Struggling to get your head around the new employer levy and how you can use it to grow apprenticeships within your construction firm? DMR has put together a comprehensive guide to answer all your questions.
An apprenticeship is a job with an accompanying skills development programme. The apprentice gains the technical knowledge, practical experience and wider skills he or she needs for their immediate job and future career. The apprentice gains this through a wide mix of learning in the workplace, formal off-the-job training and the opportunity to practise new skills in a real work environment.
An apprentice is expected to be carrying out a new job role as an employee, or if in an existing job role, to require sustained and substantial training. Training will be delivered within the apprentice’s contracted working hours.
The employer must pay their apprentice’s wages and issue a contract of employment or equivalent. The apprentice must receive the Apprenticeship National Minimum Wage. Apprentices aged 16-18, or in the first year of their apprenticeship, must be paid a minimum of £3.50 per hour. All other apprentices are entitled to the National Minimum Wage for their age i.e. £5.60 per hour for apprentices aged 18-20 and £7.05 for those aged 21 and over. The minimum hours of employment for an apprentice should be at least 30 hours per week.
Employers can offer apprenticeships to new entrants aged 16 plus or use them to grow talent from among their current employees. Hiring apprentices is a productive and effective way for businesses to grow their own talent by developing a motivated, skilled and qualified workforce and can help improving productivity and reduce staff turnover and recruitment costs.
Apprenticeships in England are changing. New apprenticeship standards are being designed by employers to meet their changing needs. The new apprenticeships will be more rigorous, better structured, independently assessed and more clearly aligned to the needs of employers.
What is changing?
The new apprenticeship standards put employers in the driving seat in terms of designing the apprenticeship standards to meet their industry’s needs and specifying the knowledge, skills and behaviours required for a specific job role.
Independent synoptic end-point assessment is being introduced to assess an apprentice’s knowledge, skills and behaviours. This will replace the current approach of continuous assessment and qualifications known as apprenticeship frameworks.
The new approach separates training delivery and assessment. It allows employers and training providers to focus on training and learning and to help apprentices develop their knowledge, skills and behaviours and gain the maximum possible experience before they are assessed. There is no mandatory requirement for qualifications.
Towards the end of the apprenticeship, the employer and training provider will ‘sign-off’ the apprentice as being ready for end-point assessment.
The end-point assessment will use a number of assessment methods and will be delivered independently of the training provider and employer by an assessment organisation selected from a national register. The end-point assessment will be graded in most cases. The apprentice must pass the end-point assessment in order to complete the apprenticeship and be deemed to be competent in the job role.
Some of the new apprenticeship standards will be classed as degree apprenticeships where the apprentice can combine part-time attendance at a university to undertake studies directly related to their job role.
What is happening in the construction industry?
A number of new apprenticeship standards have been developed by groups of employers and have been approved such as electrician, gas engineer, property maintenance operative, surveying technician and chartered surveyor. Other new apprenticeship standards are in development such as those covering the roles of a civil engineer, civil engineering site manager, construction design manager, construction site manager, joiner, painter and decorator, plasterer, plumber, quantity surveyor, roofer and scaffolder etc. Apprenticeships therefore will cover a range of job roles at a range of levels with a range of durations.
Apprenticeships are of course also available in other sector trade areas which may be of interest to construction companies such as business administration.
In the meantime, the existing apprenticeship frameworks will be available until the new standards are fully launched.
What are the funding arrangements?
The government introduced a new apprenticeship levy and a new funding system from 1st May 2017. The levy is intended to fund apprenticeship delivery in the future.
What are the levy arrangements?
The levy will be calculated at 0.5% of an employer’s payroll bill for all employees in the UK with a £15,000 allowance which is like a tax allowance. The levy will be collected monthly by HMRC through PAYE.
The calculation will be based on all directly employed employees, but not contractors. It will include all payments made through the payroll, but not benefits. It will apply to groups of companies, but not franchisees.
The £15,000 allowance will mean that employers with an annual payroll bill of less than £3 million will not have to pay the apprenticeship levy. The government expect fewer than 1.5% of employers to have to pay the levy.
Can you provide some examples?
1) An employer has 250 employees each with gross salary of £20,000.
The pay bill is 250 x £20,000 = £5,000,000.
The levy sum is 0.5% x £5,000,000 = £25,000.
The allowance = £25,000 – £15,000 = £10,000 annual levy payment.
2) An employer has 125 employees each with gross salary of £28,000.
The pay bill is 125 x £28,000 = £3,500,000.
The levy sum is 0.5% x £3,500,000 = £17,500.
The allowance = £17,500 – £15,000 = £2,500 annual levy payment.
3) An employer has 50 employees each with gross salary of £22,000.
The pay bill is 50 x £22,000 = £1,100,000.
The levy sum is 0.5% x £1,100,000 = £5,500
The allowance = £5,500 – £15,000 = £0 annual levy payment.
Will the levy be refunded if the employer recruits apprentices?
No, not in the form of a grant. However, in England levy funding can be spent on the delivery of apprenticeships in conjunction with an approved training provider.
Levy funds can’t be used on other costs associated with apprentices or wider training delivery – e.g. mentoring in workplace, wages, statutory licences to practise, travel costs, managerial costs, set up costs etc.
The employer will need to register for an apprenticeship service account. The employer will pay the levy on a monthly basis and the account will be credited with that amount, plus a 10% government top-up. This top-up is why the government state that levy-paying employers, committed to apprenticeships, will get more out than they pay in.
How will the apprenticeship service account work?
The apprenticeship service account will track the amount of levy paid by the employer and how much is therefore available for apprenticeship delivery. The account can also be used to help the employer identify apprenticeship standards to best suit their employees’ job roles and to select a training provider to help with delivery. The government will transfer the employer’s levy funds to the chosen training provider on a monthly basis in arrears.
Over what period of time can apprenticeship levy funds be used?
Individual levy payments will be available for expenditure on apprenticeships by the employer for up to 24 months from the time that they reach the apprenticeship service account. So, for example, levy contributions made in August 2017 will remain live until July 2019. Funds will be used in the order in which they are paid in thereby maximising the amount of time they are in-scope for use.
How much levy funds will be needed for each apprentice?
Each apprenticeship for a trade or job role will be allocated to one of 15 funding bands by the government. This will denote the maximum amount of levy funding that will be required for delivery of the apprenticeship. For example, the maximum amount required for the new property maintenance operative apprenticeship standard is £9,000, whereas the maximum amount for the chartered surveyor apprenticeship is £27,000. Actual prices will be negotiated between the employer and a training provider.
How will the process actually work?
The employer will pay the levy monthly to HMRC through the PAYE process alongside tax and NICs. The first submission in which employers declared levy payments for April 2017 was the 22nd May 2017 if submitted electronically. The £15,000 allowance equates to £1,250 per month. Any unused allowance can be carried forward from one month to the next.
The employer will need to register on the apprenticeship service and verify their PAYE scheme and link them to their apprenticeship service account. The employer’s levy payments will then be transferred to their account. The government will top-up the employer’s monthly levy payments by 10%.
The employer can negotiate a price up to the relevant funding band cap level with a training provider of their choice for the delivery of each apprenticeship. The agreed price can only be used to fund externally purchased and delivered training and in the case of a new standard, the end-point assessment. The employer will record the agreed price in their apprenticeship service account.
Each training provider will issue an agreement to the employer covering the delivery arrangements and requirements for the apprenticeship.
The government will make payment to the training provider monthly in arrears from the employer’s apprenticeship service account. Payment will be made in instalments over the expected duration of the apprenticeship programme. 80% of the levy fund will be available. If the training stops early then so will the payments. The remaining 20% will be held back as a completion payment.
Which training providers will be able to deliver the training for employers?
The government has created a new Register of Apprenticeship Training Providers (RoATP).
All training providers wanting funding to deliver apprenticeship training must apply successfully to this register. The training providers must directly deliver some of the apprenticeship training themselves and will have to undergo a due diligence, quality, capacity and capability and financial health test check. The choice of training provider to be used will rest with the employer. DMR Training has applied to the register and its application has been successful. DMR Training is therefore approved to deliver construction apprenticeship training for apprentices employed by those employers who pay the apprenticeship levy.
All organisations delivering end-point assessment must be listed on the Register of Apprenticeship Assessment Organisations (RAAO). The choice of end-point assessment organisation to be used will also rest with the employer.
What if there aren’t enough levy funds in the apprenticeship service account?
The employer will only need to have enough funds in its apprenticeship service account to cover the monthly cost of the apprenticeship programme as levy funds will be paid into/from the account on a monthly basis.
However, were the employer to use up the levy funds within their account, it would be able to continue to recruit apprentices, but would pay 10% of the agreed price direct to the training provider. The remaining 90% will be paid to the training provider by the government. This will be known as a co-investment arrangement and would operate until such time as the levy funds are in sufficient credit to cover the whole required balance.
What happens if the employer’s payroll level dips above and below the £3m threshold during the course of a year?
As previously stated, employers will have an annual apprenticeship levy allowance of £15,000 which equates to £1,250 a month. Any unused allowance can be carried forward from one month to the next. So, for example, if the levy liability in a particular month is £1,000 then the employer won’t have to pay the apprenticeship levy that month. The apprenticeship levy allowance for the following month would be the usual levy allowance for that month of £1,250 plus the unused allowance from the previous month (£250) equalling £1,500.
When will the 20% completion element be taken from the apprenticeship service account?
The completion element is earned by the training provider when the apprentice has completed the learning activities. Payment will only be made to the training provider upon completion of the training and the apprentice has undertaken some part of the end-point assessment process. If apprenticeship levy funds have been exhausted when the time comes for the completion payment to be made then it becomes subject to the co-investment arrangement outlined above.
Will there be any additional funding support available to employers?
Employers recruiting an apprentice aged 16 to 18 will receive a payment of £1,000, payable in two instalments after months 3 and 12 to cover the additional costs associated with training apprentices from this age group. In addition, employers recruiting apprentices aged 19 to 24 with an education health and care plan or who were previously in care, will also attract the £1,000 payment.
Small employers with headcounts of 50 or less will be fully funded by the government at the maximum banding price when recruiting a 16 to 18 year old apprentice or a qualifying 19 to 24 year old apprentice.
What are the arrangements outside England?
The levy funds in the apprenticeship service account can only be spent in England. The UK government will allocate the levy take between the four devolved nations based on the residency of employees. If, for example, 80% of a workforce works in England and 20% work in Scotland, then 80% of the employer’s levy account would be made available in the (English) apprenticeship service account system for expenditure on apprenticeships. The remaining 20% will be allocated to the Scottish government. Employers can update their employees’ address as part of their Real Time Information returns.
Each devolved nation is responsible for how their share of the levy is spent and they are currently consulting on how best to allocate and spend their share of the levy. They may decide to deploy different systems from England.
What if the employer already pays a levy to the CITB?
The construction sector already has a long-established levy-grant system, with CITB registered employers who have an annual wage bill of £80,000 or more needing to pay a levy (of 0.5% of their PAYE wages bill and a higher rate for labour payments made to subcontractors) and this levy is then used to fund employers to train, qualify and upskill staff (including the training of apprentices).
Therefore, depending on the size of their payroll, an employer will potentially have to pay 2 levies in 2017/18. The government have commissioned a review of the industrial training boards and future funding arrangements. In the meantime, the CITB will offer an enhanced grants package to employers to help mitigate against the impact of two levies. Eligible employers can continue to claim CITB grants to support the delivery of apprenticeship training.
If the employer selects DMR Training as their lead training provider can they still claim CITB apprenticeship grants?
Yes! Employers can claim apprenticeship grants as they do now for apprentices on a government approved apprenticeship programme with an approved training provider such as DMR Training.
What happens if the employer doesn’t pay the apprenticeship levy?
Employers with an annual payroll of less than £3 million will not be required to pay the apprenticeship levy. However, these employers must co-invest 10% of the agreed total price up to the funding band maximum when participating in apprenticeships. The government will co-invest the remaining 90% contribution. The employer contribution will be paid over the duration of the apprenticeship programme.
The government will waive the 10% co-investment requirement for employers with fewer than 50 employees if the apprentice is a 16-18-year-old or an 19-24-year-old with either an Education, Health and Care plan provided by the local authority or who has been in the care of the local authority. The government will pay 100% of the total price for these individuals, up to the maximum value of the funding band.
The government will also generate the additional payment of £1,000 for the employer if the apprentice is a 16-18-year-old or an eligible 19-24-year-old. These payments will be split into two equal payments when the apprentice is still in learning at 90 days and 365 days.
Version 1. Information correct as at July 2017.
Download this guide as a PDF: Apprenticeship Levy For Construction Employers
If you’re looking to take on an apprentice in a construction-related trade in Greater Manchester, give DMR a call on 01942 673047 or send us a message via our contact form. Whether you already have someone in mind for the role, or need to recruit, DMR provides an all-in-one service including recruitment, training, assessment and help applying for grants.