How will the National Living Wage impact the Care Sector?
From 1 April 2016, the National Living Wage is being introduced
From 1 April 2016 there will be five separate minimum wage rates:
- £7.20 per hour for workers aged 25 years or over (National Living Wage)
- £6.70 per hour for workers aged 21-24 years
- £5.30 per hour for workers aged 18-20 years
- £3.87 per hour for workers aged under 18 years
- £3.30 per hour for apprentices aged under 19 years or those aged 19 or older who are in the first year of their apprenticeship
It is the responsibility of the employer to ensure that the business payroll is correctly processed and compliant.
Government National Living Wage advert
So who will pay for the National Living Wage?
There has been an increasing gap between the rates paid by the Local Authority and the actual cost of care during 2015/16 with an impact on sustainability in the care home market and domiciliary.
This links to the County Plan to help vulnerable and elderly people with the means to stay in their own homes longer. The roll out of Personal Health Budgets will allow people to choose their care BUT increasingly they will have to pay the additional cost of care themselves or rely on the family unit.
LA Fee increases for 2016/17 focus on specialist care and homecare in order to sustain the market.
However, family units will increasingly have to self-help to cover the gap in the cost of care.
The National Living Wage, whilst excellent in theory, stages at a time when the care provider is experiencing other cost increases with affordability of running a sustainable business thus called into question.
In September 2015 the Institute of Fiscal Studies wrote this assessment:
‘While the new NLW will increase hourly pay for some individuals it is highly likely to reduce incomes in other ways. It could lead to a reduction in employment. It is also important to be clear that even if GDP, employment and hours worked are all left unchanged the increase in gross wages from the new NLW will need to come from someone. Either company profits will fall depressing returns to shareholders, or prices will rise or the earnings of other individuals will be reduced’.
Providers need to assess their current and ongoing viability together with maintaining the highest standards to ensure consistently good to outstanding CQC reports. Providers that rely on Local Authority funding should make Local Authorities aware of the financial implications of the National Living Wage and consider negotiation to increase fee rates to ensure sustainability.
How can we help?
It is vital to assess your current and ongoing financial information to ensure the viability of your business
We can help you assess your business performance as follows:
- Free initial consultation
- Bring your records up to date and ongoing through our Outsource bookkeeping Team
- Prepare budgets to monitor monthly and year to date performance
- Monitor monthly performance against benchmarking
- Prepare forecasts for restructuring and finance requirements
- Work with the Provider to implement a change in strategy to benefit the profitability of the business
- Work with the Provider as part of an Expert Team
- Prepare your payroll and Auto Enrolment
- Utilise the payroll information to create key performance indicators
- Assess the scope for a Capital Allowance review to create additional cash flow
- Provide regular updates relating to the challenges faced by the care sector and how to mitigate them
For more in depth advice please contact Julie Hopkins, care sector lead at Albert Goodman