Analysis of the early impact of the levy on both apprenticeships and overall employer investment in workforce training and development
Apprenticeships help young people enter the job market by training on the job as well as gaining a qualification. They have become a key government policy in the UK. Funding reforms mean that, from April 2017, large employers pay an apprenticeship levy and other employers will be required to contribute some of the costs.
This factsheet reviews the key features of apprenticeships and their benefits to employers. It also looks at the elements of implementing and running a successful apprenticeship scheme and outlines the funding changes.
Apprenticeships are a great way for employers to nurture their own talent. They also provide an excellent route for young people to enter the labour market allowing individuals to train on the job and gain a qualification at the same time.
Since April 2017 all UK employers in the public and private sector with a pay bill of over £3 million have had to contribute to the apprenticeship levy (0.5% of their annual pay bill). The government estimated that this will affect fewer than 2% of UK employers.
We've voiced concerns that the levy could have damaging unintended consequences, undermining efforts to improve the quality of apprenticeships. Our latest survey found that nearly half of levy paying employers planned to offset the increased costs by re-badging existing training programmes so they can be accredited as apprenticeships. Worryingly, the survey also suggested the levy could increase the proportion of apprenticeships that go to existing and often older employees leaving fewer opportunities for young people to make the transition from education to the workplace. We recommend the government should replace the levy with a more flexible training levy to decrease the risk of re-badging or reducing investment in other valuable training.
What are apprenticeships?
An apprenticeship is a paid job which combines employment and training and is available to anyone entitled to work in the UK. The apprentice gets a nationally-recognised qualification on completion.
Apprenticeships are a unique way to ‘grow your own’; they combine on-the-job training in an organisation with off-the-job learning, and provide employers with an effective way of growing their skills base. The apprentice’s learning takes place in context and provides a real understanding of the working world, combining practical skills with theoretical knowledge. Apprenticeships can therefore offer a career route into the organisation and an invaluable opportunity to develop the expertise the business needs now and in the future.
Apprenticeships have traditionally provided structured routes into skilled work for young people entering the labour market. Recent government policy changes have brought a new focus on apprenticeships as a tool to increase national productivity, social mobility and improve the wage and employment prospects of individuals. Our collection of essays, Where next for apprenticeships?, brings together academics, experts and key stakeholders to explore the policies and practices needed to improve the quantity and quality of apprenticeships for young people.
Currently, more than 100,000 employers in the UK offer apprenticeships in over 200,000 locations, helping to attract new talent, re-skill existing staff and tackle skill shortages. There are apprenticeships available to cover a huge range of occupations and sectors, including creative and digital media, public relations, accounting, agriculture, engineering, human resources and cyber security.
The benefits of hiring apprentices
Hiring apprentices brings a number of benefits to employers:
- 80% of employers have maintained or improved future skills in the business.
- 70% of employers have seen improvements in the goods and services they offer.
- 66% of employers have experienced improved staff morale.
A critical challenge for the UK economy is its stagnant productivity growth, which holds down wages and living standards. Apprenticeships can help on that front too. According to Centre for Economics and Business research on the economic impact of apprenticeships, there is a net gain to the employer while apprentices train, and a higher output once employed. While training, apprentices are estimated to have contributed to a positive net gain of on average £1,670 per apprentice in England in 2013/14. That amounts to a total annual benefit of £1.4bn across the estimated number of apprentices. In the longer term, it’s estimated that each apprenticeship created is worth an estimated £38,000 to the economy.
Find out more on the benefits of apprenticeships from apprentices themselves and employers, as well as tips on how to set up a successful scheme in our apprenticeships podcast.
Key features of an apprenticeship
Apprenticeships are available to anyone aged over the age of 16, not in full-time education, and eligible to work in the UK. An apprentice is an employee, so all apprentices receive a wage. The Apprenticeship National Minimum Wage is set by the Low Pay Commission and revised on an annual basis. If an apprentice is aged 19 or over and has completed the first year of their apprenticeship, they are entitled to the National Minimum Wage for their age group. See the current National Minimum Wage rates.
Training is a combination of on the job and off the job. The training provided depends on the sector and skill levels of the apprentice. There's considerable variation across the devolved nations of the UK but they all comprise core elements: a competence-based element, a knowledge-based element, and transferable or functional skills.
Transferable skills - These skills are variously referred to as functional/key skills, core skills, or essential skills, but all these terms describe a core set of skills that people need in today's workplaces. They include English, maths, and information and communications technology (ICT) using practical applications.
Competence - The competence (technical skills) aspects of the apprenticeship are usually based on National Occupational Standards and are completed in the workplace.
Knowledge - The knowledge part of the apprenticeship covers the technical knowledge and theory that is relevant to the practical skills an apprentice will develop in their job role.
Employee rights and responsibilities - An apprentice should be told about their rights as an employee – what they are entitled to expect and what their obligations are to their employer and colleagues. This is mandatory in England, Wales and Northern Ireland.
Personal learning and thinking skills (PLTS) (England) or wider key skills (Wales) - These are the skills that help an apprentice to succeed at work as independent enquirers, creative thinkers, teamworkers, reflective learners, self-managers, and effective participators.
Running a successful apprenticeship programme
In Apprenticeships that work: a guide for employers, we set out ideas on how to design and run high-quality apprenticeship programmes which support business and workforce strategies. The key lessons are:
- Apprenticeships need to be embedded in a workforce planning approach, with clear business benefits as part of a long-term strategy on workforce growth and skills development.
- A prerequisite for a successful apprenticeship programme is clarity about the role that apprentices play in the organisation, job design which ensures on- and off-the-job learning and development, and a shared understanding of how they will be supported and by whom.
- Winning the support of the existing workforce, senior management, line managers and trade unions is crucial. Line managers in particular need the right support and tools to effectively manage young apprentices straight out of education who may be new to the workplace.
- The training apprentices receive on and off the job needs to be high quality and tailored to both the apprentice's and employer's needs. To achieve this, the relationship with the training provider needs to be managed carefully.
- Recruiting apprentices may differ from the usual recruitment procedure, especially when the candidate is particularly young (aged 16-18) and has no prior work experience. Alternative recruitment methods and techniques need to be considered.
- It's important to be aware of the legal framework: Apprentices are covered by a contract of employment and have similar rights to other employees; however, they have greater protection under the law than most employees.
- To ensure success, the apprentice needs to be placed at the heart of the apprenticeship programme and employers must provide ongoing support, pastoral care and mentoring. Good management of apprentices is vital to ensure they adapt to the workplace and continue to grow with the business.
- Employers need to make sure they provide fair access to their apprenticeship schemes and widen the talent pool from which they recruit in terms of gender, ethnicity and diversity.
Funding and the new apprenticeship levy
Some differences in terms of the level of funding provided and training required exist in England, Scotland, Wales and Northern Ireland, but the core features of the apprenticeship model remain the same across the four UK nations. In Scotland apprenticeships are known as Modern Apprenticeships.
From April 2017, a new apprenticeship levy applies to all UK employers with an annual wage bill of £3 million or more, whether or not they offer apprenticeships themselves. Our podcast explores the impact of the levy on organisations and what it could mean for employers of all sizes. This infographic gives a visual overview and our guide to the apprenticeship levy helps HR and L&D professionals understand how the apprenticeship levy will work and the funding rules.
Our report Assessing the early impact of the apprenticeship levy – employers’ perspective explores employer views and attitudes towards the levy, their likely reaction in terms of their investment in apprenticeships, as well as the likely effect on their wider learning and development strategies.
Employers can access and manage their funds through an online apprenticeship service run by the Skills Funding Agency. The funds can only be used toward the cost of apprenticeship training and end-point assessments.
Employers who are not liable for levy payments will also experience changes to funding, and will be required to co-invest. The government will contribute 90% of the cost of training, with employers paying the remaining 10%.
UK apprenticeships are a devolved matter. This means levy monies paid in association with employees living in any of the devolved regions of Scotland, Wales and Northern Ireland will be allocated to the relevant devolved authority and deployed according to their specific strategy/process. How this will work practically in each context has yet to be announced.
Useful contacts and further reading
National Apprenticeship Service Helpdesk Telephone: 0800 015 0400
Books and reports
DEPARTMENT FOR BUSINESS, INNOVATION AND SKILLS. (2013) The future of apprenticeships in England: implementation plan. London: BIS.
Apprenticeships - traditional and modern. (2014) IDS Employment Law Brief. No1002, August. pp12-18.
FOSTER, S. (2017) Apprenticeships: what’s next?PM Daily. 13 January.
LEWIS, M. (2016) How will the upcoming apprenticeship levy affect employers? Employers' Law. May. p17.
MAKOFF, A. (2017) Apprenticeship levy dubbed stealth tax following IFS report. PM Daily. 31 January.
MARTIN, A. (2015) Avoiding the potential employment law problems when working with apprentices. Employers' Law. February. pp12-13.
CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.
Members and People Management subscribers can see articles on the People Management website.
This factsheet was last updated by Elizabeth Crowley.
Elizabeth Crowley: Skills Adviser
Elizabeth has recently joined the CIPD as a Policy Adviser. Elizabeth is a policy and research professional with over 13 years’ experience in the employment and skills arena, having worked with both the public and private sector to develop high-quality research to inform organisational practice, public policy and shape the public debate.
Prior to joining the CIPD Elizabeth led The Work Foundation's research and policy development on the youth labour market – and has published a number of influential reports on youth unemployment. She has regularly appeared on national and regional TV and radio, including BBC Breakfast, BBC the One Show, the Today Programme and Channel 4 news. Elizabeth graduated in Sociology and has a master's degree in Social Science Research Methods, both from the University of Glasgow.
Explore our related content
A guide to help HR and L&D professionals understand how apprenticeship programmes can bring maximum benefit to their organisation
A guide for employers with ideas on how to design and run high-quality apprenticeship programmes which support their business and workforce strategies
Learn about the business case for employing young people and managing future talent