Maybe your Finance Director is asking about the mysterious levy on your payroll? Or maybe you already know the Apprenticeship Levy exists, but you’re not sure how it works or what to do with it?
Here at Visionpath, we’ve been advising businesses how to nurture and hire apprentices for almost a decade and a half – including how to make the most of their Apprenticeship Levy. In this blog post we’re outlining who pays an Apprenticeship Levy, why it exists, and how to use your Apprenticeship Levy.
Who pays an Apprenticeship Levy?
Technically, all businesses are charged 0.5% of your annual payroll (including overtime payments and bonuses) for the Apprenticeship Levy. But since all employers receive an annual Apprenticeship Allowance of £15,000 to offset against these payments, only those with an annual payroll of over £3 million actually pay it in real terms (since 0.5% of £3 million is £15,000).
Levy-paying employers (those with a payroll over £3 million) get to spend all the funds you contribute, plus you also get a 10% top-up from the Government. The only catch is: you must spend all funds within two years of paying them, otherwise that money goes back to the Government.
But even non-Levy-paying employers (those with a payroll under £3 million) only have to pay 5% of any apprenticeship training costs, with the government subsidising the other 95%. This deal also applies for Levy-paying employers who run out of Apprenticeship Levy funds.
If you’re not sure whether your business pays into an Apprenticeship Levy, ask your Finance Director. (Some people who’ve worked in HR for years don’t even realise their Apprentice Levy pot exists!)
Did you know…
If you’re a small business that doesn't pay the Apprenticeship Levy, the government will pay 95% of the cost of any apprentice-training programme – meaning a business administration course that would usually cost £5,000 would only set you back £250.
If you hire an apprentice under the age of 18 you might not have to pay anything for their course, plus you’ll even get a £1,000 incentive payment.
Why does the Apprenticeship Levy exist?
Introduced in 2017, the Apprenticeship Levy is meant to encourage employers to offer apprenticeships – and improve the quality of the apprenticeships they offer – by generating sustainable funding they can use to develop talent.
But why? In theory, apprenticeships offer a more democratic route into the workplace for young people, because they don’t rely on having connections who can facilitate a first job without previous experience, or necessitate shelling out for specialist training to develop the skills needed for a role. For businesses, they’re a great way to develop a talent pipeline and encourage higher retention in early careers.
But in reality, only 13% of degree-level apprenticeships are currently going to disadvantaged young people. That’s where Visionpath comes in. We believe a young person’s background shouldn’t limit their potential, so we help employers to inspire, engage and hire socially diverse school-leavers by helping you design and manage inclusive apprenticeship schemes.
How do you see your Apprenticeship Levy?
The Apprenticeship Levy can feel a bit mysterious – every month you notice a payment leaving your account, but you might never have seen where it goes. To find out how much money you’ve paid into your Apprenticeship Levy, access funds to pay for apprenticeship training, and find out when your balance expires, set up an account on Digital Apprenticeship Service.
What can you spend your Apprenticeship Levy on?
You can only spend your Apprenticeship Levy on training and developing talent, which effectively means paying for their apprenticeship training course. Not only that, the course must be with an approved provider and last for a minimum of 12 months. To give you an idea of what you can get: a Level 3 Business Administration apprenticeship will set you back around £5,000; a Level 4 Data Analyst apprenticeship costs about £15,000; and a degree-level manager training apprenticeship is in the region of £22,000.
You can’t use your Apprenticeship Levy to pay apprentices’ salaries, or to fund any of the associated costs of hiring them – such as recruitment fees, travel allowances, accommodation expenses, or spend on equipment and technology.
However, if you’re not likely to use your entire allowance, you can divert up to 25% of your Apprenticeship Levy to a business of your choice – such as another company in your supply chain.
Make a note…
While all UK employers are liable for the Apprenticeship Levy, employers can only spend your Levy funds on apprenticeships for employees based in England. If a proportion of your employees are based in Northern Ireland, Scotland or Wales, an equivalent proportion of your Levy funds will be paid to the relevant government/s, who manage apprenticeships in their countries separately.
What do you need to think about when using your Apprenticeship Levy?
First off, don’t rush to create an apprenticeship just because you want to use up your Apprenticeship Levy. The same as when you’re hiring for any new role, it’s important first to identify where the gaps are in your workforce and what the remit of a new role should be, as well as ensuring you have the infrastructure to support a new hire. Forgetting this might lead not only to dissatisfied apprentices who ultimately don’t stay with your company, but also wasted budget and a knock-on effect on the rest of your team.
You also need to make sure you have the budget to accommodate an apprentice. Sure, you might be able to pay for their training programme using your Apprenticeship Levy, but what about all the other costs outlined above? Plus, you might even need to pay for manager training to prepare senior members of your team to welcome their new colleagues and reports.
How do you hire apprentices?
If you’re committed to taking on an apprentice, but aren’t sure where to start, Visionpath can help. We’ll support you with a specific area of apprentice-hiring, or manage the whole process end-to-end. Check out our ideal timeline for hiring apprentices, or get in touch to find out more.
Want help making the most of your Apprenticeship Levy? Get in touch to find out how we can help.