What is an apprenticeship?
The Government is very clear on its definition of an apprenticeship which is important when it comes to understanding what the Apprenticeship Levy is about and what it can be used for.
- An apprenticeship is a job with an accompanying skills development programme including workplace learning, formal off the job training and end point assessment.
- Apprentices will gain technical knowledge, practical experience and wider skills they need for their immediate and future careers through a range of learning as well as the opportunity to practise new skills in a real work environment.
- Apprentices must be an employee on the first day of their apprenticeship and be paid, at a minimum, a wage consistent with the law for the time they are in work and in off the job training.
- The apprenticeship must last at least one year or more if specified in the apprenticeship Standard or Framework.
What does the Apprenticeship Levy mean in practice?
- The Levy with apply to all employers operating in the UK, with a payroll bill over £3m each year.
- The Levy will be 0.5% of an employer’s payroll bill, paid through PAYE.
- The payroll bill will cover all employees across the whole of the UK including Scotland, Wales and Northern Ireland.
- For the purposes of the Levy, an ‘employer’ is someone who is a secondary contributor, with liability to pay Class 1 Secondary National Insurance Contributions (NICs) for their employees. Although earnings below the secondary threshold are not counted when calculating an employer’s NICs, they will be included for the purposes of calculating the amount of levy the employer needs to pay.
- The payroll bill (earnings) will include any remuneration or profit coming from employment, such as wages, bonuses, commissions and pension contributions on which NICs are paid. Levy will not be charged on other payments such as benefits in kind, subject to Class 1A NICs.
- The Levy will apply to ‘groups’ of companies but not franchises.
- The Levy payment will be allowable for Corporation Tax.
- There will be a time limit of 24 months within which contributions can be spent.
- The Levy can only be used to pay for the training and assessment of apprentices in England.
How much will the apprenticeships cost?
Each Apprenticeship qualification will have a “cap”; this will be the maximum the Government will fund as part of the Levy. Each organisation will agree a cost per learner for each Apprenticeship up to the level of this cap with the training provider they have chosen.
Employers will need to consider quality as well as cost when procuring Apprenticeship provision, much in the same way they do now for commercial training.
What can and can’t the Levy funds be used for?
The funds in the employer’s digital account can be used for apprenticeship training and end point assessment for its own employees up to the limit of the funding band.
- off-the-job training
- planned on programme assessment and end-point assessment and the costs associated with external quality assurance and certification
- registration, materials, examination and certification where part of the apprenticeship programme
- administration directly linked to the training, education and end-point assessment
- funding to retake qualifications provided additional learning takes place
- accommodation costs for residential modules where this is a requirement for all apprentices
- participation in skills competitions directly contributing to the achievement of the apprenticeship standard as agreed between the employer and the provider
- To be eligible for funding, apprentices must (including but not limited to) have the right to work in England, spend at least 50% of their working hours in England and work for the employer or a connected company as defined by HMRC
- Levy funds can be used to fund an apprentice to undertake an apprenticeship at the same or a lower level than a qualification they already hold if the individual will acquire substantive new skills and the content of the training is materially different from any prior qualification or a previous apprenticeship
Levy funds cannot be used on other costs associated with the apprenticeship, including:
- management, traineeships, work placement programmes or the costs of setting up an apprenticeship programme
- enrolment, induction, prior assessment or diagnostic testing
- accommodation costs because of day-to-day work requirements
- travel costs
- personal protective clothing and safety equipment
- capital purchases
- optional training modules or education trips in excess of those required to achieve the standard or framework
- resits where no additional learning is required
- mentoring or support time by other staff
- tests or exams required to acquire licences to practice
- company induction, administration or bespoke services
- off-the-job training delivered only by distance learning; and repeating a regulated qualification already achieved
In addition, Levy funds cannot be used for any part of an apprentice’s programme that duplicates provision they have received from any other source including government funds such as European Social Fund or from Jobcentre Plus.
Funds from an employer’s digital account must not be used to pay the training and assessment costs for apprentices employed by an Apprentice Training Agency (ATA).
Funding for apprenticeship training and assessment can only be spent with an approved training provider included on the Government’s Register of Approved Training Providers (ROATP). The main provider will have the overall responsibility for the training and on-programme assessment conducted by themselves, their sub-contractors and end-point assessment.
Employers will not be expected to meet the costs of any English and Maths training requirements which will continue to be met in full by Government.
If an apprentice leaves an employer during the course of an apprenticeship, that employee’s salary will no longer be included in the Levy calculation and the provider will no longer be able to draw down funds from the employer’s digital account to pay for the training or end point assessment for that apprentice.
Apprentices cannot be asked to contribute financially to the direct cost of learning or use a student loan to pay for their apprenticeship.
What will happen if I don’t spend the Levy?
You have 24 months to use the Levy. Any monies that are not spent after 24 months will be removed from your DAS monthly, with the first month’s money being removed. This money will be used to fund other organisations, including SME provision.
What will happen in other parts of the UK?
The Levy will apply to employers across the UK.
The devolved nations (Wales, Scotland and Northern Ireland) are each responsible for their own apprenticeship programmes, including how funding is spent. The Apprenticeship Service will therefore only support the English apprenticeship system and the amount showing in the digital account will be how much an employer has available to spend on apprenticeship training in England.
For employers with cross-border operations and training activity, work is on-going with the Welsh, Scottish and Northern Irish Governments to consider how to address this.
For employers operating in one or more of the devolved nations including England, a calculation will be made based on data that is already held by Government about the home address of the employers’ employees. This data will be used to work out what proportion of the pay bill is paid to employees living in England.
What if my payroll fluctuates?
If your payroll fluctuates month on month; either because the business is growing, seasonal variations or due to payment of bonuses/commissions, then the amount being transferred to the DAS will vary as well.
This can make planning to spend the Levy more difficult. If for example a Levy paying customer expects to pay £200K in to the DAS annually, but due to bonuses etc. £90K of this is in month 12, then only £10K per month would be being transferred into the DAS. If a programme was designed to spend the full £200K, spending £16.7K per month, then this would be a £6.7K overspend for each of the first 11 months, and the Employer would need to co-invest/contribute 10% of the excess.
Can I use the Levy with Contract / Agency staff?
There is nothing to stop apprenticeships being delivered to Contract / Agency staff. However, the minimum length of ANY apprenticeship programme is 12 months, and many are longer. Most Contract / Agency staff have much shorter placements, so are not suitable for apprenticeship programmes.