Apprenticeships - how heavy is the levy?

Now Article 50 has been triggered one of the great concerns is Brexit’s effect on foreign workers. Both the European Commission and the UK Government agree it’s a priority but no one knows how it’s going to turn out – and for the construction industry in particular that’s a major concern.

 The apprenticeship levy, which kicked in on April 6th aims to boost vocational skills and create an additional three million new apprenticeships in England by 2020. In its policy paper the government says it will support quality training by putting employers at the centre of the system. “Employers who are committed to training,” it says, “will be able to get back more than they put in by training sufficient numbers of apprentices.”

Who pays the apprenticeship levy? 

All employers with an annual pay bill of over £3 million will pay the levy. This means it will apply to only 2% of UK employers. The levy is equivalent to 0.5% of that pay bill, with an offset allowance of £15,000.

How is the levy calculated?

The monthly breakpoint figure is £250,000. For anything above this the levy will need to be paid, minus the monthly allowance of £1,250. This may seem to be splitting hairs, but for industries like construction in which employment rates are variable the distinction can be quite important.

For construction it’s reckoned about 1% of employers registered with the CITB (750 companies at group level) will need to pay the levy.

How it works

So that’s what employers pay. But what do employers and their employees get back?

The CITB tells us the answer is quite a bit. But it isn’t easy.

For companies in England big enough to pay the levy, the funding they get in return is paid against a digital voucher system which can cover training to take someone to the next level of their main skill, or to improve their level of a secondary skill. These employers have to choose training providers and negotiate the cost of the training for themselves. There are different funding bands for different areas of training, so if an employer secures a training deal within the band limit the cost will be covered. If the training cost is higher than the band limit the employer has to make up the difference.

For companies that don’t have to pay the levy, different rules apply. They need to choose and bargain with training providers in the same way – but they have to pay 10% of anything within the band for that training, plus anything over the band limit.

So let’s say a construction company that doesn’t pay the levy wants to train someone in a skill for which the band ceiling is £3,000. If they manage to buy in the training for only £2,000, that’s inside the band so they pay £200 and the government pays the rest.

But if the deal they do on the training is for £4,000, that’s beyond the band ceiling. So now they pay 10% of the band limit – £300 – plus the excess of £1000. Once again, the government pays the balance.

Not complicated enough? OK, well here are some wrinkles, courtesy once again of the CITB. Different figures and incentives apply for 16- to 18-year-olds, for young people who have been in care, for those with low skills in maths and English, for those from deprived areas and for those with learning disabilities. If some employees live in Scotland and Wales the levy to be paid is different, and also the devolved administrations decide how funds will be used. Oh, and the digital voucher system won’t apply in Scotland, Wales and Northern Ireland.

You can read further details on the apprenticeship levy and its application to the construction industry on the CITB website here.

Taking stock

Few, if any, question the importance of the UK developing the home-grown skills it’s going to need in a more automated and post-Brexit future. The government and other parties recognise how crucial it is and so, of course, does the construction industry.

But it’s a big area, and covering it comprehensively means the rules aren’t entirely straightforward.

Perhaps one of the first areas in which construction industry employers should invest is in developing skills for the administration of the apprenticeship levy…