Above: Scarborough Engineering Week shows >1,500 Yorkshire school pupils demonstrations from engineering and manufacturing companies every October Credit: Scarborough Engineering Week

Employment lawyer and Partner with FBC Manby Bowdler Tracy Worthington looks at the issues the Apprenticeship Levy has thrown up for SMEs and what could happen next…

Manufacturing SMEs are the backbone of our economy. Yet they face an unprecedented skills challenge as they cannibalise each other’s workforces, trying to plug the gaps with not enough people in the pipeline, with the right skills, for the right jobs. One of the Government’s answers to the skills gap is the Apprenticeship Levy, introduced in April 2017 as part of a drive to fund 3 million places for apprentices by 2020.
Presented as a way to ensure larger employers spend more on training and development, the levy requires all businesses with a wage bill of more than £3 million to pay 0.5 per cent of it into the pot. At the same time, the Government introduced the new apprenticeship service, but this is not available to non-levy paying companies until 2018.
The introduction of the Levy has not been without its teething problems, particularly for SMEs which have struggled with a lack of guidance on how, exactly, the levy will benefit them.

Cost and administration

Non-levy paying employers have to contribute 10 per cent of the cost of training an apprentice, and the government will ‘co-invest’ by paying the remaining 90 per cent.
For many SMEs, this is not just a cost burden but an administrative one too, and there has been approximately half the anticipated number of non-levy apprenticeship starts. Such a low take up must surely be a clear message to the Government that as well as talking to the country’s larger employers, it needs to make sure that smaller SMEs are on board too.

However, there are opportunities connected to the Levy small print which SMEs need to explore.

Tracy Worthington, FBC Manby Bowdler


 
“Our advice to manufacturers looking to take advantage of the Levy is that the system is not without its faults; the Government may have to tweak the system in response to SME demands if the number of apprenticeships continues to fall. However, payments towards the training costs can be very helpful, to help build that agile workforce to meet the changing skills landscape.”

Tracy Worthington, FBC Manby Bowdler

The value of knowledge

Recent research from the Federation of Small Businesses shows that 60% of SMEs reported increased sales and profitability where they had increased input on knowledge and skills in their business. The same research found that following best practice on HR systems led to a significant positive impact on long-term performance.
And for those embarking on apprenticeship programmes for the first time, there will be additional HR aspects for that business to consider. The apprentice salary is still paid for by the employer but now the employer can access funding for the cost of the training, as part of the new Levy scheme.

First steps

New apprentices will join as an employee and SMEs need to ensure they have an Apprenticeship Agreement incorporated into their employment contracts. Of course, the Government will pay all the costs for new apprentices aged 16 to 18 for smaller companies, those with fewer than 50 employees, and they will receive a £1,000 payment with an additional £1,000 payment to the training provider.
Our advice to manufacturers looking to take advantage of the Levy is that the system is not without its faults; the Government may have to tweak the system in response to SME demands if the number of apprenticeships continues to fall. However, payments towards the training costs can be very helpful, to help build that agile workforce to meet the changing skills landscape. Many manufacturers, particularly SMEs operating in the manufacturing sector, have a long history of running apprenticeship programmes. The Government should be listening to what SME employers are telling them about the Levy and its impact, or risk not meeting its ambitious 3 million target in the next two years.