Apprenticeship levy could prompt employers to change recruitment strategies, says expert

The levy, which comes into force today, will be charged at a rate of 0.5% of payroll on employers with an annual wage bill of £3 million or higher. The levy will be used to fund 'digital accounts' from which employers will be able to pay for apprenticeship training, and is part of government plans to deliver three million new apprenticeships by 2020.

Employment law expert Matt McDonald of Pinsent Masons, the law firm behind Out-Law.com, said that the levy would impact on employers operating in all business sectors, regardless of whether they had historically employed and trained apprentices.

"The introduction of the levy could prove to be the catalyst for a truly fundamental change to recruitment strategies for employers in all sectors," he said. "We are already seeing clients making significant changes to ensure they get the best value out of the levy, including in sectors where the use of apprentices has historically been negligible."

"Careful thought should be given before simply writing off the levy as nothing more than an additional tax – employers who do not change their approach risk ceding an advantage to their competitors, and may find themselves having to play catch-up in the years to come," he said.

The levy will be calculated on the basis of employee earnings, and payable to HM Revenue and Customs (HMRC) through the employer's PAYE return. The amount paid by each employer will be allocated to that employer's 'apprenticeship service account' in line with the percentage of their employees that are based in England, and topped up by a 10% contribution from the government. The devolved governments in Scotland, Wales and Northern Ireland have their own apprenticeship funding schemes.

Employers will be able to use the funds in their account to pay for apprenticeship training and assessment from 1 May 2017. Where there are not enough funds in the account to pay for training in a particular month, employers will be required to share the remaining costs with the government. Employers will pay 10% of the outstanding balance, while the government will pay the remaining 90% up to the funding band maximum for that particular apprenticeship.

Smaller employers that do not meet the levy threshold will contribute 10% towards the cost of apprenticeship training under the same 'co-investment' model from May 2017. Again, the government will contribute the remaining 90% up the funding band maximum. However, non-levy paying employers will not be able to register to use the apprenticeship service account system until at least 2018, and will instead have to enter into a direct payment arrangement with the training provider.

Ahead of the introduction of the levy, the government has published a new register of apprenticeship training providers who have passed a rigorous assessment process. Levy-paying employers will be required to choose their apprenticeship training providers from this list. Providers will be able to apply to be included on the register quarterly.

A new Institute for Apprenticeships, chaired by former Barclays chief executive Antony Jenkins, began operating on Monday. Independent from government, the institute has been established to set quality criteria for the development of apprenticeship standards and assessment plans by industry, and to review, approve or reject these standards.