From education to employment

Even after taking Apprenticeship #Levy and full supervision costs into account Apprentices can deliver 200% ROI

Steve Nash, CEO of the IMI


Latest version of IMI ROI Calculator shows apprentices make financial sense – even after taking Apprenticeship Levy and full supervision costs into account

Responding to the changing costs associated with taking on apprentices as a result of the introduction of the Apprenticeship Standards model and Apprenticeship Levy, automotive sector professional body, the Institute of the Motor Industry (IMI), has launched a new version of its Apprentice ROI Calculator.

Available as a free online tool for automotive businesses, the IMI ROI Calculator provides an easy way to assess how quickly different levels of apprentice can deliver a return on investment in their recruitment and training. 

Topline analysis by the IMI, taking into account the additional costs associated with the Apprenticeship Levy for larger employers and the need for increased supervision by a mentor technician, show that a level 3 automotive maintenance and repair apprentice can deliver up to 175% return on investment within the three-year apprenticeship, and in some cases exceed 200% return on investment.

Steve Nash, CEO of the IMI believes this underlines the importance of motor retail businesses investing in apprentices to tackle the well-documented skills shortage:

“There has been much reported about the drop in take-up of apprentices since the new Standards model and Apprenticeship Levy were introduced. We believe a key reason for this is a lack of understanding about the value that the investment in apprentices can return.  Some firms, facing the upfront funding of apprentices, may feel that the cost can’t be justified.  But our ROI Calculator proves the contrary and we urge all employers to use the online tool to estimate the net benefit they could achieve.”

Since the IMI ROI calculator was first launched in 2014 the UK apprenticeship landscape has been transformed. Notably the government’s transitioning of apprenticeships from Frameworks to a Standards model, designed to demonstrate the occupational skills attained by the apprentice and judged in an end point assessment.

As significant, the government introduced the Apprenticeship Levy, a tax of 0.5% on an employer’s annual payroll, applicable for firms with a payroll of more than £3 million.  As of April 2019, small and medium enterprises (SME’s), with a payroll of less than £3 million, and therefore not subject to the levy, are only liable for 5% of the training costs (reduced from 10%).  There are also some firms that are exempt from the 5% contribution*.

Recognising that employers in the motor retail sector are currently facing huge gaps in workforce skills, the IMI believes it is vital to remove any barriers to investing in apprentices.  The new IMI Apprentice ROI Calculator, therefore, reflects all the different employer types and investment requirements now applicable in the new Apprenticeships Standards model to give businesses an easy way to assess the likely return they will achieve.

“Some businesses may not feel an apprenticeship is the right route for them, but our figures show there can be a return on investment if they do”, concluded Steve Nash.

“While there is initially a settling in period, like any new member of staff, and then the on-the-job training, our ROI Calculator illustrates the increase in productive capacity during the apprenticeship and how the apprentice can become a net productive for the business  around the end of the second year.”

*Employers with 49 or fewer employees who recruit an apprentice aged 16-18 or an apprentice aged 19-24 with a current Education Health Care Plan or who was formerly in care are exempt from contributing to the costs of training and assessment. 

How the IMI Apprentice ROI Calculator Works

The new IMI Apprentice ROI Calculator is based on a simple three-step process, taking under a minute, to generate an Apprentice ROI profile: 

Step 1: Employer type.

Step 2: The New Apprentice.

Step 3: The Qualified Apprentice.

1. Employer type

Employers are segmented according to the numbers of employees (49 or fewer, 50 or more) and whether levy or non-levy paying.  Employers are also categorised by the age and status of their apprentice at start and according to the percentage of the training fee the employer is required to contribute. 

2. The New Apprentice

The user selects the age of the apprentice at the start of the apprenticeship, assuming for simplicity that the apprentice has just turned the age selected.  On selecting the age at start the algorithm selects an array reflecting the appropriate national minimum wage (NMW) set strictly by the government.  It also includes a pension contribution by the employer of 5% of full salary.  Plus the ROI Calculator allows for the fact that some employers, to attract young talent and also to reflect their initial productivity, would wish to compensate their apprentice above the NMW. Some employers are also putting aside a sum of money each month to pay the apprentice a loyalty bonus on successful completion of their apprenticeship.  This is designed to ensure the apprentice stays with them for at least the duration of the apprenticeship.

The calculator also allows for the employer to select the level of productivity achieved in the first quarter, taking into account the fact that the experience of recruited apprentices in the automotive sector can vary from none to significant and depend on their age.  And the calculator incorporates a productivity calibration curve, based on IMI research of primary workshop data, spanning the duration of the apprenticeship and into the fourth (improver) year.

3. The Qualified Apprentice

The selection of the desired productivity in the first quarter sets the initial condition for the Apprentice ROI calculation.  In order to perform the ROI calculation using the productivity calibration curve for the duration of the apprenticeship an end-point condition is set using two quantities.  The first quantity is the desired monthly sold hours expected of the qualified apprentice by the end of their improver year, i.e. the fourth year from the start of their apprenticeship.  This value is known to the employer as they will have technicians working at this level. Then to monetise the productivity calibration curve, the Sold hours are multiplied by the second quantity, the (average) hourly charge-out rate, selected by the user. 

ROI Calculation

The user is then invited to check and amend the inputs if desired and then to click calculate.  The IMI Apprentice ROI Calculator provides a headline banner showing the gross benefit of each £1 invested by the employer.

A graphical output of net financial benefit each quarter throughout the three-year apprenticeship is shown and there is a button to select rolling net benefit.  The sliders below the graph allow the user to select the results for a specific quarter or determine the break-even point (ROI of 0%).   The break-even period can also be visually identified in the rolling net benefit graph at the point where the curve intersects the time axis (at zero net benefit).  All monetary values are calculated as a net present value at a 5% annual rate calculated quarterly.

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