How to Protect Your Care Business from Labour’s Budget

We now know what’ s coming in April and that the rises in minimum wage and National Insurance are going to hurt.

The question is what are you going to do about it?

Read this post to find out.

As you no doubt now know, in April the National Living Wage (over 21s) will rise £0.77 from the current £11.44 to £12.21 an hour.

The National Minimum wage, for 18 to 20-year-olds, will increase a recording breaking £1.40 from £8.60 to £10 an hour.

And apprentices will receive the biggest (percentage) increase of £1.15, from £6.40 to £7.55 an hour.

Bear in mind that each year we have an increase, so over two years, come April

• The NLW will have increased from £10.42 to £12.21an hour – an increase of £1.79.
  
  
• The NMW from £7.49 to £10 – an increase of £2.51 and
  
  
• Apprentices from £5.28 to £7.55 – and increase of £2.27.
  
  

So, if you haven’t increased any fees since before April ’23 then it’s going to hurt even more.

What can you do? Well, you have three choices, you can…

• Hope the government will increase available funding.
  
  
• Wait until April and then see how the rises actually impact your care business and then respond.
  
  
• Work now to make sure your business can handle the new rise.
  
  

Hope is dangerous in business and shows a lack of control. Plus, considering the state of the economy, cuts in spending and councils declaring bankruptcy, option 1 really is a non-starter.

You can wait until April and then react to the impact on your business. But any damage limitation actions you take will be too late. It’s highly likely that you’ll need to increase some of your fees and will then need to get into a long queue with other providers requesting client reviews.

The result being stuck for months with clients on fees that are too low, leaving your care business financially vulnerable. This makes option 2 a bad choice too.

Of course, option 3 is the only viable choice you can take.

So, here’s what we are doing in our sister company’s nursing homes and what I recommend you do to protect your business from April’s rises.

Start Now

There is no better time than now. Too soon? April is 5 months away so why the urgency?

Preparing your business for April’s rise is going to take time. The largest part of that time is going to be requesting and getting dates for client reviews, and you really want to be at the front of the queue for this.

The vast majority of care providers will wait, hope and react. Do this now, get ahead of everyone else and increase your chances of a successful client review whilst there is still money in the pot.

You might not be able to start this process today so having decided you are going to do this then I recommend the first thing you do is set aside time for you – and whoever else you need to help you – to do this.

I recommend you set aside say 4 hours (not necessarily all in one lump) now and add more time as you work through this process if you need to.

You’re busy and so if you don’t set aside this time, you know plenty of other things will fill the time so please purposefully assign time in your diary or calendar.

And do this now – 4 hours – I’ll wait.

Know the Financial Impact

First you need to know the financial impact on your business.

With your fees as they currently are and hence your business creating the same amount of revenue, what will your profit drop to after April?

Our nursing homes will use the Care Fee Calculator to carry out this exercise and this is what I’ll use here. I’ll use an example fictitious 50-bed nursing home to show the steps to take.

What’s key here aren’t the actual numbers, as yours will be different, or that it’s a nursing home as you may provide a different care service, such as home care or day opportunities. It’s carrying out this exercise as soon as you can that’s important.

First, I took images of the dashboard in the tool – this dashboard gives you big picture financial information based on the fees you’re receiving and your costs.

The images show a weekly profit of £6,658 (7.7% profit margin) and staff cost is £66,716. (Remember, this is a fictitious care service, and not showing a healthy profit before the staff cost rises, – it’s the difference that we need to focus on.)



The next image shows the staff profile section for the care staff before the increases. Hence you see some carers on the NLW of £11.44 and some on higher rates because of experience or seniority. You also see apprentices on £6.40 or a little more.

(The tool calculates staff costs and average hourly rates based on your ideal staff level for your ideal or usual number of clients or occupancy if a care home. This, gives you a stable staff cost per client and average hourly rates, which is important when creating fee quotes.)

Ignore the other columns for this exercise – they are there to build a full picture of how many hours are worked on each hourly rate and later used to work out total staff costs.



The Care Fee Calculator also calculates your not insignificant extra employer costs. These are split as On-cost – National Insurance, pension and apprenticeship levy and Cover cost – the cost of covering those staff whose shifts need to be covered when on holiday or training or absent for some other reason.

The next image shows the above hourly rates with these extra employer costs added to give the true hourly costs to you the employer.



As you see, the £11.44 hourly rate for this nursing home increases to £16.08 an hour and the top senior carer rate increases from £12.85 to £18.07 an hour.

This is because On-cost is (or was) 13.8% for N.I. (I’ll come back to the N.I. rise shortly) and 3% for pension and, for this example home, Cover cost worked out to be 20.37%, which is pretty standard in this sector where carers and nurses at least need to have their shifts covered.

Notice the average hourly rate – the rate used for calculating the cost of care provided – for this home’s carers (excluding agency) increased from £11.21 to £15.76 (bottom of table).

I then increased the hourly rates of those on current NLW and NMW and Apprentice rate to what they will be in April.

I also increased those more senior staff members on higher hourly rates to maintain their pay gaps. The next image shows these changes.

As you see in the image below, those who were on the current NLW of £11.44 are now on £12.21 and so on. Also, to maintain the pay gaps the most senior carers’ hourly rate has increased from £12.85 to £13.65 an hour.

The highlighted right-hand column shows the true hourly costs.



Just to recap, those on currently on the NLW of £11.44, actually cost this care provider £16.08 an hour and the most senior carers on £12.85 actually cost £18.07 an hour.

When these increase in April, those currently on £11.44 will actually cost this care provider £17.17 an hour and the most senior carers, currently on on £12.85, will cost £19.19 an hour.

The true average hourly rate will increase from £15.76 to £16.91 an hour.

As I was writing this, I heard that the Chancellor has increased N.I. from 13.8% to 15% from April and so to get an accurate picture I changed N.I. figure in the tool to 15% and the hourly rates increased as shown in the next image.



The most senior care rate has increased a further 20 pence to £19.39 an hour and the carers on NLW increased by 17 pence to £17.34 an hour, just because of the N.I. increase.

And the average true hourly rate has increased from £15.76 now, to £17.08 an hour from April.

Taking this further a person on £11.44 now, costing a real value of £16.08 an hour, will cost around £675 a week. Come April, this cost will increase to around £728 a week.

That’s an increase to you the employer of £53 a week or £2,756 a year – for one person.

Take into account all the other staff members and the overall weekly staff costs has leapt from £66,716 a week to £72,013.



That’s a weekly increase of £5,297 a week, which is over £21,000 a month or £275,444 a year.

And because their fees haven’t changed, this is cost increase comes straight off the bottom line.

Again, the point here isn’t that it’s a nursing home or the actual numbers. It’s the change that is important and the message that, regardless of the type of care service you run or its size, this is going to hit you hard and so you need to start preparing for it as soon as possible.

Having ascertained the big picture financial damage that these rises will cause, what next?

Review Your Fees

Having, worked out the overall financial impact of April’s rises you next need to review all your fees. You need to know exactly how much each client is costing you and the profit you are returning. Next you need to repeat the exercise based on April’s costs to see how much your costs increase and hence profit drops.

And bear in mind we haven’t considered rises in fuel bills or other costs, such as price rises your suppliers will have to impose, in the meantime.

Review each of your fee quotes for your current clients. What profit were you making at the time you took the person (or the last client review if you’ve had one)? This is setting the bar for you to then see what’s changed.

Assuming your costs have risen since then, what profit are you making now? More importantly, what will that profit be come April without any increase in the fee?

The Care Fee Calculator can show this at a glance.

The image below shows three of this nursing home’s clients. The yellow boxes show the cost of the client at the time the person was taken into the home and the cost based on wage and N.I. rises in April.

The blue boxes show the profit margin at the time the fee was accepted at those costs then and the profit margin at April’s costs and the red box shows that profit difference.





As you see, the loss of profit amounts to over a hundred or multiple hundreds of pounds a week. And this is for three out of the 46 clients in this home.

If you use this tool to carry out this exercise, then the fee quotes you create will be based on your current costs.

You then protect these quotes by moving them into a ‘Client Library’. Changes you then make to your costs will not be reflected in these quotes in that library.

You then increase the hourly rates in your staff costs and N.I. as I described earlier. (It might be prudent to increase fixed cost estimates too.)

The tool will then automatically show this comparison of profit based on costs now and profit based on costs in April.

(There is another table, like the one above that will show you what fee you need in order to return your ideal profit margin.)

From the comparison table shown above, you can start to plan which clients you need to review and prioritise from urgent onwards.

With the tool you can then automatically create new individual quotes based on April’s costs at the click of a button (assuming no change to care needs which I recommend you also review).

You will then have two versions of your fee based on now costs and April costs to help you should you need to arrange client reviews.

Arrange Client Reviews

It is likely that you will find that come April’s rises, some of your clients may show such low profit or even losses that you have no choice but to increase their fees or, if your commissioner refuses to increase your fee, then serve notice.

The Care Fee Calculator includes a comparison table in each client quote for you to enter the fee you are receiving and for new clients or client reviews the fee your commissioner is willing to pay.

This table shows you the profit or loss you are making on your current fee or would make if you accepted the fee being offered.

It also shows you the annual profit or loss on that fee compared with the profit you would make on the fee the tool calculates you need to hit your target profit margin. This is shown in the red and blue boxes respectively.

In this case it’s the difference of an £8,649 annual loss on that fee versus a nearly £35,000 annual profit on your ideal fee.

This is a very powerful feature and really helps when negotiating new fees or fee rises.

Last Word

Come April your staff costs are going to increase. One provider I know has already worked out a 10.2% increase in direct wages – not including N.I.

As we have heard in the news, many businesses will have no choice but to increase their prices. Your suppliers will no doubt increase their prices.

Just because you provide a service for government funded local councils and ICBs, why shouldn’t you increase your prices too? Like them, you really have no choice.

The starting point is to know where you stand by knowing what your profit is now and what it will be come April and review which of your client fees are going to hurt you the most so you can start the ball rolling with client reviews.

By-the-way, any quotes you create for new potential clients, base them on April’s costs and save yourself having to try an increase the fee a few months down the line.

I wrote this article to help you maintain the financial health of your care service by showing you the actions you should start taking as soon as you can.

I didn’t write it to plug the Care Fee Calculator. But this tool is the only tool out there that will help you do all you need to do to review your fees as I’ve described and give you the vital clarity needed to make tough decisions if necessary.

It will also save you many hours of work doing this manually or in a spreadsheet.

The tool is also free to try out for 30 days. That will give you plenty of time to carry out this hugely important exercise at no cost, provided you cancel your subscription before the 30 days is up, should you decide not to continue using the tool.

The tool cost is based on the number of clients you ideally care for and only costs pence a week per client, so biased though I am, it costs nothing compared to the benefits it brings in helping you control the financial health of your business.

But please, use the 30-days free trial to judge for yourself.

Whether you use the Care Fee Calculator or not, please don’t put off this review exercise. Your care business is going to hit hard in April. Now is the time to do what you need to do to protect it from the harm that is coming.