Possibly the biggest news to come from the Chancellor’s recent Autumn Statement with regard to employment law, certainly in terms of an employer’s bottom line, is the introduction of the Apprenticeship Levy in April 2017. The Government wishes to create a further 3 million apprenticeships by 2020 and clearly this will cost several million pounds. The responsibility for funding the extra places has been put squarely at the feet of the large employer. Specifically, the system will be funded by employers with an annual wage bill of £3million or more. This is calculated on ‘total employee earnings’ and is therefore likely to include bonuses and commission.
How will the money be used?
Employers hitting the wage bill criteria will have to pay a monthly sum to the Government, through their PAYE, that will be placed into a digital account that the employer can draw on to fund the external costs of apprenticeship training. The mandatory funds can be topped up by the employer, if they wish, up to a limited amount. Funds can be drawn from the ‘pot’ but only for a limited time (probably two years but this is not yet confirmed). This will be called the Digital Apprenticeship Service. Funds collected but not used are likely to be spread amongst other employers. Importantly, however, although funds will be collected from all employers in the UK, only employers in England will be able to directly access their money. The Government will be in talks with Scotland, Wales and Northern Ireland to consider how the levy will work for them. This is because skills training is a devolved matter.
Employers will use the Digital Apprenticeship Service to direct funding towards an apprenticeship. The Service will help support employers to advertise apprenticeship vacancies, find a candidate and choose a training provider. The funds will not be used to pay the apprentice’s wages; they will pay for the off the job training provided to the apprentice.
Using the funds in the digital account will mean that employers are making an investment in training a new crop of employees who will learn the ins and outs of a business from scratch.
How much will my levy be?
The levy will be different for all employers because it is calculated as 0.5% of their annual wage bill. However, every employer will receive an allowance of £15,000 which can be offset against their levy amount. Here are some examples:
Employer has annual wage bill of £5million
Levy sum: 0.5% x £5,000,000 = £25,000
Allowance: £25,000 - £15,000 = £10,000 annual levy, to be divided into monthly instalments
Employer has annual wage bill of £9million
Levy sum: 0.5% x £9,000,000 = £45,000
Allowance: £45,000 - £15,000 = £30,000 annual levy, to be divided into monthly instalments
Employer has annual wage bill of £2.5million
Levy sum: 0.5% x £2,500,000 = £12,500
Allowance: £12,500 - £15,000 = -£2,500 This means no levy is payable
The effect of subtracting the £15,000 allowance means employers with a wage bill of less than £3million would have a levy of £0 or less, so would not have to pay one.
Contracts for apprentices
Apprentices in England and Wales should be engaged on Apprenticeship Agreements which offer the utmost flexibility in terms of managing and developing the apprentice. Apprentices in Scotland are still engaged on contracts of apprenticeship, which carry extra protection when compared with a normal employment contract. Specific advice should be taken from your Business Partner when encountering any difficulties with your apprentices.