The Apprentice Levy need not be taxing: a business case for workforce planning

UK businesses have reacted largely negatively to the introduction of the Apprentice Levy. While added cost is understandably never welcomed in a business, we believe the job and cost-cutting measures adopted by some are not the only way to respond.

The Apprentice Levy can be a prompt that competitive businesses can use to tighten up their act, address inefficiencies and use the proceeds to invest in the future of their workforce.

A ready-made business case for workforce planning

As every eligible large business in the UK now tries to figure out how to pay for the Apprentice Levy, they might find themselves doing (or needing to do) some workforce planning.

Workforce planning does just what it says on the tin. But most organisations haven’t traditionally planned the development of their workforce at all, instead simply responding to changing circumstances by choosing to develop and grow, or shrink and cut, in an entirely reactive way.

Having a plan enables organisations to anticipate circumstances, develop strategies to deal with change and create the capacity to manage their greatest investment, their people, in a proactive and optimised way. In this context, companies asking ‘how will we pay for apprentices?’ and ‘where will get most value from apprentices in our workforce?’, should be answering it using exactly the same intelligent, data-driven, evidence based ‘Workforce planning’ approach that they would use to address other fundamental such as ‘how can we maximise profitability?’, ‘how can we accelerate growth?’ or ‘how can we drive strategic change?

Many organisations with established apprentice schemes have developed robust approaches to planning forward their investments. As examples, Virgin Media and Transport for London use their workforce planning approaches to help target investment in areas of highest need across their internal workforce and supply chain.

Making the levy self-funding and cost-neutral

The Apprentice Levy will represent 0.5% of payroll. There are dozens of ways that companies can pay for the levy through improved efficiency AND take steps to improve profitability, drive growth or deliver change. A workforce planning approach can act as the business case which self-funds the levy.

For instance, the cost of ‘early attrition’, people leaving a business before they even become productive, is a whopping 1.5% of the annual payroll bill. Every year. This is pure waste. And when you spot the patterns; the people who leave because expectations were unclear, the people who go back into education, the people who shouldn’t have been hired in the first place, this can be relatively easy win.

Reducing your ‘early attrition’ could not only pay for your apprentices, it helps to retain your better people (who are no longer fed up that colleagues keep joining and leaving), helps retain and develop ‘organisational knowledge’ (otherwise taken straight to your competitors by your early leavers), and improves productivity (people with longer service tend to be more productive).

Another opportunity exists in ‘absence management’ – a factor that in our experience can account for 4% of total annual people spend (based on the average employee in the UK takes 4.4 sick days per year – ONS). Workforce planning can help address this by identifying the levels of absence across an organisation, and the underlying factors which are driving the trend. With this information, HR and the business can focus on reducing inconsistencies and outliers, through targeted policy, process and employee engagement activities. We have known clients reduce their absence levels in customer facing teams by as much as 50%.

The long-term view

Whichever opportunity businesses choose to tackle, the point is that the apprentice levy should be a prompt to tackle some fundamental inefficiencies in their workforce, while integrating valuable new talent for the future. Workforce planning helps to coordinate the activity, while analytics can help make it happen through identifying the opportunities, and pinpointing the interventions which will make the difference. The Apprentice Levy is a cost, for sure, but also an overdue catalyst for change that will benefit companies for years to come.

Made before the introduction of the levy, in late 2015, the comments of the CIPD (Chartered Institute of Personnel and Development) on Apprenticeships still hold true: “You should see this as a long-term approach to grow your own workforce, helping you to ensure that the skills you need stay in your organisation – even if your employees leave or retire – and helping you to anticipate future skills needs. This will give you an edge over competitors in today’s tough market.”