Government Reforms: Apprenticeships and the Levy

What do we already know?

We have been keeping you up to date in our Newsletters and Blogs on Apprenticeships which have been making HR/Employment law headlines in recent years due to the Government’s efforts to encourage employers to take on apprentices to address skills shortages and improve opportunities for young people. The latest initiative has been the Government’s introduction of the Apprentice Levy introduced on 6 April 2017.

Given the ongoing importance of this topic, particularly for those levy-paying employers who now have a financial incentive to explore the use of apprenticeships, we thought it worth a “back to basics” FAQ recap:

1. What is an apprenticeship?

Apprenticeships are for those aged 16 or over and combine working with studying for a work-based qualification. Apprenticeships take 1 to 6 years to complete depending on the level of qualification the apprentice is studying for (see below). During this time the Apprentice must:

  • be employed in a job under an Apprenticeship Agreement;
  • be employed for at least 30 hours per week (except where the individual’s circumstances or the particular nature of employment in a given sector makes this impossible when a minimum of 16 hours applies instead);
  • work alongside experienced staff;
  • gain job-specific skills;
  • earn a wage, get holiday pay and receive the same benefits as other employees; and
  • spend at least 20% of their working time on off-the-job training.

Apprenticeships must be undertaken either under an apprenticeship framework or an apprenticeship standard and these set out the requirements for completing an apprenticeship programme in a particular occupation or industry.

Frameworks are being replaced by standards. The main difference being that standards are designed by employers for particular occupations, rather than the framework which is a series of work-related vocational and professional qualifications. Apprenticeships may still be undertaken under frameworks as long as there is no standard in place yet for the particular role. However, it’s expected that frameworks will be phased out and replaced by standards by 2020.

Standards are developed by groups of employers, large and small, under the Government’s Trailblazers initiative. These groups of employers in a sector get together and design the standards, setting out the knowledge, skills and behaviour required to carry out a particular occupation well. At the end of an apprenticeship under a standard, the apprentice is assessed by an independent assessor to make sure that they’ve reached the required standard.

Each framework or standard is allocated to a funding band which is the maximum which can be paid to the provider for that apprenticeship.  Payments by the employer to the apprenticeship provider of 80% of the price will be paid on a monthly basis, with the remaining 20% to be paid at the end of the apprenticeship.

2. Who are apprenticeships for?

Apprenticeships are not just for school leavers. There are no age limits for apprenticeships. Existing staff can undertake apprenticeships as a way of developing new skills, so employers can explore whether apprenticeships might be suitable for employees as part of their ongoing training and development. Even if an employee already has a degree, for example, they would be eligible to undertake an apprenticeship at any level, as long as the content of the training is different from any qualification they already have and would allow them to develop new skills.

3. What levels of apprenticeship are there?

Level 2 (Intermediate Apprenticeships) equivalent to:

  • GCSEs grades A*–C;
  • BTEC First Diplomas and Certificates;
  • OCR Nationals;
  • Key Skills Level 2; and
  • NVQs at Level 2.

Level 3 (Advanced Apprenticeships) equivalent to:

  • A Levels;
  • Advanced Extension Awards;
  • GCE in applied subjects;
  • International Baccalaureate;
  • Key Skills Level 3;
  • NVQs at Level 3;
  • BTEC Diplomas, Certificates and Awards;
  • BTEC Nationals; and
  • OCR Nationals.

Level 4 to 7 (Higher/Technical Apprenticeship) can lead to:

  • NVQs at Level 4;
  • BTEC Professional Diplomas, Certificates and Awards; and
  • Foundation Degrees.

Level 5 to 7 (Degree/Graduate Apprenticeships):

  • These were launched in September 2015 and are similar to higher apprenticeships, but differ in that they provide an opportunity to gain a full bachelor’s (Level 6) or master’s degree (Level 7).

4. How much do you need to pay an apprentice?

Apprenticeship pay depends on the age and length of service of the apprentice:

  • under 19 years old: £3.50 per hour (i.e. the current national minimum wage apprentice rate);
  • 19 years old or over but only in first year of apprenticeship: £3.50 per hour (i.e. the current national minimum wage apprentice rate);
  • 19 years old or over and have completed first year of apprenticeship: the current National Minimum or Living Wage rate. As of April 2017 this is:
    • £5.60 up to 20 years old;
    • £7.05 for 21 to 24 years old;
    • £7.50 for 25 years old and above.

5. What is an Apprenticeship Agreement?

The purpose of the Apprenticeship Agreement is to:

  • identify the skill, trade or occupation for which the apprentice is being trained; and
  • confirm the qualifying Apprenticeship framework that the apprentice is following.

It is an agreement between an employer and an apprentice under which the apprentice undertakes to work for the employer and is a contract of service (rather than a contract of apprenticeship) which must be in writing and contain the employment details required by s1 of the Employment Rights Act 1996. This reflects the fact that an Apprenticeship is primarily a job rather than training and does not convey any additional rights over those of other employees.

Apprentices have the same rights to annual leave, working time, protection from discrimination and so on as other employees and they have the same right to claim unfair dismissal. One difference is that they don’t have the same protection from less favourable treatment on the basis of being fixed-term workers.

However, it is worth noting that you can’t usually make an apprentice redundant simply because you can’t afford to pay them (for example, if your company runs out of work). If you find yourself in this position then please contact the Menzies Law team for our advice on 0117 325 0526.

For all Apprenticeships commencing on or after 6 April 2012 the requirement to be employed under an Apprenticeship Agreement is a condition for completion of an Apprenticeship. Without it an Apprenticeship certificate cannot be issued.

The details to add to an apprentice’s written statement of particulars, in addition to those required by s1 of the Employment Rights Act, are as follows:

Apprentice name:

Skill, trade or occupation for which the apprentice is being trained:

Relevant Apprenticeship framework and level:

Start date:

Estimated completion of learning date:

6. What is the Apprenticeship Levy?

The Apprenticeship Levy is a levy on UK employers to fund the costs of apprenticeship training and assessment. The levy is set at 0.5% of an employer’s paybill (the paybill is the employer’s total employee earnings subject to Class 1 secondary national insurance contributions). The levy is in force from 6 April 2017 and employers will start to report and pay the levy to the HMRC through the PAYE process from 1 May 2017.

Each employer has an annual allowance of £15,000, which will be offset against the levy. In effect, only employers with a paybill of more than £3 million will be liable to pay the levy (because 0.5% of £3 million is £15,000). Companies and charities that are connected in a group structure have one £15,000 allowance to share between the group. For further detail on how to calculate the annual paybill and whether you need to share your £15,000 allowance see the Government’s guidance here.

The levy is paid through PAYE on a monthly basis. The allowance will also be applied on a monthly basis and any unused allowance can be carried forward to the next month.

The new online Digital Apprenticeship Service (DAS) will distribute the funds raised by the levy for employers to use on apprenticeship training and assessment in England. These funds will expire 24 months after they enter the DAS account unless the employer spends the funds on apprenticeship training with a training provider. Employers will be notified in advance when funds are due to expire.

7. How do you access the funds for apprenticeships?

The funds in the DAS account can only be spent on training from a Government approved training provider (see the Register of Apprenticeship Training Providers). This training takes place under an approved framework or standard and only up to the maximum for the funding band for that apprenticeship. Therefore the funds cannot be spent on wages, management costs or recruitment costs associated with an apprenticeship or other workplace training that does not take place under an apprenticeship.

When an employer has declared the levy to the HMRC, they will be able to access the funds for apprenticeships through your DAS account (register here). This enables the employer to:

  • select an apprenticeship framework of standard;
  • choose the training provider/providers they want to deliver the training;
  • choose the organisation that will assess their apprentices;
  • post apprenticeship vacancies (if new posts);
  • set the price they have agreed with their training provider;
  • pay for apprenticeship training and assessment; and
  • tell HMRC to stop or pause payments (e.g. apprentice stops their training, takes a break from training or the agreed service has not been received by the provider).

Once an employer decides to buy apprenticeship training through the digital apprenticeship service, the funds will be taken from the digital account each month to pay the training provider. There will need to be enough funds available in the account. The employer will be able to spread the contribution over the lifetime of the apprenticeship and agree a payment schedule with the provider.

8. What about non-levy paying employers?

Employers with a pay bill of less than £3 million a year will not need to pay the levy. These employers will be able to receive Government funding towards the costs of apprenticeship training and assessment through ‘co-investment’. The Government will pay 90% of the price agreed with the training provider, up to the maximum allowed by the funding band for the relevant apprenticeship standard or framework.

The Government is offering additional support to organisations with fewer than 50 employees by paying 100% of training and assessment costs for their apprentices aged 16-18 and for those aged 19-24 formerly in care or with a local authority education, health and care plan.

9. Is there any other financial help to employ apprentices?

  • employers are not required to pay National Insurance Contributions for apprentices under the age of 25 on earnings below the higher tax rate of £827 a week (£43,000 a year);
  • £1,000 payment to both the employer and provider when they train a 16-18-year-old; and
  • £1,000 payment to both the employer and provider when they train a 19-24-year-old who has previously been in care or who has a Local Authority Education, Health and Care Plan.

10. Further information

Please do contact the Menzies Law team on 0117 325 0526 if you require any assistance with taking on apprentices, particularly with respect to pay and conditions of service.

Otherwise, the National Apprenticeship Service supports the delivery of apprenticeships and traineeships in England and can analyse training needs, identify relevant apprenticeships or traineeships and the best way of providing the training.