Apprenticeship Reform

Apprenticeship Reforms

The Richard Review of Apprenticeships in England (2012) made a number of recommendations to ensure Apprenticeships would meet the future needs of the changing economy and consistently deliver high quality training.

The Government’s Reform strategy to meet these changing needs, includes:

  • Government commitment to 3 million Apprenticeship starts by 2020.
  • Creation of the Institute for Apprenticeships (IfA) to oversee Apprenticeship standards.
  • Launch of an online Apprenticeship Service (AS) to support employers choose an Apprenticeship, find a training provider and a candidate.
  • Changes to how Apprenticeships are funded.
  • Replacement of Apprenticeship Frameworks with a new range of Apprenticeship Standards designed by groups of employers to truly meet industry need.
  • A target of 2.3% Apprenticeship starts per year in public sector organisations.

Apprenticeship Levy

The government is introducing an apprenticeship levy on 06 April 2017 to fund an increase in the number and quality of apprenticeships. The levy will be paid by all private and public sector employers in the UK with an annual pay bill of more than £3 million. Is your organisation levy ready?

All the documents can be found on-line here.

Summary of the proposals

  • Levy will affect starts from 1st May 2017
  • Levy payers can pay for Apprenticeship training with approved providers and will not have to make further contributions
  • Non Levy Small Businesses will not have to make any cash contributions
  • Employers with over 50 employees will have to make a contribution of only 10% of the cost of training
  • Each Apprenticeship framework will have a maximum funding amount

LEVY EMPLOYERS

Employers will pay HMRC 0.5% of their payroll costs as a Levy on a monthly basis.  There will be a £15,000 allowance (where the employers will not pay the first £15,000 of Levy) and the Government will also top up the funds by 10%, so most employers will be able to invest more funds than they contribute in Levy.

These employers will be able to fund their Apprenticeship training using an approved provider. They can fund new or existing employees and employees of any age can be eligible for an Apprenticeship as long as there is a significant training need.  If these employers want to spend more than their fund then they will have to make a small contribution to the cost.

NON LEVY PAYING EMPLOYERS

Employers with less than 50 employees will not have to pay for the training of Apprentices aged 16-18, or for those aged 19-24 who are care leavers or have an education health care plan. A 10% contribution towards the training will be paid by the employer for any apprentice that is 19+.

Employers with more than 50 employees (but not paying the levy), including those employing apprentices aged 16-18, or those aged 19-24 who are care leavers or have an education health care plan will have to pay the 10% contribution.

There is also a £1000 employer payment for learners in certain categories.

Skills Funding agency presentation on the levy- August 16

Frequently Asked Questions

The levy has been designed to fund all Apprenticeship delivery

The Levy will be calculated on 0.5% of the payroll bill of all employees across the whole of the UK including Scotland, Wales and Northern Ireland. However there will be a £15,000 allowance for Levy payers meaning that employers with a payroll bill of less than £3m will not pay the Levy at all. In broad terms this means that employers with around 150 reasonably paid employees will pay a Levy.

 

This will also mean that there will be two systems of payment for Levy and non-Levy payers. Non-levy payers will have access to levy funds to deliver Apprenticeships, the outline details of which are set out below.

Employers delivering state-funded Apprenticeships from their staff must register for a Digital Apprenticeship Service (DAS) account. This will track the amount of levy they have paid and how much is therefore available for their Apprenticeship delivery, as well as helping employers to decide on which framework or standard will suit their employees best, and to select providers to deliver them.

The first levy payments will be calculated based on the calculations of payroll in April 2017, meaning that the first amounts will reach employer DAS accounts on or around 22nd May 2017.

The Levy will be collected on a monthly basis, based on ‘live’ HMRC payroll data. It will include all directly employed employees but not contractors. It will include all payments made through payrolls but not ‘benefits’. It will be applied to ‘groups’ of companies but not franchisees. HMRC will set out the rules and will collect the Levy.

Levy payments will be available for expenditure by levy payers for up to 18 months from the time that they reach the DAS account.

In England, levy funding can only be used for the funding of English Apprenticeships at workplaces within England. (The devolved nations may make other arrangements). The employer will pay the tax and the DAS will be credited with that amount, plus a 10% government ‘top-up’. Levy funding can be used to fund starters on frameworks and standards from 1st May 2017. Starters prior to this time will continue to completion using the existing funding methods.

Levy payers who use up the funding within the DAS account will be able to continue to recruit Apprentices but will pay 10% of the agreed price with the provider. The remaining 90% will be paid by the government.

From 2018 it is anticipated that employers may also be allowed to spend up to 10% of their total DAS funds on apprenticeships for other employers, such as those in their supply chains. This concept is however subject to further development.

Employers will negotiate a price with the provider for the Apprenticeship to be delivered. Each framework and standard will have been allocated into one of 15 funding bands which denote the maximum amount of levy funding that can be drawn down for it. The funding caps range from £1500 to £27000 as shown in the table.

Existing frameworks have been allocated into the band closest to their current rate of funding. However, those that are considered to be STEM occupations will attract an uplift before being allocated to a banding – an uplift of 40% for Level 2 frameworks and 80% for Levels 3 and above. Such uplifts will be applicable to frameworks in:

• Engineering and Manufacturing Technologies

• Information and Communication technology

• Science and Mathematics

• Construction, Planning and the Built Environment.

 

Employers are free to negotiate prices above the funding cap given above, but any amount above the cap cannot be funded using levy (DAS) money and must be funded in full by the employer.

English and math qualifications will be paid directly to the provider at a standard rate of £471 – this will not be deducted from the employer’s DAS account.

Payments will be made to the provider from the employer’s DAS account on a monthly basis. 80% of the payment will be available for as long as the Apprentice is studying – if they stop studying, the payments can be stopped by the employer. The remaining 20% is held back as a completion payment in recognition of the fact that costs of End-Point Assessment (EPA) may be proportionately higher than the rest of the Apprenticeship. The 20% is released on completion of the Apprenticeship. (N.B. Only Apprenticeship completion is required – not achievement.)

Funding Band Band upper limit (cap)
1 £1,500
2 £2,000
3 £2,500
4 £3,000
5 £3,500
6 £4,000
7 £5,000
8 £6,000
9 £9,000
10 £12,000
11 £15,000
12 £18,000
13 £21,000
14 £24,000
15 £27,000

Apprenticeships are a devolved matter which means that each nation is responsible for how their share of the levy is spent. Because the tax is collected by HMRC, the UK government therefore has to allocate the levy take between the four devolved nations. This will be done on the basis of residency of workers. If, for example, 80% of a workforce lives in England and 20% lives in Wales, then 80% of the employer’s levy account will be made available in the (English) DAS system for expenditure on Apprenticeships. The remaining 20% will be allocated to the Welsh government.

However the expenditure of money from the English DAS account will only depend on the workplace of the employee. In other words, using the example above, an employer who has a worker residing in Wales but working in England will be able to use DAS funds for them to follow an English Apprenticeship.

It is hoped that reciprocal arrangements will be agreed whereby workers with residency in England will be allowed to access Apprenticeships where they work in the devolved nations. However the devolved nations are currently consulting on how best to allocate and spend their shares of the levy, and it may well transpire that they deploy very different systems from England.

Where an employer has used up their levy funds, they may continue to recruit Apprentices but must pay a co-investment rate. This means they will pay 10% of the cost of the Apprenticeship and the government will fund the remaining 90%. This is the system that will be used for non-levy payers and is explained in more detail below.

If an employer agrees a price for an Apprenticeship that is in excess of the funding band cap for that standard or framework, then the employer must pay the full amount in excess of the cap.

Any company with less than 50 employees that recruits a 16-18 year old Apprentice will not make any contribution towards the cost of their training from the DAS account or elsewhere.

Additionally, any 16-18 year old Apprentice will attract an additional £1000 payment to both the employer and the provider towards the extra expenses incurred in training Apprentices in this age group. These amounts will be paid across two instalments at months 3 and 12 of the Apprentice’s study. This will not be deducted from DAS accounts.

Levy contributions made remain in scope for 18 months from the date at which they reached the DAS account. After this time they may be reallocated to other employers or used elsewhere.

Learners who are 19-24, and who have previously been in care, or who have a local authority Education, Health and Care (EHC) plan – broadly speaking, learners with special needs, or learning and physical difficulties – will attract additional payments of £1000 to both the provider and the employer, payable in two equal instalments at months 3 and 12 of the Apprentice’s study.

If such learners are employed as Apprentices by small employers (less than 50 employees), then the government will pay 100% of the training costs for these individuals.

Existing learner support arrangements of £150/mth for Apprentices will continue.

As with the levy system, non-levy paying employers will negotiate a price for the Apprenticeship, bearing in mind the banding caps referred to earlier. The employer is then liable for 10% of this price, and the remaining 90% will be paid to the employer by the government.

This system will also come into play when a levy-paying employer has exhausted the funds in their DAS account.

The provider will have to evidence that the employer has paid their contribution before any government funding is released to them.

English and maths costs will continue to be paid at an additional rate of £471 per qualification directly to the provider.

In its August 2016 document, the Government is putting in place a new Register of Apprenticeship Training Providers (RoATP) and is consulting on its scope and content.

It proposes that all organisations wanting funding to deliver apprenticeship training must apply to RoATP. However, it may be that small providers with capacity and capability to deliver parts of apprenticeships will use a separate system (and not appear on DAS). All must directly deliver some apprenticeship training themselves, the current suggestion being that sub-contractors and supporting providers should deliver “significantly less than half” of each Apprentice’s training. Due diligence and financial health tests will remain broadly similar to those used in the current ROTO process, with colleges and public sector providers continuing to be exempt because of low risk of insolvency.

The amount of levy collected from large employers, less the amounts given to Scotland, Northern Ireland and Wales will be allocated against the payments made into the DAS accounts of levy-paying employers. The Treasury does not expect all levy-paying employers to use all of the money in their DAS accounts, and the Skills Funding Agency is therefore planning a procurement round in Autumn 2016 that will effectively give contract allocations to providers for use as the 90% government contribution in delivering to non-levy paying employers and levy-payers that have exhausted their DAS funding.

The levy is expected to pay for all Apprenticeship delivery costs – the delivery costs, EPAs, the 16-18 and EHC incentives, plus maths and English qualifications within standards and frameworks, some of which will be up to 80% more expensive than is currently the case. It is not clear therefore whether in reality the government will have to find more funds than money generated by the Levy.

We are expecting further announcements in October 2016 as a result of the consultation period in August and September 2016, with hopefully final guidance available in December 2016.