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Health and Care update - National Minimum Wage and the National Living Wage

April 2016 marked the introduction of the National Living Wage (“NLW”), a result of which employees aged 25 are entitled to pay at a minimum rate of £7.20 per hour. The increase from the National Minimum Wage (“NMW”) equated to a rise of 7.5%.

When introducing the NLW in July 2015, the headline grabbing proposal also indicated an intention to increase pay to £9 per hour by 2020. In order to reach this level of pay in the proposed timescale, we estimate annualised increases of nearly 6% will be required. This compares to changes in the historical level of the NMW which have broadly tracked inflation.

Whilst the changes are commendable, the challenges facing the health and care sector are obvious given its historical reliance on lower paid employees to deliver  value for money. Moreover, the ongoing fiscal pressures limiting council expenditure on social care, particularly for domiciliary care operators, suggest a real challenge for operators in being able to operate profitably and sustainably.

Notwithstanding this, there are perhaps one or two glimmers of hope on the horizon in terms of future funding. Firstly, after six years of council tax freezes, the Chancellor has provided local authorities with the opportunity to apply increases from April 2016, including 2% specifically in order to fund social care.

Secondly, there may be certain concessions in the form of reduced National Insurance and employment costs for employers of staff and lower pay rates.

Finally, there may be an opportunity to manage pay grades where possible through the use of younger employees. It should not be forgotten that the NLW applies for employees aged 25 and over, whereas those aged between 21 and 25 will continue only to be eligible for the NMW.

It clearly raises a real challenge for health and care employers, particularly where the rate of pay, after adding National Insurance and holiday pay, are so close to the rates that local authorities are prepared to pay for an hour of care. However, on the basis that local authorities will have to continue to deliver these frontline services, it seems inevitable that councils will need to contribute to the cost of changes.

Recruitment and staff retention are critical and will help keep costs down. Avoiding recruitment fees, agency cost or training time for new staff must help. We have a number of ideas on how to recruit more effectively and retain good staff. After all staff are our key asset and we would be happy to assist you with our thoughts and ideas.

Other issues in relation to pay

As well as the changes to headline pay rates noted above, the health and care sector faces on-going scrutiny from HMRC PAYE compliance investigations and also in the form of on-going employment tribunals. The key areas of focus appear to be:

  • Travel time (particularly pertinent for domiciliary care operators);
  • Holiday Pay on overtime;
  • Sleep-in shifts;
  • and Training pay. 

There seem to be few easy answers in this area and it seems likely that there will be further challenges in case law which may need addressing through legislation before such aspects are properly understood.


Andrew Brookes - Partner and Head of Healthcare
Andrew Brookes
Partner and Head of Healthcare Contact details