According to the Government Skills Minister, employers lost access to £37 million of their own investments in just 2 months. This was from not utilising the Apprenticeship Levy. A collaborative Procurement team can support their organisation to greater utilise their Apprenticeship Levy funds.
Shockingly, 8% of the £135 million employers paid into their digital funds were lost in May 2017. The CBI state that two years after the Apprenticeship Levy introduction, many employers still do not understand how their levy payments are being spent. Many employers could have unspent funds in their Apprenticeship Levy accounts. A fact that Retearn has seen first-hand across multiple clients we’re working with as a procurement consultancy.
Those are staggering quotes and figures, and if similar losses were being made in other areas of a business there would be some serious investigations and consequences. This leads us to ask:
Why are these losses often going under the radar of Finance and Procurement? and why are organisations squandering so much of their own money?
To answer that, first we need to understand what the Apprenticeship Levy is. Employers with an annual pay bill of more than £3 million, invest 0.5% monthly of their total pay bill into a digital account. They can draw down from this account by appointing external providers to deliver apprenticeship programmes to enrolled employees.
This is essentially a UK tax on employers, but if used effectively it can fund skills and career development of existing and new employees.
Details of all the Apprenticeship Levy (somewhat complex) rules can be found on the government website here. A summary of the key rules are also listed at the end of this blog.
What are the benefits to the Apprenticeship Levy?
Some organisations have truly embraced the use of their Apprenticeship Levy investments. They are improving skills of current and future employees, enhancing their brand and positively impacting their corporate social responsibilities. However, many organisations have struggled to put the required structure and ownership in place. Therefore, many are sitting on both a significant levy fund pot and ongoing monthly investments. These organisations may now struggle to ever utilise all they have invested.
How you can utilise the Apprenticeship Levy
Often a quick win in spending your levy investments may be to look at your current Professional Qualifications, such as CIMA, CFA, CII and AAT/ACCA. All of these are now available in levy funded programmes that are recognised and awarded by the same governing bodies. There has been very little information shared about these initiatives by suppliers, but many of them can deliver levy funded programmes. It is also worth noting that many employers do not need to pay National Insurance for any employee on an apprenticeship that is under 25, a saving of 13%.
There are now 686 different apprenticeship standards in the UK. These are in all subjects, from the vocational plumber to a Masters level data scientist. No longer are apprenticeships a way to train young people just in practical skills. Any employee, at any age, with any educational background could be up-skilled to support your business’ goals.
Creating collaborative ownership
Ownership of the Apprenticeship Levy sits somewhere between HR and Learning and Development teams and business functions. Typically, Learning and Development own access and tracking of the digital levy £ account (often supported by Finance), are responsible to the employees undertaking an apprenticeship, contracts and performance of the external apprenticeship providers. There is also the critical need to regularly engage with the business to agree where to best invest the digital account funds, depending on the business strategy.
HR/Learning and Development tend to have ownership, and the funds sit in a separate digital account, rather than being visible in typical Procurement analysed spend data. Procurement are often unaware of the scale of the organisation investment. This includes spend with external parties, contractual and service challenges and risks and most importantly how they can add value. This is all while Finance may have already written it off as a legislative tax they have little control over.
For those behind the curve, there is still much that can be done to review and improve the organisation investment position. Or at least ensure decisions and actions that are made are done so from an informed position.
Here are a number of ways that Procurement can collaborate with HR/Learning and Development to support greater utilisation of their Levy funds:
Understand and agree who owns access to and overview of the digital levy account.
Understand how much is in it now and how much is invested monthly. This will create context.
Are the monthly investment funds correct?
You need to check that it is correctly capturing permanent and temporary workers. This has the potential to identify over-investment of funds. It can also act as a baseline for the future internal and external investment strategy discussions. Therefore helping to ensure informed utilisation of the funds.
Who is tracking the funds, investments and dates to ensure the fund is adequate for all?
This will including exiting apprenticeship provider committed investments, and tracking that additional costs outside of the levy fund are accounted for.
Apprenticeships are periodically drawn down from the digital levy fund over the length of the apprenticeship. This could be 80% in equal monthly payments, with 20% at the end. Areas such as assessments can be additional costs billed separately to the organisation by the provider.
Does your organisation have defined signed master terms?
These (including individual training plans) need to be in place with each Apprenticeship provider you are using.
If not, parties may be breaching Education and Skills Agency rules. This could create risk and liability, undermining commitment between employee/employer/provider and open up risk of service and performance management gaps or challenges with the provider.
Can Procurement support Learning and Development in analysis and engagements with business stakeholders?
Creating compelling commercial recommendations of how the available funds could be invested adds value. The business functions commitment to help develop senior and junior roles, reduce parallel training costs, recruitment fees over a sustained period, or support development of innovation/new service lines will create a wider business profitable return.
As HR/Learning and Development agree investment strategies with business functions, this will start to identify the types of courses and providers needed.
Does the organisation need support from individual specialist providers, or would the organisation benefit from a managed service to help with strategy, reporting and supply chain management?
Procurement should understand their market to aid HR/Learning and Development decision making. This can be across internal cost modelling, market provider engagements, provider selection, contracting (especially around understanding how providers will maximise funding, total service offering and key performance indicators) and post contract ongoing performance management.
These topic areas would ensure Procurement is collaborating with different internal functions and adding value, but most importantly ensuring that the organisation is well informed of their levy position and market options to make an informed decision of how to best invest their funds.
A summary of Key Apprenticeship Levy rules from Government website
Organisations can only use funds in their digital account to pay for apprenticeship training and assessment for apprentices that work at least 50% of the time in England. Cost of learning is determined as a funding band maximum for each apprenticeship.
If the costs of training and assessment go over the funding band maximum, your organisation will need to pay a 5% contribution to non-funded training costs, the government pay the other 95%.
You can’t use funds in your digital account to pay for any other costs associated with your apprentices (such as wages, statutory licences to practise, travel and subsidiary costs, work placement programmes or the setting up of an apprenticeship programme).
To spend funds in your account, you need to choose a training provider(s), agree a suitable course, and pay for training and assessment with funds through your apprenticeship service digital account which you give the training provides access to.
The amount of funding entering your digital account each month is calculated as:
- 0.5% of your total PAYE each month
- multiplied by the proportion of your bill paid to your workforce who live in England
- plus a 10% government top-up on this amount
Pay bills can include permanent and temporary workers as well as any bonuses that are paid. So depending on an organisation’s service and structure, this could be much higher a monthly investment than you might think and can vary month to month.
Levy contributions can be used for existing and new employees. Also, up to 25% of unspent funds can be reallocated to fund apprenticeships in other, non-levy paying, employers such as companies in your supply chain or affiliated charities.
Organisations have a rolling 24-month time limit to spend their funds or lose them on a month by month basis.
About the author
James Ball is a consultant at Retearn and has extensive procurement, supply chain and operational experience across private and public sectors. These include senior roles as the buyer of outsourced services for blue chip organisations, as well as delivering outsourced services.
We are supporting a number of clients with their Apprenticeship Levy requirements by providing:
- Contract risk mitigation (existing and new apprenticeship programmes)
- Market knowledge and introductions to strategic experts who can support leaders make informed decisions on how to maximise the levy for their business and the right fit course providers to support the business strategy
- Business wide clarity of Levy pot, underspent funds and estimated future monthly contributions
- Driving engagement and collaboration between departments to make informed decisions on best future use of funds
- Benchmarking organisations and showcasing best practice, budgeting and tracking funded and non-funded costs
Thoughts? Questions? Need more help? We’d love to hear from you at email@example.com or