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New guidance on apprenticeships

As apprenticeships can offer a cost-effective solution to graduate recruitment Finance Directors may want to consider briefing HR and Leadership and Development teams on what the apprenticeship levy can offer your business.

Government policy changes intended to increase the number of apprenticeships offered by smaller businesses have been announced. The apprenticeship levy scheme, which is now 1 year old, has been amended to encourage larger businesses to help fund apprentices in businesses that could not otherwise afford to run the programmes. In addition, new guidelines have been issued which are designed to make it easier to set up apprenticeships.

Apprenticeships have been recognised for the value they add to both employers and young people; 92% of companies with apprentices believe that their programmes lead to a more motivated and satisfied workforce, and 80% have seen a significant increase in employee retention, according to a recent National Apprenticeship Service report. For more than 50% of respondents to a recent Grant Thornton survey, apprenticeships are as valuable as university degrees.

The apprenticeship levy was introduced on 6 April 2017 and meant that employers with a pay bill over £3m annually (about 2%) were obligated to pay 0.5% of the pay bill being paid through HMRC’s PAYE process. The objective was for larger companies to help their smaller counterparts, by essentially subsidising the cost of employing apprentices.

Despite growing appreciation of the positive impact of apprenticeships, there has been a 25% drop in the first two quarters of the year, according to the Department of Education. The apprenticeship levy has been seen as responsible for this downward trend, creating complexity and unwelcome cost for businesses. Furthermore, there are certain instances where the £27,000 maximum allowance isn’t enough to fund apprenticeship programmes.

The changes

The government has announced changes in the apprenticeship levy policy designed to encourage companies to support training in smaller businesses. From July, employers who pay apprenticeship levies will be able to transfer up to 10% of the annual value of funds in their apprenticeship service account to as many other employers as they choose. Previously, the transfer was only permitted to one other employer.

With the new changes, when the levy fund runs out companies can switch to a co-finance model in which the employer pays 10% towards training and the government will pay the rest (90%). The potential cost saving is significant, when an investment of £10m could bring £90m of additional funding.

Ben Rowland, co-founder of Arch Apprentices, which works with companies to deliver successful apprenticeship programmes, is unsurprised the levy has had initially mixed results but is positive about the future impact.

“It takes large companies 12-18 months to get their heads around the levy. It’s a big initiative, with a lot of money involved and it’s totally new,” he said.

He is confident that the apprenticeship levy will grow the number of apprenticeships overtime. “For many finance directors, justifying the upfront cash outlay for training is quite hard, because the payback doesn’t come back for a while”, said Rowland. “The levy takes the angst in this decision out of their hands. Now they can get on with thinking if we have this budget for training how are we going to use it best.”

To calculate the total amount of funding that each business receives per month, the government multiplies the levy that you declare to HMRC by the proportion of your salary bill paid to employees who reside in England. The 10% government top-up is also included in addition to this.

Employers receiving the funds will only be able to use them for new starters beginning after 1 May 2018.

New guidance to support employers

The government has also published guidelines for employers taking on apprentices, including a checklist of considerations. There is focus on whether the role offered to the apprenticeship is a genuine need.  Vacancies must provide the apprentice with the opportunity to develop their skills and knowledge, and offer appropriate support and supervision.

There are a number of services that advise employers on how to establish apprenticeship programmes and how to ensure the roles created benefit both the apprentice and the employer. Arch, for example, advises employers, including those that don’t pay the levy, on a number of areas.

“If they need to hire we help them hire; if they’re assisting staff on programmes we can help them; and we do all the training – working with specialist partners,” said Rowland. Arch specialise in handling all areas on a business’s behalf: from managing the levy account, to successfully onboarding new recruits.

The new guidance offers specific advice on how employers should manage apprenticeship programmes:

  • The employer must prove that the apprentice has the right to work in England and should log at least 50% of their working hours in the country
  • The apprenticeship must be started after the last Friday in June of the academic year in which they have their 16th birthday
  • Employers will have to select a main provider and negotiate the total cost for the apprenticeship. If the price negotiated exceeds the maximum funding band, the employer must pay the difference
  • Other responsibilities are outlined such as putting together an apprenticeship agreement, a commitment statement and providing evidence of weekly hours.

What next?

“The idea of employers switching overnight to the levy was never going to happen. No-one has rushed to spend their levy,” said Rowland. However, he believes the recent changes will help increase the pace of change. As apprenticeships can offer a cost-effective solution to graduate recruitment Finance Directors may want to consider briefing HR and Leadership and Development teams on what the apprenticeship levy can offer your business.

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