The hidden costs of the Apprenticeship Levy and how to overcome them

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The Apprenticeship Levy provides significant financial benefits - once it can be interpreted.

The Government has not made things easy for employers in this regard. Even experienced financial managers and HR professionals can be frustrated by the complexity of the funding. Just how much money are you entitled to? How much do you have to pay in now? What are the arrangements for additional finance?

In order to ensure you get the best deal, choose a provider who has done the hard work for you. Look for specialists who know how to navigate the complexities of the legislation and ensure you get the most value for money. In the meantime, make sure you’re familiar with these common stumbling blocks.

Can you afford to take advantage of the Levy?

Decreasing investment, uncertainty over Brexit, rising inflation and faltering productivity - it’s a tough time to be in business. Perhaps it’s not surprising many employers are wary of taking on another thing to worry about. Something that has the potential to reduce the time employees can devote to their core tasks. 

There’s no way around it, unfortunately. 20% ‘off the job’ training is a key stipulation for apprenticeships. This can take a variety of forms, from workshops to research, online learning and specific assignments, as long as it’s not being spent on the day jobs. Whether or not this is a bad thing, however, depends on your perspective. 

Are you taking a long view?

By investing in immediate training, employers can provide the foundation for the future productivity of their workforce. This translates to significant impact on the bottom line. So the immediate pain is worth it - if you choose your training wisely.

According to the Department for Education, 70% of employers say apprenticeships have improved product quality and service. Also, apprenticeships provide a typical return of £26-28 for every £1 of government investment in apprenticeships at Levels 2 and 3.

Petra Wilton, CMI director of strategy and external affairs, explains: “Businesses disputing the need for a Levy should realise that the true tax on jobs is the low productivity of managers already in the workplace, costing £84bn per year according to research by Investors in People. Investment to upskill and bring on the next generation of managers through higher level and degree apprenticeships will be more than repaid by the productivity gains they deliver.”

Have you considered the alternative?

Forsaking training opens the door to competitors who can enhance their service and attract your employees with the promise of better professional development. However, it depends on the job. The level of complexity and requirement for soft skills should guide your decision. It’s easier to justify management training for employees working in professional services, for instance, as opposed to upskilling call centre staff where 20% off the day job will have a significant impact on productivity.

Can your business handle the influx of apprentices?

If your business is already recruiting and training numerous graduates, apprenticeships offer a cost-effective alternative to increase retention and keep wage bills down.

Bear in mind that there is a maximum bandwidth of contributions. Some particularly large organisations won’t be able to bring in enough new apprentices to recoup all their contributions. For instance, the NHS is eligible for many thousands of apprentices, which simply isn’t practical. In these cases, it’s best to use the Levy to enhance your current training for existing staff.

Have you factored in other costs?

The Apprenticeship Levy offers a highly efficient way to invest in training, but it doesn’t cover everything. Employers still need to commit to training to make it a success. Strategy, time, infrastructure and wages all need to be factored in. Assess the extra costs, while remembering it’s ‘use it or lose it’. From May 2017, funds that you don’t use will expire 24 months after they enter your account.