Brief employer guide to costs, funding and incentives for Apprenticeship
Apprenticeships have been in the news recently following the Chancellors announcement of incentives to encourage employers to take on new apprentices. But as an employer do you really understand all the cost involved and the money you may or may not be entitled to?
Incentives
To start with, let’s cover off the incentive part as that is the most recent addition to the equation.
The cash incentive for new hires that start an apprenticeship were introduced by the chancellor as part of the summer statement on Wednesday 8th July 2020. From August 2020 until the 31 January 2021 31st March 2021 (updated deadline following the chancellor's announcment on 25th November 2020), businesses taking on new apprentices will be rewarded with £2,000 for a 16 to 24-year-old and £1,500 for someone aged 25+.
The incentive payment is for new hires, meaning that the apprentice “must not have been employed by the employer within the six months prior to the apprenticeship contract start date”. The payment is made directly to employers in two equal instalments, where the apprentice is still employed and in learning at day 90 and day 365. The incentive can also be claimed if you are taking on someone who has been made redundant from another business and is going to continue their apprenticeship with you (but are a new employee to your business).
Incentive payments are claimed by the employer via their digital account from 1 September 2020.
Existing Incentive Payment
There is also an existing incentive of £1,000 payed to employers who take on a 16 to 18-year-old. This incentive is passed to the employer via their Training Provider in two £500 instalments.
In summary, take on a new employee, enrol them onto an apprenticeship and get 3k for a 16-18-year-old, 2k for a 19-24-year-old and 1.5k for someone aged 25 and over.
Costs associated with an apprentice
I will talk in a moment about the two different funding models that businesses fall into. In both cases, funding covers the training of the apprentice by the training provider and cannot be used for wages, statutory licences to practice, travel and subsidiary costs, work placement programmes or any fees required when setting up the apprenticeship.
Wages
This is probably the largest financial consideration when taking on an apprentice who is a new hire to the business. An apprentice is entitled to the apprentice minimum wage (£4.15 per hour) if they are under 19 or if over 19 and in the first year of their apprenticeship. Those aged 19 or over and/or have completed the first year of their apprenticeship are then entitled to minimum wage for their age. Wages are not covered by any form of funding and employers generally increase an apprentice's wages on a yearly basis in line with their age and as their knowledge and abilities grow. Start wage obviously depends on age and level of apprenticeship but we always encourage our employers to be as competitive as possible when considering apprentice wages.
Hidden costs
There are costs to the business when administering the apprenticeship, recruiting (if bringing in a new team member), mentoring, training and managing the apprentice. ‘Hidden’ may not be the right word for it however the apprentice is a full time member of staff (minimum of 30 hours per week) and are entitled to the same terms and conditions as other staff members of a similar level. Whilst a good training provider will support and manage the learning, the business has to put time, effort and resource into making it successful and delivering the in-company elements of the programme. The apprentice must also (by law) use 20% of their time doing ‘off-the-job’ training. Not the greatest title as this 20% has to be completed within their working hours so something that needs to be considered in terms of the apprentice’s productivity as they progress through the programme.
Levy or Non-levy Funding
Lastly we need to separate you into one of two camps. The Levy payers and the non-levy payers. In short, Levy payers are those of you who have a payroll of more than £3 million per year. Non-levy payers are those of you with a payroll under £3 million per year.
Levy payers – all the training given or facilitated by the Training Provided can be drawn from you levy pot providing you have enough funds. The price for the training will be set prior to the apprentice beginning their programme.
Non-levy payers - the Government will pay 95% of the training cost with you contributing the other 5%, this is called co-investment. If you employ under 50 people and the apprentice is under 19 when they begin the apprenticeship, then you will not have to co-invest, the government will pay 100%.
What does co-investment cost? It is 5% of the price the Training Provider charges for the training up to the funding band maximum. For example, if the funding band maximum was 21k and the training provider required the full amount then the co-investment from you would be £1050.
Crunch the numbers
There are lots of different elements to take into consideration when working out what an apprentices will cost you as an employer. For example; in the case of a new member of staff, you can offset the incentives offered against the first year wage factoring in the hidden costs and any required co-investment. Or, for an existing member of staff, the wage is already in the budget however you will need to factor in their loss of productivity and any co-investment required if you are not a levy payer.
As you can see, this is not a one size fits all exercise! There are many different combinations but don't fear, we are here to help.
Apprenticeships can be a confusing but cost effective training method for people coming into your business as well as those already employed. Our no obligation, free consultancy meeting with your business can help you to understand exactly what is involved in the delivery of an apprenticeship, the types of training programmes (Apprenticeship Standards) that are available, how best they would fit within your business and the financial elements applicable to you.
Get in touch today to arrange a meeting, we are happy to visit you or meet via Zoom.
Written by Mark, Chief Executive.