In 2017, the UK has seen the most significant reform changes for apprenticeships in the past two decades come into effect.
Apprenticeship reforms will affect employers of all sizes. Large employers, with an annual pay bill of more than £3m, now have to pay an apprenticeship levy .
The purpose of the levy is to encourage employers to invest in apprenticeship programmes and to raise additional funds to strengthen apprenticeship programmes.
Smaller and medium-sized employers are also affected by the reforms.
Apprenticeships and skills minister Robert Halfon said: “We know that apprenticeships give people of all ages and all backgrounds the skills they need to succeed. That is why more than 90 per cent of apprentices stay in employment after their scheme ends.
“It’s fantastic to see so many SMEs are already taking advantage of the programme ensuring they get the workforce they require, but we must do more to encourage other SMEs to come on board and hire apprentices.”
For employers, the introduction of the apprenticeship levy, while offering many benefits, may also bring a level of uncertainty. Here, we explain everything you need to know about the new reforms.
What is the apprenticeship levy?
The Apprenticeships Levy is a payment that will be collected from large employers in both the public and the private sectors.
Businesses with a wage bill of more than £3 million will be required to pay a levy. Businesses that pay the levy can also access funding for their own apprenticeship training.
All employers will now benefit from the new apprenticeship levy. In the past employers only received funding for 16- to 19-year-olds, which meant that employers would be required to fund the learning of apprentices over 24 or in some cases apprentices would have to fund their own study. The recent changes now mean that the Government fund will pay for 90 per cent of the learner’s cost, with the employer paying the remaining 10 per cent.
How much is the levy?
The levy amount is 0.5% of a company’s payroll, and every employer gets an allowance of £15,000 to offset against the amount they owe.
How will it work?
The levy will be collected by HM Revenue and Customs monthly through Pay as You Earn (PAYE). It can then be accessed by employers through an online digital service account.
The government also contribute to the funds paid: for every £1 that enters a business’ digital account, it gets an additional 10 pence.
Employers can use the online digital service to pay for apprenticeship training for apprentices that work for at least 50 per cent of their time in England, which will be limited up to certain maximum funding bands. When the apprentice training starts, funds (in the form of vouchers) will be taken from the account.
The levy will not affect the way businesses fund training for apprentices who started an apprenticeship programme before 1 May 2017. They will need to carry on funding training for these apprentices under the terms and conditions that were in place at the time the apprenticeship started.
If you are a levy-paying employer, you can now create an account with the government online apprenticeship service to:
- receive levy funds for you to spend on apprenticeships
- manage your apprentices
- pay your training provider
- stop or pause payments to your training provider
Visit the Government’s guide to apprenticeship funding
Why businesses need to embrace the benefits of the Apprenticeship Levy
There’s an age old myth that apprenticeships cost businesses a lot of money and there’s no point in a small business even considering hiring one. This is a big misconception, according to Alec Richards, training and partnership manager at Business West, who shares his thoughts here on why small businesses hold back from hiring an apprentice.
“We’ve entered a new era for apprenticeships and with the new apprenticeship reforms there’s never been a better time than now to get an apprentice on board.
Let’s first address the reasons why small businesses may hold back from hiring an apprentice.
1. It’s too expensive
For any business, the biggest concern to hiring an apprentice will be how much it will cost; however it costs a lot less than you think and is actually an affordable way to recruit and train an employee.
Small businesses don’t need to pay into the Apprenticeship Levy system that begins in May 2017. The government asks that businesses considering hiring an apprentice, with a salary bill of less than £3 million, to co-invest 10 per cent of training costs, with the government funding the remaining 90 per cent.
Small businesses are also eligible for extra support through funding bands and Apprenticeship Grants for Employers (AGE). This is determined by the age of the apprentice and the number of employees your business has; it must be less than 50.
2. I don’t have time to train them
One thing small businesses don’t realise is there’s a lot of support available to take the pressure of an apprentices’ journey. If you’re considering an apprentice, you’ll need to connect with a training organisation that can help you with all of this, from identifying the type of apprenticeship that fits your business requirements, to the recruitment process. Remember; an apprentice spends 20 per cent of their time off-the-job learning developing their skill requirements for a role in your business too.
Apprentices can also give your business a productivity boost, with 75 per cent reporting that employing an apprentice has improved the quality of their product or service. Also, Learn Direct research has shown that apprentices increase productivity by as much as £214 a week. That’s £11,000 a year; not bad for someone you thought you didn’t have time to train.
3. They won’t stick around for long
Many fear that they’ll spend time and money training someone up, for them to leave soon after. It’s an understandable fear but with the right work environment and support, an apprentice will feel more comfortable staying in a company that puts employee needs first. In fact, 77 per cent of apprentices have stayed with the same employer, after completing their apprenticeship.
4. I don’t know how to hire an apprentice
This is where Business West can help. Business West have recently launched a new programme – Skills West – which provides free advice on grow your business through skills development and solve your skills challenges. Dedicated sector specialises will connect you with local and national training providers who will support you in starting the process for hiring an apprentice.