The Government's new Apprenticeship Levy (the Levy) will see large employers paying 0.5% of their annual wage bill towards the cost of apprenticeship training from April 2017.
All employers with an annual wage bill of £3 million or more will need to pay the Levy. The funds collected will be available to employers via a new Digital Apprenticeship Service (DAS), an online system which the Government envisages will be up and running from April 2017, to fund apprenticeships with approved training providers.
Here, our employment, labour and equalities experts look at how employers can make the most of the new funding for apprentice training and what they should be doing now to prepare.
What is it and how will it work?
The Levy imposes the burden of funding new apprenticeships on larger employers and although the government estimates that only 2% of employers will be affected, for those with large wage bills, the amount may be significant.
The Levy will be 0.5% of an employer's overall pay bill. As each employer will receive a fixed annual allowance of £15,000 to offset against the Levy, effectively, only employers with an annual pay bill of £3 million or more will have to pay it.
Where two or more employers are connected to one another at the beginning of the tax year, only one will be entitled to the fixed annual offset allowance and it will be for those employers to decide between themselves which group company will benefit from the allowance.
HMRC will collect the money via the PAYE system, it will then be ring-fenced for spending on apprenticeship training and made available to Levy paying employers via the DAS. The DAS will enable employers to:
- select an apprenticeship framework or standard;
- select apprenticeship training courses and assessment organisations;
- advertise apprenticeship vacancies; and
- choose the training providers they want to deliver the training.
Levy paying employers will also be able to see the funds they have available to spend and pay for apprenticeship training via DAS.
In the initial consultation, the Government envisaged all employers use the DAS so that small and medium sized employers would also be in control of their apprenticeship spend. However, it has since been confirmed that initially only net contributors will be required to use DAS. Non-Levy paying employers will be required to use DAS to pay for training and assessment of apprenticeships from 2018 onwards, with all employers using DAS by 2020.
Under the draft legislation HMRC will be given power to introduce regulations to deal with the payment, collection and recovery of the Levy as well as obligations around record keeping. The legislation will contain anti-avoidance provisions, such as employers not being able to recover the Levy costs from employees. It will therefore represent a real overhead for employers.
Why is it being introduced?
To fund the Government's target of 3 million new apprenticeships by 2020 and to raise training standards by creating sustained investment in new apprenticeships and increasing the involvement of employers in designing apprenticeships.
The Government acknowledges that employers know better than anyone else the skills they need and the changes aim to put employers in the driving seat, allowing them to choose and pay for the apprenticeship training they want.
What can it be spent on?
The funds can be used on training for apprenticeships (new recruits or existing staff who meet the eligibility criteria) which comply with an approved standard and are delivered by an "approved provider". An employer could deliver the training themselves if they register as an "approved provider" and are subject to Skills Funding Agency quality arrangements and Ofsted inspection.
It can be used to cover the costs of an apprentice's training, assessment and certification only. Employers will not be able to use the funds to cover all possible associated costs, such as wages, learning and development costs, overheads, supervision costs, licences to practise, travel and subsistence costs and workplace programmes.
How will apprenticeships for non-Levy paying employers be funded?
Non-Levy paying employers will be able to choose the training provider and assessment centre for their apprenticeships. They will be required to contribute towards the cost of the training and the Government will pay the rest up to the maximum amounts available for the apprenticeship. The Government has promised to provide more details on the proposed rates of funding in June 2016 and to confirm this by October 2016.
Points to note
In order to use DAS and Levy funding, employers need to know:
How much funding will be available?
This is not yet known, but the Government has confirmed that every apprenticeship standard and framework will be placed in a funding band. Each band will have a funding cap, limiting the amount that can be used towards training and assessment costs over the length of each apprenticeship. Details on the bands are awaited.
Smaller employers will continue to have access to Government funding, called "co-investment" to support apprenticeships. It does not appear there will be any interaction between the amounts levied on larger employers and funding made available to smaller employers.
How top-ups will work
Funding will be made available in the form of digital vouchers which can be used via DAS to buy training from approved providers. The costs of training apprentices may exceed the amounts distributed to employers as a result of the Levy so the Government expects employers may have to make additional payments towards the cost of apprenticeship training.
To ensure employers 'get out more than they pay in' the Government has committed to applying a 10% top-up to monthly funds entering into the accounts of employers who are net contributors and who spend all their Levy. This means for every £1 entering into their DAS account, employers will get £1.10.
Use it or lose it
Any employers' unused allowances will fund the provision of top-ups. The Government therefore intends to apply a 'use it or lose it' approach, with funds expiring 18 months after they enter the employer's digital account.
This will work on a first-in, first-out basis so that where a payment is made from the digital account the funds that entered the account first are treated as used. It is expected DAS will automatically remind employers when their funds are due to expire.
Young apprentices and apprentices with additional needs
Additional incentive payments to assist employers with the extra costs of funding training for 16-18 year old apprentices will be made available via the training provider.
Incentive payments of the same value will be available if an employer recruits an apprentice aged 19 - 24 who has been in the care of a local authority or has a local authority Education and Health Care Plan in place.
It is not clear what the level of additional funding will be.
English and Maths training
Apprentices must have a minimum standard in both English and Maths. Where apprentices need to do an English or Maths course, the Government will pay for this training directly to the training provider.
Supply chain apprentices
The Government is looking at whether it will allow employers to use their Levy funds to fund apprenticeship training for apprentices that are not their employees (for example agency staff or employees of outsourced service providers). We expect further information later this month.
What apprenticeship standards will apply?
The Enterprise Act 2016 which came into force on 4 May 2016 establishes an independent employer-led body, the Institute for Apprenticeships (IoA), to set apprenticeship standards and plans for the assessment of apprenticeship standards and quality of apprenticeship training. The IoA will be and up-and-running in April 2017 when the Levy begins to apply.
A key feature of the Government's policy on introducing the Levy is the simplification of the current apprenticeship frameworks and improving quality by ensuring standardised provision and testing.
In 2013 new "trailblazer standards" for apprenticeships were introduced which see employer groups developing apprenticeship standards which are relevant to their needs. The Government has committed to phasing out the existing frameworks and replacing them with the new trailblazer standards by 2020. The Government intends the new IoA will support employers with the development of apprenticeship standards and regulate the quality of apprenticeships.
Employment law issues
Employers using apprentices should bear in mind they have special legal status. The law recognises the primary purpose of an apprenticeship is training and apprentices have enhanced protection from termination of their apprenticeship compared to regular employees.
Employers' legal obligations towards apprentices will not change but this may be unfamiliar territory for those introducing apprenticeships for the first time.
The provision of training is an employment benefit, so employers will need to be mindful of issues of fairness when making decisions about how to spend their allowance. Discrimination issues may arise where apprenticeship funding is made available to train some groups of employees or job applicants and not others. For example, apprenticeships are typically made available to younger workers and this may give rise to complaints of age discrimination.
It is not yet clear whether apprentices will be caught by gender pay gap reporting requirements which are due to come into force in October 2016.
What should employers be doing now?
Clearly, the success of the system will depend to a great extent on the efficiency of the DAS.
To prepare, employers should consider:
- whether they are likely to be net contributors to the Levy in order to make financial provision for it based on their anticipated wage bill;
- reviewing their use of apprentices in order to plan how best to use their allowance when it becomes available; and
- reviewing their apprentice training requirements in order to identify approved training that will suit their needs.
Larger employers intending to provide a significant number of apprenticeships might consider becoming an approved provider of apprenticeship training so they can run in-house tailor made training although the requirements for becoming an approved provider mean this will involve investment of significant resources.
Look out for further information
The Government has committed to providing further information about the funding of apprenticeships, the eligibility rules governing who employers can spend apprenticeship funding on, requirements for apprenticeship training providers and how to calculate and pay the apprenticeship levy. Further information is expected later this month and in October and December 2016.Our Employment, Labour and Equalities team will report on the new guidance as it is released.
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