May 2017, government funding for apprentices starting on the “old” frameworks has been reduced, in many cases by 30%. This is to encourage take-up of the new standards.

What do employers need to do?

Levy paying employers need to set up their accounts on the Apprenticeship Service – this will enable them to manage their funds and buy training and assessment services from approved providers. The registration process as well as links to other supporting documents can be accessed here:

There is also a video guide to the new system here:

We would also strongly recommend that employers' apprenticeship leads take a look at the detailed Apprenticeship Funding and Performance Management Rules 2017 to 2018 and, in particular, the “Rules and Guidance for Employers”. These rules govern many aspects of the relationship between levy-paying employers, the government and providers. Whilst they are not contractually binding on non-levy payers, similar rules also form part of providers’ contracts with the government and so are likely to be incorporated in the agreements between smaller employers and providers.

Some of the main features of the new funding environment are summarised below.

The Apprenticeship Levy - a summary

  • For apprenticeship starts from May 2017, most apprenticeship funding comes from an employer levy set at 0.5% of UK payroll.
  • All employers receive an allowance of up to £15,000 to set against their annual contribution. This means that the first £3m of an organisation’s annual payroll is excluded from the levy.
  • Deductions are taken monthly through Pay As You Earn. The first payment was made in May 2017 by reference to employers’ April 2017 pay bills.
  • Employers then draw down their levy spend from a new digital apprenticeship account to fund the external costs of apprenticeship training.
  • If not used, the electronic funds expire after 24 months.
  • Employers receive an automatic 10% top up. So, a £1,000 levy contribution becomes £1,100 of digital apprenticeship funds.
  • Where apprentices are aged 16-18 on enrolment, it is recognised that there can be additional costs for both employers and providers, so there is an additional £1,000 payment for employers and providers (so, £2,000 in all) for each 16-18 year old apprentice that is recruited.
  • In calculating UK payroll, groups of companies under common ownership are treated as one.
  • All UK employers - public and private sector - are in scope but, at present, the levy can only be spent to support apprentices who work in England more than 50% of the time.
  • Larger public sector employers have a statutory apprenticeship target set at 2.3% of their workforce. Apprenticeships now feature in all public-sector contracts lasting over a year and worth more than £10m.
  • Employers’ NI contributions for apprentices aged under 25 have been abolished.
  • Apprentices are expected to spend at least 20% of their time training (this is defined quite widely).

Non Apprenticeship Levy-payers

This includes smaller employers (ie, those with annual pay bills under £3m) as well as larger employers who want to spend more than they have in their digital accounts. These employers pay just 10% of the total cost of the apprenticeship, with the government paying the remaining 90%. The additional incentives for 16-18 year olds also apply to smaller employers.

For businesses employing fewer than 50 people, the government pays 100% of the apprenticeship training costs for 16-18 year olds.

Eligibility for funding

Historically, graduates were ineligible for apprenticeship funding unless the apprenticeship was at Level 5 or above. The new funding rules allow much greater flexibility:

“We will fund an apprentice to undertake an apprenticeship at the same or lower level than a qualification they already hold, if the apprenticeship will allow the individual to acquire substantive new skills and you have evidence that the content of the training is materially different from any prior qualification or a previous apprenticeship.”

This creates exciting opportunities for employers to use apprenticeships to develop graduate talent, particularly in areas such as law, management and accountancy.

Don't forget too that apprenticeships can be used to develop the skills of existing as well as new employees.

Next Steps

If you are an apprenticeship levy-paying organisation that hasn't yet got an apprenticeships strategy in place:

  • Time is of the essence. Ensure that you are registered with the Apprenticeship Service and identify a colleague who will manage your levy account.
  • For larger organisations without a dedicated apprenticeships team, you may find that appointing a training provider partner as lead provider to help you manage the budget and relationships with other providers is useful – we can help you with this.
  • More widely, don't think of the levy as a “pot” that needs spending. Rather, think of it as an investment. As with any investment, you need a business case. So, what are your organisation’s biggest areas of pain or missed opportunity and can apprenticeships be used to address these?
  • Get your senior leadership team and prospective apprentice line managers on-side early. Your provider should be happy to come and speak to them.
  • Don’t forget that apprenticeships can also be used in some cases to upskill existing staff.
  • With your training provider, “map” the job roles in your organisation (particularly at entry level) against the apprenticeships that currently exist or are in development.
  • If you already have apprentices, speak to your provider about the most appropriate qualifications moving forwards. In many cases, there will be a new apprenticeship standard that is a better fit with your needs.

If you are a non-levy paying employer, then our advice is:

  • Don't worry, the changes are good news. In most cases the costs will be broadly the same or less than before and you will be able to access an improved range of apprenticeships.
  • You will be able to use the wider eligibility rules to attract graduates and develop the skills of existing colleagues who were previously ineligible, with the government paying at least 90% of the cost.

How we can support you

We are here to help. As well as keeping our partner employers updated and answering questions about the changes, we are helping organisations:

  • Plan and implement new apprenticeship programmes.
  • Manage the transition to new apprenticeship standards.
  • Identify areas where new standards can be used as a cost-effective vehicle for meeting L&D needs.
  • Manage their Levy budgets, including relationships with specialist training providers.

The needs of every organisation are different though and so, if you have further questions or would like a more detailed discussion about how you can maximise the opportunities that these changes have created or discuss the apprenticeship levy call your usual contact at Damar, give us a call on 0161 480 8171 or email and a member of our team will be in touch.

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