What is the levy and who pays?
The chancellor announced the introduction of the Apprenticeship Levy in the 2015 autumn statement. This will require every employer to pay 0.5% of their total payroll costs into the levy. The announcement of a £15,000 allowance means those employers with a payroll of more than £3m will actually be required to contribute to the levy – approximately only 2% of all employers in the UK will contribute.
What is the purpose of the levy?
For a number of years now employers have been critical of the lack of available skilled individuals to support business growth. The UK has been falling behind on almost every measure compared to the rest of the top twenty nations. Apprenticeships have always been seen as the best way to produce and develop a skilled workforce. However the quality of delivery of Apprenticeships has also come under some scrutiny over recent years. Therefore the government has undertaken a review of Apprenticeships with a number of recommendations implemented as part of the Richard review in 2012. Two of those recommendations focus on giving employers greater say in the development and delivery of Apprenticeships whilst also ensuring employers themselves play a part in contributing to the cost of developing and delivering high quality, fit-for-purpose Apprenticeships.
New Trailblazer standards
To enable employers to have a greater say in what new Apprenticeships standards should look like government introduced a series of trailblazer groups. Each group is made up of employers of a particular sector and function within that sector. These groups are also supported by at least one awarding organisation to help write the new standards. These new standards have been named Trailblazers. It is intended that these new standards, once approved, will be funded through a new funding regime supported, in part, by the new apprenticeship levy.
How will the Apprenticeship levy work?
Each employer with an annual payroll bill of more than £3m will have 0.5% of their total payroll taken at source through PAYE. This will be paid into their own digital account managed through the Digital Apprenticeship Service (DAS). The government has also committed to contributing further 10% top up for all levy contributors. This will also be paid directly into the each individual account.
As most payroll bills fluctuate throughout the year the 0.5% will be calculated and taken each month. Employers paying into the levy will be able to access this new funding model from May 2017. The funds within each digital account will pay for the full cost of each Apprenticeship framework or standard until the employer has fully utilised their levy account. Once levy paying employers have exhausted their levy account they will migrate over to the co-financed model used to fund non-levy paying employers.
For non-levy paying employers a separate funding system will come into operation. The new apprenticeship funding model is based upon a co-financed model. This is the combination of a Core Government Contribution (CGC) and an employer contribution with the match funding ratio of 9:1 or 90% to 10%. The Core Government Contribution (CGC) is based upon a series of funding caps. Every new Apprenticeship standard will be assessed at the development stage and allocated to one of the fifteen funding caps based upon content, level, duration and cost of delivery. Existing Apprenticeship frameworks have already been assessed against the same criteria and will migrate over to the new funding structure. Each cap therefore states the maximum Core Government Contribution (CGC) based upon 90% of the maximum per cap and creates a ceiling. The purpose of the caps is to stimulate competition and drive down price between Apprenticeship providers.
What does this mean for employers?
Employers will have greater control on who they engage with to deliver Apprenticeship training for their employees. Some employers may decide to deliver some or all elements of the Apprenticeships going forward. Employers need to consider who will be responsible for the various requirements surrounding finance, audit and quality of delivery.