In November 2015 the government announced the new Apprentice Levy but many businesses are still not sure exactly what that means and even we, as providers of apprentices, are still not entirely clear.
What we do know though is that by April 2017 there will be an additional 0.5% tax, effectively 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 the government has a very clear target to achieve of 3 million apprentices by 2020. By the end of the year, we should know the full facts about the scheme.
By far the majority of apprenticeships are with small businesses - large businesses have simply not got involved to the degree that the government wants. The levy should therefore open up many more apprenticeships with larger organisations but, crucially, the levy will also be applicable to all public sector organisations such as hospitals, police departments, schools etc. For public sector organisations, 2.25% of their staff total will need to come from apprenticeships by 2020. Quite simply, the levy is reflective of a huge drive within the UK towards apprenticeships.
Every month, the revenue from the levy, which will be paid to HMRC through the Pay as You Earn (PAYE) process, will be delivered into a dedicated account and, of course, companies will want to gain access to this money. However, the only way they will be able to do this is by implementing their own apprenticeship scheme.
Companies will be required to set up an account on a government system (which we have yet to see, but is currently in development) which is called the Digital Apprenticeship Scheme, or DAS. Each employer 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 standards, which they can then choose from. Money will then be allocated from the company’s fund and, once the employer has paid their one third contributions, paid to the training provider in question. The apprenticeship will then be delivered
It’s a government controlled method of using the money, but the employer will have much greater control than at present as they will now have the power to identify the framework they want, the price they are going to pay and the training provider they will use.
At present, the government allocates funds to training providers based on their finances, capabilities and track records. The training providers then have to find employers who are willing to take on an apprentice and complete all paperwork required by the government. The employer is sometimes out of the loop in terms of managing this process but the new system aims to put the control back with the employer. The employer will now have to access the DAS system every month and register that the apprentice is still with the company and that the training provider is delivering what was promised in order for said training provider to be paid.
For some apprenticeship providers this will mean that that they'll need to be much more focused on customer service. It’s going to create a real step change from the point of view of the interest that large businesses will need to take in apprenticeships.
What companies are already starting to do is look at the internal training they offer, the recruitment schemes they have in place that might currently only be focused towards graduates for example and the ways in which their existing policies can be amended to fit in with the new scheme. I met with one company recently who have a £300m payroll, so the levy cost for them will be huge.
Companies need to think how they can open up more opportunities for young people – perhaps as an alternative or to complement their graduate intake - and how they can match the training that is given to apprentices to that being offered on their graduate scheme, if applicable. For example, a financial services company might look at the way in which they currently require graduates to obtain accountancy qualifications then compare this to one of the new degree apprenticeships to see how they can enable candidates to get to the same level. So, taking the large company I met with recently as an example; I looked at the different modules of their graduate scheme and found an apprenticeship standard with a similar offering which would enable young people, not just graduates, to achieve the same end goal with the costs being covered by the contents of the apprenticeship fund.
Companies are also going to need to look very carefully at how they currently train their internal staff and ask themselves whether existing training schemes can be formalised and turned into apprenticeships. If, with a few additions, an internal apprenticeship scheme for anybody of any age can be created, this should help with staff retention and progression.
Businesses will also need to give greater consideration to how much they are going to pay per apprenticeship, which training providers deliver which standards and how many apprenticeships they can afford to implement because if the fund is not used within 18 months, the money will no longer be accessible to them.
I believe that the levy will encourage so much more diversity in the work force – one head of a 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’. He felt that through this policy, they were missing out on many great potential candidates.
The new levy will create diverse cultures which will result in new ways of thinking and 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.
Our youth unemployment rate is one of the worst in Europe, this is a proven model that’s helped many small businesses to grow and there’s no reason why it could not help businesses of any size to develop and reduce our rate of NEETSs. I mentioned earlier the imbalance in terms of small and large business involvement in apprenticeships and, indeed, over 90% of apprenticeships are with small businesses. The government therefore clearly sees the Levy as an opportunity to really make an impact on these statistics by involving big businesses.
A priority for the government is to ensure that young people don’t see apprenticeships as a second rate option. Involving big companies, many with recognisable names, will help young people to see an apprenticeship as a real, viable alternative to university. This is by far the biggest move that’s been made to try and change both the public's and the business community’s perception of apprenticeships; in effect it’s a total paradigm shift.
As a consequence however, I think there will be lots of providers that drop out of the business because they won’t be able or in some cases won’t be prepared to handle the employer engagement side of things. Many training providers are guilty of thinking that they are servicing the government, because it’s the government who is paying them.
For those businesses who have had no experience of apprentices previously, this is the time to get ahead of the game by calling in an expert to tell them what their options are because the whole process does require some careful thought. They should think about the direction in which their business is headed and the challenges that they face and choose an apprenticeship standard which suits them accordingly. For example, an estate agent we supplied with an apprentice who was completing a customer service apprenticeship said to me recently that the new recruit was doing so brilliantly 'at the estate agency side of things' that they were looking to up-skill him further. He had no idea that dedicated property management apprenticeships were on offer so it’s vital for employers to know exactly what apprenticeships are available in order to make the most out of the levy and the standards that are available to them. A provider will be able to advise which standard 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/uneducated person could start on level two and progress all the way up to level seven.
Businesses should also consider how much work experience they 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. It’s also vital to think about career progression. If a young person comes into the business, what will the ongoing plan be for them? A young person may decide that if there’s not a huge amount of career progression available to them it might be better for them to move on after a short period, meaning that an employer will not be able to utilise the skills they acquire. Some businesses of course might be happy for an apprentice to stay for two years and then start the cycle over again, which is a low cost option. However, those who invest more time and money in their apprentices will be looking at staff who will stay for the long haul.
For businesses who do not seek help, support and guidance with navigating the levy they'll face difficulties in being able to answer the inevitable questions that will come up. They will 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 a company doesn’t 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 the employer has put in will be for nothing.
We need to ensure that both the futures of the young people placed in apprenticeships and the futures of employers are protected. This can only be done on the employer’s side by ensuring that they are thoroughly prepared and that they fully understand the implications of the levy. When they take on an apprentice, employers unfailingly have very good intentions but it’s sad to see that in the cases where it does go wrong, they’re very reluctant to do it again and give someone else an opportunity. This is also why traineeships and pre-apprenticeships are vitally important, because they help to prepare young people for interviews and subsequent apprenticeships. Without this training, employers can sometimes be put off hiring young people with no interview skills and, after a bad interview experience, young people can have their confidence seriously knocked.
We will always do our utmost to work within the system but, like every change, the levy is not without its difficulties. We are where we are but, personally, I would have extended the amount of time that companies have to implement the changes and announced the full ‘story’ all in one go. Nevertheless, it’s important to make the best of the situation and employers need to give the changes proper consideration as it will really affect their bottom line. That said, I predict a huge rush to start using the system and those employers who can get ahead of the game now will be in a far better position come next April.
My business is currently already offering consultations to businesses and, because of the high demand, we’re also looking to put together some FAQs and an online advice guide, as the simple fact is that many businesses simply aren’t aware of the changes or don’t have the level of knowledge that they need in order to implement them successfully. In many cases these are huge corporate organisations with Central London headquarters and when we speak to them about the levy, they simply have no details nor an agreed action plan.
For big businesses, setting up an apprenticeship scheme is a huge cost in itself. It’s a worry that some large companies won’t bother with the levy and will just take the hit financially. However, such an option is not open to the public sector of course as the NHS alone has to take on hundreds of thousands of extra apprentices.
For anyone considering this ‘do nothing’ approach I would strongly urge them 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.
Angela Middleton, CEO MiddletonMurray
MiddletonMurray are a multi award winning recruitment and training solutions provider located in Central London, Sidcup, Canterbury, Romford and Sandwich. Launched by CEO Angela Middleton in 2002, the business now employs 86 permanent members of staff, alongside freelance trainers. The business has facilitated thousands of people to move into their dream job; whether a first job or a move up the career ladder. Providing training and career guidance for young people has proved to be a highly successful market for MiddletonMurray, but the company also prides itself on its ability to help companies find the perfect employee or apprentice, and those already in work to move up the career ladder.
Angela Middleton is also the author of ‘How To Get Your First Job…And Build the Career You Want’, a guide for 16 to 24 year olds on how to choose the right career, get their first job, excel within that job and quickly progress in the role.