Training costs
The country is facing a shortage of employees in various sectors, notably in some areas of financial services, information technology, construction - and even cleaning services!On the one hand this may be considered as good news since it means that the...
The country is facing a shortage of employees in various sectors, notably in some areas of financial services, information technology, construction - and even cleaning services!
On the one hand this may be considered as good news since it means that the country is generating sufficient jobs for its people.
Yet the situation is also worrying since it means employers have to resort to poaching staff, employment costs will soar and there could be a restriction on growth.
The companies that stand to suffer most are SMEs. They usually cannot afford to pay very high salaries and tend to employ either newly qualified graduates or school leavers. And what these firms cannot pay in salaries, they usually end up having to pay in training costs. Such costs could turn out to be substantial.
In SMEs, employees are expected to lend a hand in various activities, which makes it that much more difficult to specialise. Therefore, the learning curve is longer and that much more expensive.
Experience has shown that during the first six months, first-time employees have to be shown procedures; they have to be assisted, instructed and corrected.
A newly-qualified accountant would often not be able to determine what constitutes a valid invoice. He (she) would have never seen a VAT form and wouldn't have a clue how a payroll works!
This means that for months the productivity of the trainee and the trainer are at a low, whereas administration costs rise substantially.
Things improve during the second half of the first year. However, productivity is usually still below the desired level and hardly sufficient to even out costs.
For the sake of this exercise, I will attempt to estimate the costs of training an accountant. Naturally, costs may vary according to the nature of work, the size of the business and various other factors. (See table)
Cost of a newly qualified accountant
Starting salary (approximately ) Lm6,000
Company share of NI Lm 600
Statutory bonuses Lm 220
Total cost Lm6,820
Administration and development costs
The cost of an employee is not solely the salary. Besides other costs, an employee has to contribute towards the recovery of administration and development costs, such as office rent, printing and stationery, telecommunications, transport, computerisation costs, furniture and fittings.
The calculation of this contribution may depend on various factors, such as total productive hours. For the sake of this exercise we will estimate that the maximum annual productive hours are 1,816 and that an employee should contribute Lm1.25 per productive hour towards administration and development costs, that is Lm2,270 per annum.
Cost of the trainer
Generally the trainer is an experienced employee and therefore we can assume that his or her gross wage say, Lm8,500 per annum, plus the contribution towards the administration and development costs calculated at Lm2,270 per annum, giving a total annual cost of Lm10,770.
Every enterprise must operate with the aim of earning a fair profit. For the sake of this exercise I will estimate a profit of Lm1.50 per productive hour.
Estimated employee costs during the first year of employment
Costs during the first half of the year
Employee cost (six months salary): Lm 6,820/2 = Lm3,410
Share of overhead costs: Lm 2,270/2 = Lm1,135
Trainer's cost (say 15 per cent of their time, including share of overhead costs): Lm 10,770 / 2 = Lm 5,385 x 15% = Lm808
Costs during the first six months = Lm5,353
Costs during the second half of the year
Employee cost (six months salary): Lm 6,820/2 = Lm3,410
Share of overhead costs: Lm 2,270/2 = Lm1,135
Trainer's cost - say 10% of their time, including share of overhead costs): Lm 10,770/2 = Lm5,385 x 10% = Lm 539
Cost second six months = Lm5,084
Total first year cost = Lm 10,437
Charge out rate
For the sake of this exercise I will calculate the charge-out rate on the basis of the employee cost plus an element of profit.
Annual gross wage, including company share of NI: Lm6,820
Annual contribution towards administration and development costs: Lm2,270
Total cost = Lm 9,090
Annual productive hours (see note below): 1,816 hours
Hourly cost: Lm 9,090 / 1,816 hours = Lm5 per hourCharge out rate: Lm6.50 per hour
Total income generated: Lm5,610
Note re productive hours: The total productive hours during Basis Year 2007 are 1,816 hours, that is the total annual working hours less annual leave and public holidays. No provision has been made for sick leave and other forms of absenteeism.
Income generated by an employee during the first year
First half of the year
Productivity - say 35 per cent of the
productive hours: 1,816 hrs/2 = 908 hrs
908 hrs x 35% = 318 hrs @ Lm6.50 per hour = Lm2,067
Second half of the year
Productivity - say 60 per cent of the
productive hours: 1,816 hrs/2 = 908 hrs
908 hrs x 60% = 545 hrs @ Lm 6.50 per hour = Lm3,543
Total income generated Lm5,610
The tables show that in the first year income would have reached Lm5,610 but the employee cost would have been Lm10,437, a loss of Lm4,827.
Second year of employment
After a year of intensive training, an employee would have acquired hands-on experience in various fields of basic accounting procedures such as data inputting, preparation of bank reconciliations, payroll procedures, as well as more complex fields such as cash flow projections, preparation of VAT reports, preparation of management accounts, audit procedures, taxation etc. At this stage this employee becomes attractive to the larger firms.
During the second year of employment, an employee is expected to raise his or her productivity substantially, which would help to recover the losses incurred during the first year. During the third year of employment a firm should expect to start earning a profit.
It is very probable that during the second year of employment an employee would have earned an increase of say Lm500 per annum.
However, it would be quite likely for a rival, established, firm would offer an annual increase of say Lm780 to Lm1,040. This increase may appear very attractive to the employee, who may decide to take up the offer. Is this fair on the small-to-medium-sized employer? Certainly not!
An employee who terminates employment after one year or so would be dealing his former employer a severe financial blow, since in all probability the firm would have to employ another employee, go through the whole training process once more and incur another loss of Lm4,827.
One solution for the recovery of the training losses could be an increase in the charge-out rate. However, as we all know, small to medium-sized accountancy firms service small to medium-sized business operations, who are more often than not hardly prepared to pay such high fees for the service - or simply not able to afford to pay high accountancy fees.
Another solution may be to enter into contractual agreements, stipulating terms on the duration of the agreement, payment terms, benefits and penalties.
I am personally against such contracts. I tend to view them as akin to putting a bird in a cage. I tend to prefer to offer space and time for individuals to improve and advance as far as capabilities allow.
No employer would like to obstruct career development for an employee. What I suggest is that the government should introduce a scheme whereby training costs are measured and inexperienced employees are registered as such with the Employment and Training Corporation.
Should such an employee terminate employment after only a few months, the employee, the new employer or both should compensate the first employer for the training costs. The ETC should not allow the said employee to register with a new employer before the training costs are reimbursed.
An alternative solution may be the introduction of a 'retention account' whereby a percentage of the salary of the employee is transferred to this account to repay the training costs.
Times are changing and yesterday's practices are no longer applicable. I urge the authorities to tackle this problem without any further delay. We must be proactive and offer solutions before this problem escalates to uncontrollable levels.
On the one hand this may be considered as good news since it means that the country is generating sufficient jobs for its people.
Yet the situation is also worrying since it means employers have to resort to poaching staff, employment costs will soar and there could be a restriction on growth.
The companies that stand to suffer most are SMEs. They usually cannot afford to pay very high salaries and tend to employ either newly qualified graduates or school leavers. And what these firms cannot pay in salaries, they usually end up having to pay in training costs. Such costs could turn out to be substantial.
In SMEs, employees are expected to lend a hand in various activities, which makes it that much more difficult to specialise. Therefore, the learning curve is longer and that much more expensive.
Experience has shown that during the first six months, first-time employees have to be shown procedures; they have to be assisted, instructed and corrected.
A newly-qualified accountant would often not be able to determine what constitutes a valid invoice. He (she) would have never seen a VAT form and wouldn't have a clue how a payroll works!
This means that for months the productivity of the trainee and the trainer are at a low, whereas administration costs rise substantially.
Things improve during the second half of the first year. However, productivity is usually still below the desired level and hardly sufficient to even out costs.
For the sake of this exercise, I will attempt to estimate the costs of training an accountant. Naturally, costs may vary according to the nature of work, the size of the business and various other factors. (See table)
Cost of a newly qualified accountant
Starting salary (approximately ) Lm6,000
Company share of NI Lm 600
Statutory bonuses Lm 220
Total cost Lm6,820
Administration and development costs
The cost of an employee is not solely the salary. Besides other costs, an employee has to contribute towards the recovery of administration and development costs, such as office rent, printing and stationery, telecommunications, transport, computerisation costs, furniture and fittings.
The calculation of this contribution may depend on various factors, such as total productive hours. For the sake of this exercise we will estimate that the maximum annual productive hours are 1,816 and that an employee should contribute Lm1.25 per productive hour towards administration and development costs, that is Lm2,270 per annum.
Cost of the trainer
Generally the trainer is an experienced employee and therefore we can assume that his or her gross wage say, Lm8,500 per annum, plus the contribution towards the administration and development costs calculated at Lm2,270 per annum, giving a total annual cost of Lm10,770.
Every enterprise must operate with the aim of earning a fair profit. For the sake of this exercise I will estimate a profit of Lm1.50 per productive hour.
Estimated employee costs during the first year of employment
Costs during the first half of the year
Employee cost (six months salary): Lm 6,820/2 = Lm3,410
Share of overhead costs: Lm 2,270/2 = Lm1,135
Trainer's cost (say 15 per cent of their time, including share of overhead costs): Lm 10,770 / 2 = Lm 5,385 x 15% = Lm808
Costs during the first six months = Lm5,353
Costs during the second half of the year
Employee cost (six months salary): Lm 6,820/2 = Lm3,410
Share of overhead costs: Lm 2,270/2 = Lm1,135
Trainer's cost - say 10% of their time, including share of overhead costs): Lm 10,770/2 = Lm5,385 x 10% = Lm 539
Cost second six months = Lm5,084
Total first year cost = Lm 10,437
Charge out rate
For the sake of this exercise I will calculate the charge-out rate on the basis of the employee cost plus an element of profit.
Annual gross wage, including company share of NI: Lm6,820
Annual contribution towards administration and development costs: Lm2,270
Total cost = Lm 9,090
Annual productive hours (see note below): 1,816 hours
Hourly cost: Lm 9,090 / 1,816 hours = Lm5 per hour
Total income generated: Lm5,610
Note re productive hours: The total productive hours during Basis Year 2007 are 1,816 hours, that is the total annual working hours less annual leave and public holidays. No provision has been made for sick leave and other forms of absenteeism.
Income generated by an employee during the first year
First half of the year
Productivity - say 35 per cent of the
productive hours: 1,816 hrs/2 = 908 hrs
908 hrs x 35% = 318 hrs @ Lm6.50 per hour = Lm2,067
Second half of the year
Productivity - say 60 per cent of the
productive hours: 1,816 hrs/2 = 908 hrs
908 hrs x 60% = 545 hrs @ Lm 6.50 per hour = Lm3,543
Total income generated Lm5,610
The tables show that in the first year income would have reached Lm5,610 but the employee cost would have been Lm10,437, a loss of Lm4,827.
Second year of employment
After a year of intensive training, an employee would have acquired hands-on experience in various fields of basic accounting procedures such as data inputting, preparation of bank reconciliations, payroll procedures, as well as more complex fields such as cash flow projections, preparation of VAT reports, preparation of management accounts, audit procedures, taxation etc. At this stage this employee becomes attractive to the larger firms.
During the second year of employment, an employee is expected to raise his or her productivity substantially, which would help to recover the losses incurred during the first year. During the third year of employment a firm should expect to start earning a profit.
It is very probable that during the second year of employment an employee would have earned an increase of say Lm500 per annum.
However, it would be quite likely for a rival, established, firm would offer an annual increase of say Lm780 to Lm1,040. This increase may appear very attractive to the employee, who may decide to take up the offer. Is this fair on the small-to-medium-sized employer? Certainly not!
An employee who terminates employment after one year or so would be dealing his former employer a severe financial blow, since in all probability the firm would have to employ another employee, go through the whole training process once more and incur another loss of Lm4,827.
One solution for the recovery of the training losses could be an increase in the charge-out rate. However, as we all know, small to medium-sized accountancy firms service small to medium-sized business operations, who are more often than not hardly prepared to pay such high fees for the service - or simply not able to afford to pay high accountancy fees.
Another solution may be to enter into contractual agreements, stipulating terms on the duration of the agreement, payment terms, benefits and penalties.
I am personally against such contracts. I tend to view them as akin to putting a bird in a cage. I tend to prefer to offer space and time for individuals to improve and advance as far as capabilities allow.
No employer would like to obstruct career development for an employee. What I suggest is that the government should introduce a scheme whereby training costs are measured and inexperienced employees are registered as such with the Employment and Training Corporation.
Should such an employee terminate employment after only a few months, the employee, the new employer or both should compensate the first employer for the training costs. The ETC should not allow the said employee to register with a new employer before the training costs are reimbursed.
An alternative solution may be the introduction of a 'retention account' whereby a percentage of the salary of the employee is transferred to this account to repay the training costs.
Times are changing and yesterday's practices are no longer applicable. I urge the authorities to tackle this problem without any further delay. We must be proactive and offer solutions before this problem escalates to uncontrollable levels.