The Increase in the Minimum Wage - Time for Care Home Operators to Panic?

02 October 2015

The Government announced that the current national minimum wage of £6.50 for over 25s will change to a compulsory living wage of £7.20 from April 2016, rising to over £9 by 2020.

Although the rate for the under 25s is lower, the age profile of the social care workforce means that these changes will have a significant impact on the cost of care with several providers expressing concern including BUPA, Care England and Care UK.

Assuming an average care home resident requires 25 hours of care and 5 hours of auxiliary support per week means that the changes will lead to a 30p per hour increase in the cost of care and a 50p increase in the cost of auxiliary support; a £10 increase per week of cost per resident equates to average weekly fees of £700 with nursing care per resident. For providers paying at the current minimum wage rate the increase would be even higher.  With staff cost accounting for at least 60% of costs for providers, the cumulative annual cost will likely eat into what can be a relatively tight profit margin. 

Then there is the rise to £9 an hour from 2020, which will cost an extra £1.80 per hour over 25 care and auxiliary hours, which would equate to an additional weekly cost of £45 per resident. This could make the situation untenable for operators.  With estimates of care funding from local authorities being as low as £2 per hour, the increase may force care homes to close.

Nevertheless the proposed higher compulsory minimum wages are still well below the existing voluntary living wage rates of £7.85 and it is hard to dispute that most care homes pay wages lower than major retailers.  Yet, with many care homes receiving no RPI increases for the last 6 years, a new ruling that sleep-ins should now be classed as working time (further hiking staff costs) and many local authorities now using Care Cost Calculators (to drive down fees by standardising costs with only slight variations for locality) it all paints a rather bleak picture for those in the sector.

Furthermore, local authorities continue to strain suppliers, with examples of squeezes of up to 7% year on year requested.  Additionally authorities have put greater pressure on the suppliers of care within the home; leading to better wages for staff in that side of the sector compared to their equivalents in care homes. Given the personally rewarding but demanding nature of care work, it is no surprise that care homes can struggle to recruit staff and retain them.  

A better pay scale may help staff retention and would inevitably have a positive impact on the quality of service provided. This is particularly relevant with an ageing population with increasing health needs and staff continuity has been recognised as an important factor in dementia care.  

Additional funding, in theory, may be available with a merging of the health and social care budgets in order to make a career in care homes more attractive. This should entail funding being made available for additional training of care home staff as a first step on the training ladder to a career in nursing within the NHS.

With recent government initiatives promoting new vanguard models, it is inevitable that additional nursing expertise will be needed in care homes. In addition to improving the patient experience this also presents care homes with the opportunity of increasing nursing fees, albeit at a higher staff cost.

The increase in variable (staff) costs may also lead to a change in the ‘high occupancy is good’ mantra – some operators may choose to accept lower occupancy to focus on higher fee paying residents. This, coupled with the closure of homes that will itself lead to a fall in bed capacity, does not bode well for the ‘dementia time bomb’ being reported by the press in the last few weeks, however these are all topics for another day.

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