How will the apprenticeship levy affect employers?

The apprenticeship levy, which the Government hopes will help create three million new apprentices by 2020, is due to come into force in 2017. But ahead of implementation, there are a number of key questions that employers should be asking. Matthew Lewis, employment partner at Squire Patton Boggs, explains.

There is no doubt that apprenticeships are a valuable part of the UK economy, with much of the business community initially welcoming a chance to develop this route into the workplace.

The apprenticeship levy is, though, a misnomer, with many placing the focus of "apprenticeships" on young people entering employment, whereas this opportunity could, and should, benefit learning and development as a whole.

The levy, which will raise an estimated £3 billion by the end of this Parliament, could have serious consequences for employers, many of whom see it simply as an additional tax.

What is the apprenticeship levy?

In April 2017, the Government will introduce the apprenticeship levy, with a view to creating millions of apprenticeships across the UK. Organisations will be able to access government support for training, which will be funded by the revenue from the levy.

While many employers are pleased to see that apprenticeships have become an area of increased importance, others argue that it should not be up to them to foot the bill if they do not have any need for apprenticeships within their own organisation. Regardless of their opinion, employers have just over a year to prepare for the levy coming in to force.

How much will employers have to pay?

If businesses have an annual payroll cost of less than £3 million, then they will not be required to pay the levy. For employers that have more than this, however, there will be a 0.5% tax on the payroll bill, which will be paid through Pay As You Earn.

Apprenticeship resources

Model apprenticeship agreement

Legal timetable > Apprenticeship levy on large employers

The Government estimates that 2% of UK employers, approximately 22,000 organisations, will be required to pay the levy. It is worth noting that it is not just large employers who will be affected. Many smaller employers will be impacted, as a workforce of 100 people and an average salary of just over £30,000 will take businesses over the threshold.

Will a one-size-fits-all scheme be sufficient?

Employers have voiced concerns over how funding will be distributed, as each course will need different periods of training time and different evaluation methods. For example, an apprenticeship in engineering may need 12 months, while some apprenticeships in sectors such as retail may need less time.

Potentially, it will be difficult to make a one-size-fits-all scheme translate into meaningful and empowering apprenticeships that benefit both employer and employee. There are trailblazer programmes for various sectors seeking to set the parameters for levels of apprenticeship, but a lot of work is needed ahead of the levy's implementation to ensure there is the consistency and variety that employers will need.

It is also worth noting that the apprenticeship levy does not support all training. Organisations such as the Retail Trust have commented that the levy is too narrow in its scope and should, for example, include traineeships and wider training programmes.

Are all the UK employers that pay going to benefit?

Employers that do not pay the levy will still be able to access government support for apprenticeships through the Digital Apprenticeship Service (DAS). Employers in England, that pay the levy and provide apprenticeship training, will receive a "top-up" to a digital account. The training must be provided through an accredited provider and, at this point, it is presumed that HMRC will be responsible for enforcing the payment from the employer and ensuring payment to the training provider.

Despite the fact, however, that the whole of the UK falls into the jurisdiction of HMRC, early drafts suggest that only employers in England will be able to benefit from the DAS. It is understood that Scotland and Wales will follow suit, but this is an area of concern for businesses based outside of England.

How can you make sure the apprenticeship levy works for you?

By being proactive and identifying areas in an organisation where training is most needed, employers will have the opportunity to ensure that the apprenticeship levy works in favour of their organisation.

It is possible that many employers will not recoup the levy that they pay, and will therefore simply see it as another employment tax, particularly those that have no need for structured training that could fall within the scope of an apprenticeship scheme.

For example, for an organisation such as the NHS, the levy will be huge and it is unlikely that it would be able to recoup the money through DAS. Consequently, there is an opportunity for other employers to get out of the levy more than they pay in, if they take the time now to look at their learning and development needs and ascertain what can fall within the structure of an apprenticeship.

What should employers do next?

One of the most imperative parts of preparation for employers is ensuring that they have the financial capability to pay the levy.

Additionally, businesses should think more broadly than the immediate view of an "apprenticeship" as something for young starters, considering what training they have put off because of the possible cost and ascertain what could be done as an apprenticeship so that they can reap the best value.