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A bold new approach to bridging the skills gap

Sergio Picarelli, regional head of North America, UK & Ireland professional staffing & global oversight of Lee Hecht Harrison, General Assembly, Badenoch+Clark, Spring Professional & Pontoon

It might be difficult to imagine that anyone in the UK is speaking about anything other than Brexit at the moment. But talk to any HR professional and what is likely to occupy their mind even more than the political turmoil, is how to ensure that their workforce is able to keep up with the relentless demands for new or enhanced skills. Admittedly, a worry that is further exacerbated by Brexit.

While recruitment forms part of the answer, in a labour market that is becoming increasingly tight due to rapid technological developments and political uncertainty, this has to be paired with the necessary investment in re-/upskilling. But despite the fact that many organisations are aware of the pressing need to get their employees ready for the future world of work, few are making enough of an investment.

Understanding the long-term value of investing in human capital   

One of the biggest reasons for this is the fact that, to date, it’s been nearly impossible to accurately capture the long-term value of investing in human capital. Especially because conventional accounting models record training investments not as an asset, but a sunk cost. This means that it’s incredibly difficult to justify a significant re-/upskilling investment to business owners and shareholders.

But there are some models of investment that could help companies move past this disincentive and reframe re-/upskilling as an investment. While in some cases this will require changes to accounting rules, laws or tax policies, the potential societal and corporate benefits of re-/upskilling are so great that making these changes is (at the very least) worthy of discussion and consideration.

At the Adecco Group, we’ve identified a number of different models for re-/upskilling investment that offer a potential solution to the challenge outlined above.

Model 1: Employee training fund

Employers could set up a separate fund just for investments in re-/upskilling. It would include contributions from the business, and possibly the employee. Contributions by the employer could be marked down as investments and amortised based on the difference between total contributions and the year-end value of the fund, including interest from investments.

It’s worth noting that this model would require changes to current accounting rules, as contributions to the training fund could not yet be recognised as an asset.

Model 2: Employability account

In this model, businesses would make payments into an individual, transferrable training account for every employee in order to pay for future re-/upskilling programs. The provided funds would be determined as a percentage of salary costs and linked to years of service.

While this strategy wouldn’t require changes to accounting practices, in order for it to live up to its full potential, the government may need to be involved in setting rules for the minimum investment for companies that are involved.

Model 3: Long-term amortisation

Here, employers would pay for the re-/upskilling up-front, under the agreement that employees will stay with the organisation for a set period of time. Should an employee leave before this, they’ll have to pay back some of the training costs. While this would allow the initial cost to be capitalised as an asset and amortised over the benefits period, this approach could face legal challenges or have tax disadvantages in some jurisdictions. Having said that, the model is relatively simple to adapt to existing accounting rules, and is easily scalable.

The models described above have a lot of potential, but each would require energy to lobby accounting standards bodies and the government to amend rules and laws to make it work. So, in the meantime, organisations should start to act on the fact that recruitment is not the only way to access new skill sets, but that these can also be created internally amongst existing employees through re-/upskilling.

There’s no denying that changing the ways in which re-/upskilling investment is recorded would be a game changer. But advancements that don’t require overhauling current accounting models, can and should be made now - all that’s needed is a commitment to doing things in a better way.

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