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Jonathan Bourne

Damar Training

Managing Director

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Apprenticeship levy: how to get the most out of it

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The Government has been very vocal in its support for apprenticeships. Over the next five years, it has promised that a further three million will be created. Moreover, new trailblazer qualifications are being introduced to increase apprenticeships’ rigour and their relevance to employers’ needs.

However laudable these goals, they create a tension, particularly at a time of budgetary restraint. Between 2010 and 2015, more than 2.4 million apprenticeships were begun, but just over a million of these were undertaken by adults aged 24 or over, most of whom were already in employment.

The minimum duration of apprenticeships is now a year and a day. However, some of these historic apprenticeships were completed in as little as three months. Numbers were also skewed by individuals progressing from one level of apprenticeship to another.

In the era of trailblazers, there will also be fewer instances of multiple apprenticeships, making the three million target even harder to reach.

Moreover, the number of 16 to 24 year olds undertaking apprenticeships has remained stuck at around 280,000 for several years – start to see the challenge?

Introducing – the levy

In July’s Budget, George Osborne announced the creation of an apprenticeship levy – an additional payroll tax – which this week’s Autumn Statement revealed will start to bite in April 2017. From then, the majority of apprenticeship funding will come from an employer levy set at 0.5% of UK payroll, which will affect all employers, including those within the public sector, with annual UK wage bills of £3m or more. Groups of companies under common ownership will be treated as one.

0.5% of payroll will generate more money than the Government currently invests annually in apprenticeships and although the percentage may sound modest, the impact on profits, particularly for organisations that employ a high volume of staff, could be significant.

Take for instance, a business that has an operating margin of 10%, but payroll costs amounting to 60% of turnover. In this case, 0.5% equates to 3% of operating profits. For a business working on tighter margins or with higher staff costs, the potential impact will be greater.

Deductions will start to be taken monthly through Pay As You Earn (PAYE) from April 2017.

What’s in it for businesses?

All employers will receive an allowance of up to £15,000 to set against their annual contribution, meaning that the first £3 million of an organisation’s annual payroll is excluded from the levy.

Contributing employers will have a virtual account from which they can withdraw funds in the form of electronic vouchers to fund the external costs of apprenticeship training.

All UK employers – public and private sector – are in scope but, at present, only employers in England will be able to access the money. The Government is developing a new Digital Apprenticeship Service that will manage the funding system and help employers advertise apprenticeship vacancies and find suitable providers.

The virtual funds will be available for a limited amount of time and it’s likely that employers will have two years to spend the money. Employers who use all of their levy pot will be able to get their accounts topped up for free, probably by up to an extra 10%.

Time is ticking

The first challenge we are expecting for HR colleagues is to ensure that their organisation’s levy pot is spent in a way that delivers a measurable return that’s greater than the cost.

One thing to bear in mind is that there isn’t much time – the levy will begin to be collected from April 2017 and the vouchers are time-limited. Therefore, employers who don’t have an apprenticeships strategy in place well before then will be playing catch-up and may end up either spending the money badly or not at all.

The best apprenticeship programmes start relatively small, meaning employers have time to run a pilot now, draw some conclusions and then be in a position to start scaling up once the levy hits.

So, how can you generate a return?

  1. Time is of the essence. If you want to run a pilot and evaluate its success then you need to get the ball rolling straight away.
  2. Don’t think of the levy as a pot that needs spending, think of it as an investment. Consider what your organisation’s biggest areas of pain or missed opportunities are and whether an investment in apprenticeships should be used to address these.
  3. Speak to a few different apprenticeship providers and some of their customers. An apprenticeship programme will get under the skin of your business – you need to work with people you trust and who understand your needs.
  4. Consider what resources you’ll require to arrange internally to manage your programme.
  5. Get your senior leadership team and prospective apprentice line managers on-side early. Your provider should be happy to come and speak to them.
  6. Work out what your monthly contributions will be and calculate the rough number of apprenticeships you business needs.
  7. Don’t forget that apprenticeships can also be used in some cases to upskill existing staff.
  8. With your training provider, map the job roles in your organisation – particularly at entry level – against the apprenticeships available currently, or are in development.

For employers who plan well in advance, achieving an appropriate return on this investment is achievable. It’s all about thinking strategically and starting quickly.

Author Profile Picture
Jonathan Bourne

Managing Director

Read more from Jonathan Bourne
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