Risk & Economy » Regulation » Apprenticeships add value over the long run

There is plenty of evidence that participants in apprentice schemes believe they are good for their career prospects. Half of those replying to a recent Grant Thornton survey said that apprenticeships are as valuable as a university degree.

For employers, apprenticeships offer an opportunity to foster young talent, upskill their workforce and imbue the company with fresh energy. Data from the National Apprenticeship Service revealed that 92% of companies with apprentices believe this leads to a more motivated and satisfied workforce and 80% have seen a significant increase in employee retention.

Since 6 April 2017, employers with a pay bill over £3m annually, about 2% of employers, are obligated to pay the apprenticeship levy. This comprises 0.5% of the pay bill being paid through HMRC’s PAYE process.

For finance directors there are significant financial benefits to companies participating in apprenticeship schemes. For employers already recruiting numerous graduates onto a graduate training programme, levy-funded apprenticeships offer a cost-effective alternative to standard programmes.

When the levy fund runs out companies can switch to a co-finance model in which the employers pays 10% towards training and the government will pay the rest (90%)- so an investment of £10m could bring £90m of additional funding. It will also cost less to train new starters and existing staff, by switching to apprenticeships and using the levy to pay for them.

So with all these benefits it makes sense to take advantage of the apprenticeship levy. But the bad news is that apprenticeships have seen a 25% drop in the first two quarters of the year, according to the Department of Education.

Although the apprenticeship levy celebrated its first birthday in April of this year, many businesses, particularly on the smaller end of the spectrum, have criticised the apprenticeship levy for being complex and burdensome, and have called for change.

Rebooting the levy

In the Spring Statement the Chancellor acknowledged the potential obstacles for smaller businesses and pledged £80m funding to support them taking on apprentices, and the system has seen some reform in recent weeks.

Under new government changes introduced this week, from July levy-paying employers will be able to make transfers of up to 10% to as many other employers as they choose. Previously, the transfer was only permitted to one other employer.

The option to pass on a portion of the levy allows companies to support training in smaller companies, such as those in their supply chain who may not otherwise be able to fund apprenticeships.

The 10% allowance is calculated from the total amount of levy declared during the previous tax year, with the English percentage applied, plus the 10% government top-up payment.

Employers receiving the funds will only be able to use them for new starters beginning after 1 May 2018.

Employer checklist

The government has also published guidelines for employers taking on apprentices, including a checklist of considerations. A key point to consider is whether an employer can offer a genuine job for the apprenticeship. The role must give apprentices the opportunity to develop their skills and knowledge and they must be given appropriate support and supervision.

The employer must also verify the eligibility of the apprentice, who must have the right to work in England and should log at least 50% of their working hours in the country. The apprenticeship must be started after the last Friday in June of the academic year in which they have their 16th birthday.

With regards to payment, employers will have to select a main provider and negotiate the total cost for the apprenticeship. If the price negotiated exceeds the maximum funding band, the employer must pay the difference.

Other responsibilities outlined in the document relate to paperwork, such as putting together an apprenticeship agreement, a commitment statement and providing evidence of weekly hours.

Future of apprenticeships

Ben Rowland, co-founder of Arch Apprentices (https://www.archapprentices.co.uk/), which works with companies to deliver successful apprenticeship programmes, says there will be an improvement to the number of participants once employers get used to the levy. “It takes large companies 12-18 months to get their heads around the levy- and that’s not surprising. It’s a big initiative, with a lot of money involved and it’s totally new,” he says.

Arch advises employers, including those that don’t pay the levy, on a number of areas regarding apprenticeships. “If they need to hire we help them hire, if they’re assisting staff on programmes we can help them, and we do all the training- working with specialist partners,” says Rowland.

For many finance directors, justifying the upfront cash outlay for training is quite hard, because the payback doesn’t come back for a while or in an easily tangible form, says Rowland. “The levy says we’re going to take the angst regarding the financial decision-making out of their hands. Now they can get on with thinking if we have this budget for training how are we going to use it best,” he says.

“The idea of employers switching overnight to the levy was never going to happen. I think it’s a good thing it hasn’t happened that way- as no-one has rushed to spend their levy. They’ve been quite thoughtful about it and prepared for it well,” says Rowland.

He says that while many finance directors may not have constant oversight of apprenticeship programmes they may play a key role in briefing HR and Leadership and Development teams who may require a window of 18 months to three years to deliver the best outcome for their organisations.