Apprenticeship reform - thinking beyond the levy

As the new tax year descends a lot of focus has been on the introduction of the apprenticeship levy, the impact it will have on the companies that will have to pay it and what it means for apprenticeship programmes at these organisations. However, the levy is just one of a number of changes that are being launched in the world of apprenticeships.

It is estimated only 2 per cent of employers will pay the levy so what is happening for the other 98 per cent of employers?

From May 2017 there will be a number of key changes for apprenticeships that will affect these employers, in terms of what they can do, who they can do it with and how much it will cost them. For any apprenticeship programme starting after 1 May 2017, whether for a new or existing employee, there will be two significant changes bringing more responsibility to the employer:

  • negotiations on the cost of the training; and
  • a mandatory fee element of 10 per cent, paid by the employer to the training provider.

Negotiating the rate

The first key change is the role employer’s will have on determining the cost of the apprenticeship.  Each apprenticeship programme has a maximum funding value, which has been determined by the Education and Skills Funding Agency (ESFA), the government agency that has responsibility for the funding of apprenticeships.

Each apprenticeship programme now has a ‘funding cap’, for example £9,000 for a level three framework in plumbing or £18,000 for a level three apprenticeship standard in motor vehicle service and maintenance. The actual cost of the training is now negotiable based on what the employee and employer needs rather than a flat fee paid to the provider. This is a significant change as employers need to understand how this dynamic will affect them and their staff and will have a financial implication, which is covered in the next section.

The employer can now shop around training providers looking for the right product at the right price. However, if the employer goes too low on the negotiation the training provider may struggle to deliver the apprenticeship to the required quality. Too high and money that could pay for additional training has been used already.

The upper limits have been set based on what the ESFA considers appropriate for funding, although costs can be negotiated at a higher level. Where the negotiated cost is higher than the funding band then the employer must pay the difference between funding cap and agreed rate in full eg a negotiated rate of £10,000 for a level three plumber would be funded by the ESFA at £9,000 (less the 10 per cent fee), the additional £1,000 would have to be paid by the employer in full.

Mandatory 10 per cent fee element

The second key change is the requirement for a mandatory fee element of 10 per cent that must be paid by the employer to the training provider.

Traditionally, apprentices aged 16-18 have been fully funded by the ESFA with no fees to be paid by employer. Apprentices aged 19 and over have been funded at a reduced rate by the ESFA, usually requiring a fee from the employer to support the cost of delivering the apprenticeship. The fee has come in many different forms from actual money changing hands to services in kind, such as providing space to deliver training or materials.

From May 2017 for non-levy paying employers the rules are changing which means that a mandatory cash contribution must be paid to the training provider by the employer. The ESFA has agreed to provide 90 per cent of the funding required to train an apprentice, with a 10 per cent contribution coming from the employer. This will apply to all apprentices regardless of age but there are some exemptions, which will be discussed later. There are also employer and provider incentives for apprentices aged 16-18.

The fee can be paid up front as a one off payment or spread over the duration of the apprenticeship. However, all fees must be paid before the apprentice can be considered as having completed their apprenticeship.

The amount of cash contribution required will depend on two factors:

  • the sector the apprentice requires training in; and
  • the cost negotiated with the training provider.

In the following example, an employer takes on three apprentices in plumbing at level two where the maximum funding band for the framework is £5,000. The delivery is planned for two years. The table below sets out the fees owed and possible payment options:

Negotiated cost per apprentice Total cost for three apprentices 10% fee element 12 month payment plan 18 month  24 month
£3000 £9000 £900 £75 £50 £37.50
£3500 £10,500 £1,050 £87.50 £58.33 £43.75
£4000 £12,000 £1,200 £100 £66.66 £50
£4500 £13,500 £1,350 £112.50 £75 £56.25
£5000 £15,000 £1,500 £125 £83.33 £62.50


NB until all fees are collected an apprentice cannot be regarded as completed and if not collected maybe ineligible for the 90 per cent element paid to the training provider by the ESFA (the training provider will need to be able to evidence receipt of the cash).

Exemptions to the mandatory fee element

There are three exemptions to the above requirement which apply to organisations that have less than 50 employees.

  • apprentices who are aged 16-18 at the start of their programme;
  • apprentices aged 19-24 who have an education and health care plan provided by the local authority; and
  • apprentices aged 19-24 who have been in the care of their local authority.

The ESFA will fund the entire negotiated fee for these learners up to the maximum of the relevant funding band.

Organisations are deemed to be eligible for these exemptions based on the average number of employees they have had in the 365 days prior to the apprentice starting. If the apprentice is a new start and will be the 50th employee the exemption can be applied, if they are the 51st then the employer will have to pay the 10 per cent fee element.