What does the apprenticeship levy mean for SMEs?

In this piece, Ann Potterton discusses what the businesses with a wage bill under £3 million need to know about the apprenticeship levy.

From 6th April 2017, all businesses with a wage bill of more than £3 million were required to pay the apprenticeship levy, charged at a rate of 0.5 per cent of their annual bill. So what impact does this have on smaller employers who fall under the £3 million bracket?

Background to the levy

The apprenticeship levy is the government’s initiative to fund three million places for apprentices by 2020, paid for by larger employers. It has received a mixed reaction from business groups with some concerned it will damage the quality of apprenticeships, whilst others argue that any potential to increase training and create more jobs can only be a good thing.

Whatever your opinion, the levy will go ahead from next April which leaves eligible businesses with little time to prepare. It also means that there will be changes in the way that all apprenticeships are funded which affects all businesses, large or small, who currently employ apprentices.

Opportunities for SMEs

While the levy has received a mixed reception with some employers, it does present a number of opportunities for SMEs who can take advantage of the funding available. In a nutshell, some smaller employers won’t have to contribute to the fund, but can draw from it, and take advantage of the online apprenticeship resources available.

In practical terms, the levy means:

Non-levy paying employers will contribute 10 per cent of the cost of training an apprentice, and the government will ‘co-invest’ by paying the remaining 90 per cent (under the current proposal).

Businesses with under 50 employees won’t pay anything if they employ apprentices under the age of 19, and will receive a £1,000 payment with an additional £1,000 payment to the training provider.

See also: Apprenticeship grants – for training and assessment

For those already employing apprentices, anyone accepted before May 1 2017 will be funded for the full duration under the terms and conditions that were in place when the scheme started.

The government’s new digital service will help employers to select an apprenticeship framework, choose training providers and assessment organisations, and post their apprenticeship vacancies.

SMEs won’t need to use the digital apprenticeship service to pay for apprenticeship training and assessment until at least 2018, when the government will issue further advice.

Apprenticeship funding began from 1 May 2017.

Should you employ an apprentice?

According to a report by the Federation of Small Businesses (FSB), around a quarter of small businesses already employ apprentices and a further 24 per cent would consider taking them on in the future. These businesses are making a big difference; the proportion of SMEs with an apprentice is 9 per cent higher than the national average. But what are the business benefits of taking on an apprentice?

Research from The National Apprenticeship Service claims 90 per cent of employers feel apprenticeships provide a constant flow of suitably trained staff. Many of our members tell us it also helps them shape an entire workforce from scratch, as staff grow alongside the business.

When a small business owner commits to nurturing an apprenticeship model, he or she can also expect fewer demands in the area of hiring. Not only will new employees be trained in the business’s unique style, they will feel a sense of kinship with the company that gave them their start, which increases the chances of retention. Additionally, a well-planned-out apprenticeship strategy will look ahead to those employees who are expected to be promoted or to retire, and keep the line of team members moving onward and upward.

The benefits don’t stop there. Employers who take on apprentices are viewed as change-makers in their communities — by the people who employ their services and by the institutions (like high schools and vocational schools) who supply their apprentices.

Unfortunately, as of June 2018, the Department of Education is reporting that new apprenticeships are down, meaning that small businesses either aren’t taking advantage of the funding available to them, or they simply aren’t aware of all the benefits (including financial ones) that comes with a comprehensive apprenticeship strategy.

Between August 2017 and March 2018, 261,200 new apprenticeships have been reported in the UK—with the two previous periods being 362,400 and 346,300, chronologically. That is indicative of a nearly 28 per cent drop, just in the last year, with a noted spike in September, 2017.

Why the drastic decline? Despite the incentives provided?

Like anything new, growing pains are being felt. There has been a lot of measurement regarding new starts and programme roll-out, and small business owners have had relatively little time to allow this idea of increased regulations resulting in broader benefits to sink in.

The government has made no comments regarding abandonment of the £3 million target, and therefore it can be assumed that officials are expecting an uptick in participation within the next few years. And so, I would expect to see more marketing and education regarding the levy’s benefits.

In my opinion, apprenticeship’s benefits were good enough to take the leap before the levy. So why would any business owner turn down additional funding to do something he or she was going to do, for the benefit of their company, anyway? My only answer is regulation, and distaste for that is all part of growing pains… and needing a little more time to justify the value in any transaction.

What next?

When we launched our own apprenticeship scheme for members, we found that the biggest perceived barriers were the time and administrative costs associated with employing apprentices. However, with the new resources available the pressures of initially setting up a scheme look set to improve.

So if you are considering hiring an apprentice, you may want to think about:

  • How long your apprenticeship placement will last for
  • How much funding you could receive through the government’s online calculator
  • The training providers available from the National Apprenticeship Service
  • Your HR policies, an apprentice should have the same rights and benefits as other employees
  • Employers’ liability insurance if you are employing an apprentice as your first member of staff.

Further guidance will be released by the government in October 2016, six months ahead of the scheme. If apprenticeships are not something you had considered for your business, start to look into it. After all, they are vital to the development of any industry.

The Institute of Telecommunications Professionals (ITP) has been running its own apprenticeship scheme since 2013. The programme, launched with support from BT and Virgin Media, has created more than 60 jobs in over 24 organisations which weren’t previously able to gain access to telecoms apprentices.

Ann Potterton is CEO of the Institute of Telecommunications Professionals (ITP).

This article was originally published on August 26th 2016, and was updated on June 14th 2018 by Joseph Valente, founder of ImpraGas.

Further reading on the apprenticeship levy

Ben Lobel

Ben Lobel

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

Related Topics

Apprenticeship Levy

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