Small employers get ‘fair settlement’ as levy funding model set out

SMEs will receive 90% of the costs of employing new apprentices under proposals set out today (15 August) for the new apprenticeship levy.

The Department of Education set out proposals on the funding bands it intends to introduce to go with the new apprenticeship levy, which is due to come into force in May 2017.

The new levy will requires all employers operating in the UK with a pay bill over £3m each year, to pay 0.5% of their payroll bill minus an allowance of £15,000, into the training fund. Most SMEs would be able to claim funds from the levy, but would not have to pay in to it.

There will be 15 funding bands ranging from between £1,500 and an upper limit of £27,000, depending on the type of training. All existing and new apprenticeship frameworks and standards will be placed within one of these funding bands.

The upper limit of each funding band will cap the maximum amount of funds an employer that pays the levy can use towards an individual apprenticeship. The upper limit will also cap the maximum price the government will “co-invest” towards, where an employer does not pay the levy or has insufficient funds and is eligible for extra support. It will be up to employers to negotiate prices with providers, within these funding limits.

The government says that 98% of companies in England will not have to pay the levy

The new proposals were called a “fair settlement for small employers” by the Federation of Master Builders (FMB).

Brian Berry, chief executive of the FMB, said: “The funding arrangements appear to strike a reasonable balance, which takes into account the support that small employers need. Those employers with wage bills of less than £3m, who will fall beneath the threshold for paying the new Apprenticeship Levy, will be required to pay 10% contributions towards the cost of training and assessment.

“This means most small employers should not end up paying more towards training than they currently do. Furthermore, FMB members report significantly higher costs and difficulties associated with training apprentices straight out of school. Therefore, it is right that for small employers training 16-18-year-olds this co-investment requirement will be waived and a further £1,000 payment will be paid to employers to help with these costs.”

The government says that 98% of companies in England will not have to pay the levy, but Alasdair Reisner, chief executive of CECA, said: “It’s still very early and we are looking over the details in depth now, but we are getting a feeling that some of the bands for businesses or the construction sector look quite low, which may have a negative impact on the construction industry and its ability to fill apprenticeship figures.”

The DoE is proposing that the new funding system comes into effect on 1 May 2017 so that levy-paying employers can use funds in their accounts to pay for training from the first month they declare levy payable through the PAYE system.
All apprenticeships started before 1 May will be funded through to completion according to the existing rules.

Robert Halfon, apprenticeships and skills minister, said: “We need to make sure people of all ages and backgrounds have a chance to get on in life. Apprenticeships give young people – especially those from disadvantaged backgrounds – a ladder of ‎opportunity. That’s why we continue to work tirelessly to deliver the skills our country needs. The apprenticeship levy is absolutely crucial to this.”

For small employers with fewer than 50 employees the government is also proposing to waive the co-investment requirement if they take on 16-to-18-year-old apprentices or 19-to-24-year-olds formerly in care. This would mean that these employers will not have to contribute towards the cost of training – the government will pay 100% of the costs.

To help employers see how the levy and funding system would work for them, the government has created a new online calculator. The simple-to- use tool will enable employers to understand how much levy they will pay and how they could use their digital funds to pay for training in future.

Organisations have until 5 September to respond to the consultation and the levels are due to be set in October.

Large construction companies will have to make levy payments to both the new levy and CITB as well. It is estimated at least 900 firms fall into this category. 

Steve Radley, director of policy at CITB, said: “This announcement brings mixed news for construction, but it’s good that government has responded to what we said on the challenges faced by smaller firms.”