The government recently announced the introduction of the Apprenticeship Levy from April 2017, but many businesses are still not clear exactly what that means, and the very real implications that it will for have for their business.
Full details have still not been announced at this stage, but what we do know is that by April 2017 there will be an additional 0.5% tax, which is a levy that will have to be paid by all companies with a payroll of over £250,000 per month, which equates to £3m per year. The reason for the tax is that by 2020, the government has a very clear target of creating 3 million new apprentices. By the end of the year, we should know the rest of the story.
Every month, the revenue from the levy will delivered into a pot, and of course companies will want to get this money back, and the only way they can do this is by implementing their own apprenticeship scheme.
All companies will have to set up an account on a government system (which we have yet to see, but is currently in development and is called the Digital Apprenticeship Scheme, or DAS). Employers will be able to see on this system how much money they have credited into their account, and also view a list of apprenticeship providers and apprenticeship frameworks, which they can then choose from.
This might seem fairly simple, but still, many companies who will be affected haven’t yet heard of the levy, or are still unsure of what it will mean for their business. The financial implications of the levy are huge, and companies need to prepare in advance. Here are the key points that you need to take into consideration if you will be affected by the levy:
1. What does it mean from a financial point of view?
If your business has had no experience of apprentices previously, now is the time to get ahead of the game. Call in an expert to tell you what your options are, because the whole process does require some careful thought. Think about the direction in which the business is headed and the challenges you face, and choose an apprenticeship framework which suits accordingly. A provider will be able to advise which framework will be most effective for an employer from the things that are required of an apprentice, and the different levels of apprenticeships that are available. For example a very young apprentice who is still required to be in education will start on level two, with apprentices progressing all the way up to level seven.
For big businesses, setting up an apprenticeship scheme is a huge cost in itself – they are not as nimble as small businesses and changes tend to require a great deal of implementation. It’s a worry that some large businesses won’t claim back the money they are ‘owed’ and will just take the hit financially. If this sounds like your business, I would strongly urge you to not take this attitude. Apprentices provide businesses with a wealth of benefits, and whilst the initial re-work of the system might be challenging, the long term rewards will be worthwhile.
For businesses who do not seek help, support and guidance with navigating the levy, they run the risk of simply not being able to answer the inevitable questions that will come up. They risk wasting vast amounts of time, effort and money, as well as unnecessarily parting company with a new apprentice due to lack of preparation. If your company does not offer sufficient career progression, an apprentice will quickly realise that they now have experience on their side and can easily go elsewhere, and all the work that you have put in will be for nothing.
2. What do you currently spend on training and who are you training?
It’s also vital to look very carefully at how you currently train your internal staff. Can existing training schemes be formalised and turned into apprenticeships? With a few additions, can an internal apprenticeship scheme that anybody of any age can participate in be created? This in turn should help with staff retention and progression.
Your business is also going to need to give great consideration to how much you are going to pay per apprenticeship, which training providers deliver which frameworks and how many apprenticeships need to be implemented in order to use up your funds, because if they are not used within 18 months, the money is no longer accessible.
You should also consider how much work experience you would like an apprentice to have. Part of that consideration will relate to budget. To take on a school leaver will be cheaper than taking on someone who is a little older and has a bit more experience. Again, it’s vital to think about career progression. If a young person comes into the business, what’s going to happen to them after? They may decide that if there’s not a huge amount of career progression available to them that they will move on after a short period, meaning that you as an employer will not be able to utilise the skills they acquire. Some businesses might be happy for an apprentice to stay for two years and then start the cycle over again, which is a low cost option. Those who invest more time and money in their apprentices will be looking at staff who will stay for the long haul.
3. If you are only taking in grads, why are you doing this and what are you missing out on?
I believe that the levy will encourage so much more diversity in the work force – one head of big business I spoke to recently said that his company only employs Oxbridge graduates, and as a result, everyone at the company was ‘the same’, and he felt that through this policy, they were missing out on many great potential candidates.
The new levy will create diverse cultures, which will bring with it new ways of thinking, which in the long term should make the UK more competitive globally. Other European countries such as Germany have been doing this for years, and so the levy has the potential to really give us an edge.
Think about how you can open up opportunities for young people – perhaps as an alternative or complement to your graduate intake – and how you can match the training that is given to apprentices to that offered on your graduate scheme, if applicable. For example, a financial services company might look at the way in which they get their graduates to obtain accountancy qualifications, and then compare this to an apprenticeship framework to see how they can get these candidates to the same level.
These are just a few of the many considerations that you as an employer have to account for, but the most effective thing that employers can do is start to consider the options and prepare now. Seek the advice of a training provider to ensure that you’re fully aware of your options and can use the scheme to your full advantage.
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