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Emma O'Connor
Emma O'Connor,
HEAD OF TRAINING
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What is the new apprenticeship scheme and levy?
12 January 2017

An apprenticeship scheme allows workers over 16 years of age to work towards a work based qualification; qualifications may take anywhere from one to four years to gain and are achieved through a mixture of on-the-job learning and studying. The new government-backed “apprenticeship levy” scheme will allow certain sectors and industries to reclaim a percentage of their training provider costs for new apprenticeship schemes from April 2017.

Regardless of whether the apprentice is working under the new apprenticeship “standards” or other apprenticeship arrangement, the law in general protects apprentices in that they must:

  • Be 16 or over
  • Be paid at least the national minimum wage rate (NMW)
  • Work more than 16 hours per week
  • Be offered the same terms and conditions as other employees working at a similar level, including benefits/support, sick pay and holiday
    • Be paid for their “study” time

Apprentices under any of the new apprenticeship schemes will be under an “apprenticeship contract” and enjoy the same employment rights as employees, including discrimination and harassment protection. However, if the legal requirements for a new apprenticeship are not properly fulfilled, the employer may inadvertently create a “common law” apprentice. These are apprentices under a “contract of apprenticeship” who enjoy enhanced employment rights, including limits on the circumstances in which the employer can fairly dismiss them. Organisations should therefore take care when creating an apprenticeship agreement that they do fulfil all the requirements so that their apprentices do not gain enhanced protections under common law.

All change - new apprenticeship standards

In 2015, the government introduced a more flexible apprentice arrangement with a simplified framework, creating an “approved English apprenticeship”. However, these frameworks were criticised for not reflecting the skills required by industry. From 6 April 2017, the way apprenticeships schemes work in England (note not Wales, Scotland and Northern Ireland) will change once more. “Frameworks” will be phased out and replaced by new apprenticeship “standards”. These “new” apprenticeship standards have been developed in partnership with industry and are designed to provide employers with the flexibility to develop an apprentice with the skills they require for their business.

Under this new approach, any new apprentices will be required to spend 20% of their time in not on-the-job training and will have the same employment rights as those employed under an apprenticeship agreement.

Apprenticeship pay and levy

Apprentices are entitled to an “apprenticeship rate” of the NMW if:

  • They are employed under a contract of apprenticeship or apprenticeship agreement, or certain government apprenticeship schemes; and
    • They are under 19 years of age or in the first year of their apprenticeship.

If an apprentice is aged 19 or over and has been an apprentice for more than one year, they are entitled to the development rate or adult rate of NMW, dependent on age.

The government has also published draft legislation, proposing a new apprenticeship levy. The levy will be payable by organisations with a pay bill greater than £3 million per year. It will be calculated at 0.5% of that organisation’s total gross annual pay bill less an annual allowance of £15,000. “Pay bill” for these purposes means those employee earnings which are subject to Class 1 National Insurance, e.g. wages, bonuses, commission payments, pension contributions but not other payments such as benefits in kind.

The apprenticeship levy will not be payable by employers with an annual payroll under £3 million.

For those required to pay the apprenticeship levy, it will be paid in monthly instalments and deducted by HMRC along with the monthly NICS and Income tax payments.

As the apprenticeship levy is calculated as a proportion of the payroll for each month, employers with seasonal or variable pay bills may be liable to pay the apprenticeship levy in some months and not in others. If too much apprenticeship levy is taken over the course of the year, organisations will be eligible to apply for a rebate at the end of the year.

There is some good news for employers who are subject to the apprenticeship levy - apprenticeship levy payments are an allowable expense for Corporation Tax purposes, meaning they could help to reduce an organisations Corporation Tax bill. There are also proposals to scrap NICs on the first £40,000/year of an apprentice’s earnings for approved apprentice schemes from April 2017.

How will the levy work?

Employers who are required to pay the apprenticeship levy will be able to claim funding “credits” back towards the cost of approved apprenticeship training - but only for new apprenticeships created on or after April 2017 (existing apprenticeships will not be eligible for this source of funding).

These credits are paid in monthly instalments, up to a set maximum value which is dependent on the “band” the apprenticeship falls into. For example, a hospitality team member is classed as Level 7 and eligible for a max of £5,000 funding credits, whereas a Commis Chef is Level 9 and eligible for up to £9,000 of funding credits*. For more information on the funding bands, please visit the government's website at:

www.gov.uk/government/publications/apprenticeship-funding-from-may-2017

The credits remain available for the employer to use for 24 months before they “expire”, allowing employers the time and flexibility to plan out their training requirements and budgets.

Employers who are not required to pay the apprenticeship levy but who want to make use of the new apprenticeships are able to do so through a new co-investment scheme. Under this scheme, the employer will pay 10% of the cost of the training and the government will pay the remaining 90% out of the apprenticeship fund.

Employers who pay the apprenticeship levy but have already exhausted all of their eligible funding for the year are also able to make use of this scheme. This means that, in theory, an employer committed to training apprentices could receive more back from the levy than they are required to pay out.

This legislation has still not been finalised, and will not be effective until 6th April 2017. However, Employers should begin to consider how the allowance can best be allocated in the most cost effective way in light of the levy.

Hiring an apprentice – the new rules?

From 2017, to hire an apprentice, an organisation should:

  • Research the most suitable apprenticeship standard that’s right for your organisation
  • Choose the registered approved training provider (or providers) who deliver training for your specific industry or sector
  • Choose the right organisation to assess your apprentices at their “End Point assessment”
  • Check eligibility for apprenticeship levy or co-partnership funding
  • Advertise for a specific apprentice – or you can even place your existing staff on an apprenticeship scheme if they need new skills
  • Once your apprentice is selected, make sure you have an apprenticeship agreement and course plan agreed with them.

Under new rules, there must be an approved apprenticeship scheme, an apprenticeship agreement and course plan in place when employing an apprentice, detailing the particulars of the apprenticeship. Details of approved schemes can be found on the government’s website.

Levy paying organisations are able to do all of these things through the Digital Apprenticeship Service – an online portal with online tools, calculators and information. This is due to go live in January 2017, ready for the start of the new apprenticeships scheme in April 2017. For non-levy paying organisations, access to the digital portal will not be rolled out till 2020. In the meantime, they can continue to negotiate and agree training programmes directly with their chosen training provider.

Reaction to the levy?

We are still waiting for the final Regulations and guidance from the government to see how the apprenticeship scheme will work in practice. There has not been a good reaction from industry to the proposed levy, which is seen by many as a new payroll tax. HMRC has said that employers who are committed to training will get more back than they put in via the levy by training a sufficient number of apprentices.

The consultation on the levy has closed and we will have to wait and see whether the government can be persuaded to look again at the proposals. The leisure and hospitality sector in particular will be keen to learn more details about the proposed levy before it can analyse how big an impact it will have.

To discuss how apprenticeships and the proposed levy might affect your organisation, or if you require any further information about our Leisure and Hospitality Team and how they can help you, please contact Helen Goss on 0118 952 7254 or email leisure&[email protected].


*As at December 2016

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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