UK businesses: Are you ready for the Apprenticeship Levy?

Written by Sheila Attwood on 27 March 2017 in Opinion
Opinion

Is your business ready for the Apprenticeship Levy? Sheila Attwood breaks down how you can benefit. 

Growing the number and quality of apprenticeships in the UK is part of the government’s vision to address what it sees as a ‘critical need for millions of new technical and professional skilled workers over the next decade [1]. In 2015/16, a total of 509,400 new apprenticeships started in England, an increase of 9,500 compared with the previous year. This growth looks set to continue.

The Government plans to increase the number of apprenticeships to three million by 2020. 

To help achieve this, the government is introducing a new Apprenticeship Levy on 6 April 2017 that will change how apprenticeship training and assessment is funded. The levy will be used to help fund apprenticeships for the over 16s in the UK and some employers will be required to contribute. But are employers prepared?

New research has found that while the levy is unlikely to result in a major change to the number of apprentices taken on by smaller businesses, some SMEs might not be prepared for it (even though many of them may well have to pay the levy).

The levy will require employers with a wage bill of more than £3m a year (around 2% of businesses in the UK) to pay 0.5% of this to fund apprenticeship costs. All businesses that pay the levy will have access to their contribution to pay for apprenticeships in their business.

Also, employers in England will receive a 10% top up from the government (details for arrangements in Wales, Scotland and Northern Ireland are not yet available). Employers that do not have to pay the levy will still be able to access government funding to help towards the costs of apprenticeships.

The research found that while two-fifths (39.2%) of employers surveyed see the levy as an opportunity either to increase their recruitment of young apprentices or to take them on for the first time, 37.9% say that it will have no impact on their recruitment of young workers in particular.

Apprenticeships are one way for companies to start to address the skills shortage, and the levy is an opportunity for employers...to think how their business could benefit. 

A breakdown of survey data by organisation size suggests that small and medium-sized enterprises (SMEs) may be less well prepared for the impact of the levy, while large employers are more likely to be putting plans in place to use young apprentices to cover the cost of the levy.

More than half (53%) of medium-sized employers and a quarter (25%) of small employers say that the levy will result in them either increasing their use of young apprentices or employing them for the first time.

This compares to three-fifths (60%) of employers with more than 1,000 staff planning to either to increase the recruitment of young apprentices or to take them on for the first time.

It’s possible that some SMEs will find that they need to increase their recruitment of apprentices in future to benefit from the levy they have paid.

Accompanying research on the impact of the apprenticeship levy found that almost three-quarters of medium-sized employers (with 250 to 999 employees) and 29.3% of small employers (one to 249 employees) expected to pay the levy due to the size of their wage bill. This compares to 81.1% of large employers – those with more than 1,000 staff – who will be liable.

According to a government report [2], ‘English Apprenticeships: 2020 Vision’, despite the skills shortages reported by employers, the investment in training is low compared with our international competitors, and there has been a rapid decline in this training investment over the last 20 years.

Apprenticeships are one way for companies to start to address the skills shortage, and the levy is an opportunity for employers, especially those that haven’t traditionally taken on apprentices, to think how their business could benefit from apprenticeships. 

Apprenticeships are a valuable part of the UK economy, and many employers are successfully using them as a way of boosting the skills of their employees.

As well as ensuring they have the financial capability to pay the levy, it’s also important that organisations are proactive, and identify areas where training is most needed, to ensure the apprenticeship levy works in favour of their organisation.

Businesses could for example think more broadly about apprenticeships and not just see them as a means to recruit new starters. Other training they may have put off due to cost constraints, could be undertaken as an apprenticeship, providing it meets the new criteria set out by government.

 

References

[1] and [2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/482754/BIS-15-604-english-apprenticeships-our-2020-vision.pdf 

 

About the author

Sheila Attwood is managing editor, pay and HR practice at XpertHR

 

​Read more apprenticeship features here

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