Care homes and preparing for the National Living Wage

With the introduction for the new National Living Wage set for April 2016 care home owners are understandably tentative about what the future holds.

The impact of the National Living Wage on care services cannot be understated…with wages being the largest cost facing operators, averaging around 60% of expenditure, has just significantly increased and done so without much notice. The minimum hourly rate for all workers over 25 will rise to £7.20 from April next year, increasing further to around £9 by 2020.

Click here for an in-depth look at the National Living Wage’s impact across hospitality, retail, care and other sectors.

Where is the additional funding going to come from?

The introduction of the National Living Wage, in conjunction with rising energy costs (the second largest costs operators have) and the recent onset of auto enrolment, has left many in the sector questioning: where is the additional funding going to come from?

And rightly so.

The collapse of Southern Cross still rings loud in the memory of many in the care home sector following its devastating closure in 2011, and now a similar crisis could be about to follow, unless urgent action is taken. The fee levels paid by most councils are arguably insufficient; they have actually fallen by 5% in real terms since 2010. Input costs have risen almost simultaneously with that reduction in fees, so it is unsurprising that so many care homes are struggling financially.

Local councils are also struggling, therefore will need the government to provide the much-needed additional funding to support care homes through increased fees.

The government has confirmed additional funding for social care in the recent Autumn Statement, but it may not be enough.

Commenting on the news, Scott Sanderson, Healthcare Partner at Hawsons, said: “The devolution of powers to give every council in England the opportunity to increase council tax by 2% to fund social care is welcome, but would only raise a maximum £500m a year (£2bn by 2020) so is not enough on its own for many operators to remain viable.”

More care home Autumn Statement reaction can be found here.

Whether or not a further increase in funding will match the increase in costs remains to be seen, but a parallel rise seems unlikely. In fact, the Local Government Association itself estimates that there will be a £2.9bn annual funding gap in social care by the end of the decade. Care home operators continue to face an uncertain financial future.

How care homes can prepare for the National Living Wage?

Care home operators, the general public and, of course, the government all want to maintain the high quality of service provided in the care sector, but maintaining that service will now cost significantly more money. But, with funding unlikely to match increased costs, how can care homes prepare for the National Living Wage?

Here is a quick overview to what operators could/should be doing to prepare for April 2016:

  • Evaluate the total additional costs the care home will have to pay;
  • Consider possible ways the care home can improve efficiencies (e.g. technology);
  • Work out how to maximise the value for money you get from staff;
  • Look at performance benchmarking to asses ways to improve profitability;
  • Look at news ways and review current strategies to attract new private clients;
  • Consider renewable energy to counteract the cost of rising energy bills;
  • Ensure accounting records and up-to-date and constantly monitor financial sustainability;
  • Ensure the home maximises all available tax reliefs, particularly if refurbishing a home

More from our care sector experts

You can also find all of our latest care sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]