Quality of Care Ltd

National Living Wage 2024 – Why You Need to Care About This Now

How much will April’s National Living Wage rise cost you?

In this post I will show you how to estimate this cost rise so you can see for yourself the financial impact it is going to have on your care business.

But first I’ll highlight why you should start to prepare for this NLW rise now, in order to minimise the financial damage from April.

Last April the NLW, for those aged 21 and over, rose 9.7% from £9.50 to £10.42.

This April, it will rise a further 9.8% to £11.44, an increase of £1.02.

For a 50-bed nursing home having an overall monthly staff bill of £200,000, an overall increase of 9.8% will take that cost to £219,600 and month. That’s an increase of £19,600 a month or £4,523 a week.

How many weekly care fees is that the equivalent of on average for you?

Of course, your numbers will be different and not everyone will see a 9.8% rise, but the principle is the same and, regardless of your actual numbers, it will be a significant cost increase.

 

Why You Should Care About This Now

If you’re thinking, “Chris, it’s early February so this increase won’t take place for a couple of months and I’m really busy so why should I worry about this now?”

Good question and I’m glad you asked.

The reason why you should start to look into this now is because there are a number of steps you’ll need to go through in order to minimise the financial impact that this rise will have.

You need to:

      1.   Work out how much your overall staff costs are going to increase to in April and divide that cost across your usual number of clients or average occupancy level.

      2.   Review your fixed costs if you haven’t for a while and spread the average extra weekly fixed cost across your usual client level.

      3.   Create new care fees for your current clients based on your newly calculated costs.

      4.   Review your current fees by comparing them with these newly calculated fees to see how your cost rises have affected your profit for each client.

      5.   Arrange a client review meeting for those client fees that are no longer returning a healthy profit.

The first four steps aren’t as trivial as they may sound and could take a couple of weeks of effort depending on how many clients you need to review.

From requesting a review meeting to actually having one, the last step alone can take up to three months so chances are that, even if you begin the steps today, you’re going to be into April and the NLW cost rises before you can have client reviews with your – local authorities or ICBs.

This is why you really should start working through these steps now.

Let’s briefly look at the work involved for each step.

 

Step 1: Staff Cost Increase

What will your staff costs increase to when the new NLW kicks in?

You need to review all of your staff hourly rates and salaries because, as well as those on £10.42 increasing to £11.44, you have staff on other rates which will also need to be increased.

For those 18-20, the NMW rise will be 14.8% to £8.60, 21.2% to £6.40 for 16 to 17 year olds and a 21.2% rise to £6.40 for apprentices.

Those on higher rates will then need to have their rates reviewed and increased in order to maintain the pay gaps.

Having done this, you need establish a staff profile so you can work out the cost of staff on each rate (from April) based on their average weekly working hours.

While you’re at it, work out your staff costs based on your ideal staffing level, not on the number of staff you currently employ.

Because of the pandemic and recruitment challenges, if you are low on staff numbers then your average monthly staff will come out lower. If you then carry out a successful recruitment drive, your staff levels and hence cost will increase.

How receptive will your local council be to your need to increase your fees because your staff costs have increased? You know from experience that they won’t be.

You should set fees that will cover the staff levels you ideally need for your usual client numbers and client types. And that means you need to calculate your staff costs based on ideal staffing levels.

This table shows a possible staff profile for the care team in a 50-bed nursing home.

Notice that I have set NLW carer rate at £11.44 rather than the current £10.42 and more senior staff have had their hourly rates increased to maintain the gaps.

Your hourly rates will also need extra employer costs added. This is On-cost and Cover cost, which could easily add an extra 20% or more to your hourly rates, which is significant.

For example, the senior carer on £12.85 an hour, could easily have a true cost to you of £16.69 an hour. A carer on £11.44 an hour could well be costing you £14.86 an hour.

From this staff profile you can work out how much your staff will cost each week and divide that total across your usual number of clients or residents.

You will then need to establish new average hourly rates (including agency rates) in order to accurately work out how much care delivery is going to cost from April.

Like I said, this is a fair amount of work, but it is the only way to get an accurate cost for what is by far your largest cost and the biggest financial burden on your organisation.

To help you work out your costs, like I’ve shown here, I’ve written a report, 5 Steps to Make Your Care Business Financially Secure, which you can download for free by clicking the link – the title of the report.

In this report I take you through steps like these but in far more detail and give you a roadmap for setting and winning accurate care fees.

I also show you a tool designed to help you set the fees you need.

Getting this right has never been more important.

In the face of local councils grappling with the threat of bankruptcy, your commissioners are going to work even harder to get you to accept care fees that are way too low. And if you do, you’ll end up being dragged down with them.

So, click the link and download, 5 Steps to Make Your Care Business Financially Secure, and follow my roadmap to setting and winning accurate care fees.

This is the same roadmap our sister company uses for their nursing homes and they receive the right fees to ensure financial stability.

 

Step 2: Review Your Fixed Costs

Your fixed costs (everything else outside of staff costs) have increased so if you haven’t reviewed them for a while please do.

Knowing your fixed costs is simply a matter of recording them weekly or monthly using a spreadsheet or a tool created for this specific purpose.

Hopefully this tool will also show a rolling monthly average for these costs.

If you don’t record your costs to this detail, please start now.

Meanwhile, for the purpose of setting an average fixed cost now, use your annual reports to estimate an average monthly cost and ideally go back to October 2022 when the cost of living was at its highest.

I highly recommend that any tool you use includes the ability to add monthly budgets so you can see how the actual monthly spend compares with these budgets.

There are three key benefits to knowing your costs.

      1.     You can better control your costs and address areas of overspend by setting budgets.

      2.     You will be able to set more accurate fees.

      3.     You have all the detail you need to justify the fee you have set.

Completing a tool like this on a weekly basis is a relatively easy admin exercise that should only take a few hours depending on the size of your operation.

The control and clarity you gain from being able to better manage your extremely high costs and see where savings can be made is well worth this relatively small effort.

If you don’t have a financial tool that will give you the detailed information, you can of course create a tool like this in a spreadsheet.

But if you aren’t a spreadsheet whiz then take a look at our tool, The Running Cost Calculator.

Initially created for our nursing homes, I’ve developed an online commercial version that you can now use for your own care business, regardless of the type of care service you provide.

Once you have your average monthly fixed cost, divide it into weeks and across your usual client/occupancy level, to see a weekly cost per client.

 

Step 3: Create new Fees for Your Current Clients

With your accurate costs, including accurately calculated average hourly rates (with extra employer costs), you can create accurate fees.

You can accurately work out how much care each client is entitled to daily as part of your care (and nurse) costs and the cost of extra individual care a person may need.

What’s key here is that because you have accurate costs and average hourly rates you can eliminate any guesswork.

I’m not going to take you through how to do this here but again point you to my report, 5 Steps to Make Your Care Business Financially Secure, where I take you through this step-by-step.

 

Step 4: Review Your Current Fees

By comparing your new fee with your current fee for an individual person, you can see how much profit (or loss) you are actually making on your post April costs.

If you run a nursing home you may think the weekly fee of £1200 for one of your residents is ok. But you won’t know unless you actually know your costs and calculate accurate fees.

I have worked with care providers to help them review their fees and they are sometimes shocked to see just how little profit they are making and how many fees they are in fact making a loss on.

I cannot emphasise enough how important it is that you create new client fees for your current clients as I described and compare them with the fees you are receiving.

Again, I go through this in more detail in my report 5 Steps to Make Your Care Business Financially Secure.

Step 5: Arrange Client Review Meetings

Now you know what fees you need and have compared them with the fees you are receiving. You can now see which clients, if any, are returning a profit that is too low or in fact returning a loss.

You can prioritise these clients and arrange client reviews. Of course, the sooner you do this the better because as you know, it can take a while to finally get a date out of your local council.

But once you have that meeting you have to convince them that your fee needs to be increased. So, the more detail you have the better.

But your commissioners will do all they can to find holes in your argument.

They will:

  •  Question your costs such as how you calculated your average hourly rates.

•  Try and trip you up on detail like Cover cost.

  Use the results of the Fair Cost of Care initiative to try and tell you your numbers are wrong. My report covers this and shows where the inaccuracies in the Fair Cost of Care initiative are and how to confidently defend your numbers against theirs.

Hopefully, you will have set your new fee to give you a 30% or more profit. But because you know your costs you also know the minimum fee you can accept and still return a profit (say 20%) that won’t be low enough to hurt your business.

You can then set a profit margin that you won’t go below.

But if your commissioner refuses to pay this fee then you should serve notice.

I know this is a last resort and such a hard thing to do because you may have built a relationship with this person.

But you run a business and if you can no longer afford to keep that business going then all of your clients will need to be found other providers and your staff, who need your employment, will have to find other jobs.

At the risk of sounding like a stuck record, another reason to download the report is that I talk more about negotiating with commissioners and the things you can challenge them on should they refuse to increase your fee.

 

Last Word

Even though the rise in NLW won’t happen for another couple of months. I hope you see why it’s important that you start this process now.

Building a successful business in this sector is so challenging. And arguably the most challenging aspect is to make it financially strong enough to succeed.

All that you need to do, from compliance and training to delivering quality care, costs money, a lot of money.

Being financially stable should therefore be your top priority and reviewing your current fees, based on your costs from 1st April, is the best thing you can do now to ensure your business is financially strong.

And to do it successfully you need to plan time into your busy schedule. If you want some pointers on that then check out my previous article, How to Set and Achieve Your Goals – Part 2.

Meanwhile, download my report and set aside say 40 minutes to read through it. Then start to set aside time in your calendar or diary to follow the steps to receiving the fees you need.

Download: 5 Steps to Make Your Care Business Financially Secure.

Finally, if maths isn’t your thing, please don’t let the steps I’ve outlined here and in the report, put you off. All the calculations and images shown here and in the report come from two tools we have created and which are used buy our sister care business.

The Running Cost Calculator I’ve mentioned in this article. The other one, which will help you calculate the right fees is called the Care Fee Calculator.

Please do check them out and try them for free.