Apprenticeship funding update for employers

What’s happening?

  • A key element of the government’s strategy for improving the nation’s skills and productivity is significant growth in the number of people starting apprenticeships, with a target of three million between 2015 and 2020 (up from 2.4 million).
  • To stimulate demand and pay for this growth, significant changes are being made to apprenticeships and how they are funded:
  1. New, employer-designed apprenticeship standards (including some up to post-graduate level) are being created. About 350 new standards are being developed currently. At Damar, we are already actively involved in the development and delivery of several apprenticeship standards.
  2. Most of the funding will come from larger employers who will pay the “apprenticeship levy” (a new payroll tax) from April 2017. These employers will be able to access money from their levy accounts to pay for apprenticeship training. Unused levy receipts will be used to support apprenticeships in smaller organisations.
  3. Most public sector employers will be expected to demonstrate progress towards an apprenticeship quota set at 2.3% of their workforce.
  4. Smaller employers, as well as larger employers who have spent all of their levy, will be able to access heavily subsidised apprenticeship training. The amount of subsidy is to be decided, but the government is currently seeking views on a ratio of 90% government contribution to 10% employer contribution.

For apprentices enrolled up to 30th April 2017 the current funding arrangements will apply through to the end of their apprenticeships. Most existing apprenticeship frameworks will continue to be available until they are replaced by new apprenticeship standards. This will probably take until 2020.

Where’s the process up to?

The government is releasing regular updates. The most recent update, released on 12th August 2016 is here: Apprenticeship Levy, how it will work. There is also a more detailed document setting out the proposals: Apprenticeship Funding Proposals from May 2017. Further updates are due in October and December 2016.

Some of the main features of the new funding environment are summarised below. Changes and clarifications arising from the most recent update are highlighted in bold.

The Levy – a summary

  • For apprenticeship starts from May 2017, most apprenticeship funding will come from an employer levy set at 0.5% of UK payroll.
  • All employers will receive an allowance of up to £15,000 to set against their annual contribution. This means that the first £3m of an organisation’s annual payroll will be excluded from the levy.
  • Deductions will be taken monthly through Pay As You Earn. The first payment will be made in May 2017 by reference to employers’ April 2017 pay bills.
  • Employers will be able to draw down their levy spend from a new digital apprenticeship account to fund the external costs of apprenticeship training.
  • If not used, the electronic funds will expire after 18 months.
  • Employers will receive an automatic 10% top up. So, a £1,000 levy contribution will become £1,100 of digital apprenticeship funds.
  • There will be additional incentives for employers recruiting apprentices aged 16-18 on enrolment. The government is seeking views on there being an additional £1,000 for employers and providers (so, £2,000 in all) for each 16-18 year old apprentice that is recruited.
  • In calculating UK payroll, groups of companies under common ownership will be treated as one.
  • All UK employers - public and private sector - are in scope but, at present, the levy can only be spent to support apprentices whose main place of employment is in England.
  • Larger public sector employers will have a statutory apprenticeship target set at 2.3% of their workforce. Apprenticeships will feature in all public sector contracts lasting over a year and worth more than £10m.
  • Employers’ NI contributions for apprentices aged under 25 have been abolished from April 2016.

Non Levy-payers

The August 2016 update gave more information on likely support for smaller employers (ie, those with annual pay bills under £3m) as well as larger employers who want to spend more than they have in their digital accounts. Here, the government is currently seeking views on a ratio of 90% government contribution to 10% employer contribution. The additional incentives for 16-18 year olds will also apply to smaller employers.

For businesses employing fewer than 50 people, the government will pay 100% of the apprenticeship training costs for 16-18 year olds.

Next Steps

If you would like to comment on the funding proposals, complete the government’s online survey on or before 5th September.

If you are a levy-paying organisation and don’t yet have a plan in place:

  • Time is of the essence. If you want to run a pilot and evaluate its success then you need to get the ball rolling straight away.
  • Don’t think of the levy as a “pot” that needs spending. Rather, think of it as an investment. As with any investment, you need a business case. So, what are your organisation’s biggest areas of pain or missed opportunity and can apprenticeships be used to address these?
  • Speak to a few different apprenticeship providers and some of their customers. An apprenticeship programme will get under the skin of your business – you need to work with people you trust and who understand your needs.
  • Consider what resources you will need to allocate internally to managing your programme.
  • Consider whether a single “lead provider” managing all your apprenticeships is the best approach.
  • Get your senior leadership team and prospective apprentice line managers on-side early. Your provider should be happy to come and speak to them.
  • Work out what your monthly contributions will be and then calculate the rough number of apprenticeships. How does this fit with your potential business need?
  • Don’t forget that apprenticeships can also be used in some cases to upskill existing staff.
  • With your training provider, “map” the job roles in your organisation (particularly at entry level) against the apprenticeships that currently exist or are in development.

If you are a non-Levy playing employer then our advice is:

  • Think first about the needs of your organisation. The changes to funding will mean that, depending of the age of the apprentice and the apprenticeship, some apprenticeships will cost slightly more and others less from May 2017. However, the overall cost of your apprenticeship programme is unlikely to change significantly.

How we can support you

We will be updating partner employers regularly over the coming months. The needs of every organisation are different though and so, if you have further questions or would like a more detailed discussion about how your organisation can maximise the opportunities that these changes will create, call your usual contact at Damar, give us a call on 0161 480 8171 or email and a member of our team will be in touch.

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