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The impact the living wage has on care home providers

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Posted by Tina Chander on 23 March 2017

Tina Chander Partner - Head of Employment Law

In recognition of the millions of workers not earning enough to support a normal standard of living, in his budget of July 2015 Chancellor George Osborne announced a new ‘National Living Wage’ for all workers in the UK over the age of 25.

Despite a positive reaction in general the announcement was met with some concern from employers, particularly those in the financially troubled care sector already afflicted by cuts to local authority funding and the pressures of an aging population.

One year on from the introduction of the National Living Wage, we take a look at the so-called “social care crisis” and the extent to which this has been worsened by these rising costs associated with the new minimum wage.  

National Living Wage

All workers in the UK aged 25 and over became entitled to the new living wage from 1 April 2016, with an estimated 6 million workers receiving a pay increase as a result.  The wage was originally set at £7.20 per hour, to increase yearly with a target of reaching more than £9.00 per hour by 2020. From 1 April 2017 the national living wage is £7.50.

Workers under the age of 25 are still subject to the National Minimum Wage (from 1 April 2017 this is £7.05 for 21 to 24 year olds, £5.60 for 18-20 and £4.05 for under 18’s).

Impact upon care providers

As one of the biggest employers of minimum wage labour in the UK it was inevitable that the new living wage would have a significant impact upon care providers.  Although the 50 pence per hour pay rise may not seem significant, it equates to a pay rise of almost £1,000 per (full-time) minimum wage worker per year. For a firm with a large workforce this can amount to a substantial increase to the annual wage bill.

On the face of it the living wage will of course be beneficial to care workers, and it is hoped that in the long run it will lead to improved recruitment and retention rates and a better quality of care for the most vulnerable members of society. However, the closure of almost 70 care homes since December 2016 and reports that one quarter of the UK’s care companies are at risk of insolvency suggests that care homes are under an unsustainable financial strain, raising concerns about how these ever-increasing costs are going to be met.

The national living wage cannot be held solely responsible for these difficulties. Adult social care in the UK is an area which has suffered historic under-funding and is now also faced with the pressures of an aging population. With an estimated 2 million extra carers being required in England by 2025, together with a yearly increase to the National Living Wage, the problem looks set to worsen.  

Handing back contracts

Last month it was revealed that care providers have cancelled contracts with 95 councils across the UK, with councils no longer able to offer an hourly charge rate sufficient to cover the care companies’ costs partly as a result of the introduction of the National Living Wage.

The Executive Director of one of the UK’s leading home care providers Mears PLC has described the decision as “agonising”, but explained that he has been left with no choice as the hourly charge rates offered by many councils’ will result in providers ether not meeting the requirements of the National Living Wage for care staff, or delivering a sub-standard service to users.

What next?

Care providers’ wage costs look set to rise at an alarming rate over the coming months and years as the need for care workers increases and the National Living Wage rises. In addition, providers' increased staffing costs are set to increase even further following the introduction of pension auto-enrolment and court judgments on payments for sleepover shifts and travel time for care staff.

In response to repeated calls for more money the government has promised an extra £2bn for social care for English councils over the next three years. Whether this will be sufficient to plug the ever-growing gap and keep pace with the country’s increasing demand for social care remains to be seen.

About the author

Tina Chander

Partner - Head of Employment Law

Tina is head of our employment law team. She deals with contentious and non-contentious employment law issues.

Tina Chander

Tina is head of our employment law team. She deals with contentious and non-contentious employment law issues.

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