What will the new 'national living wage' mean for independent care providers?

On the face of it, the introduction of the government’s “national living wage” is just a small cost increase; from £6.70 an hour, to £7.20, for workers aged 25 and above. However, for independent health and social care providers, the 50p per hour rise will likely cause significant problems when it is introduced in April. In fact, the annual increase in wage bill for one provider with 100 full-time workers would be £96,000.This could have serious knock-on effects. With cash-strapped local authorities unable to pay for the increase, some providers who attended a recent summit on pay made clear they were already planning to hand back unprofitable contracts.

National living wage threatens UK care sector, George Osborne told

While most providers recognise there are some real benefits in paying higher rates, such as a better quality of care, the move requires upfront investment from local authority and NHS commissioners. Arguably, the Care Act provides for this but many providers and commissioners have not yet taken this on board.Another issue is the worrying trend of losing long-serving, dedicated workers,who have had enough of long unsocial hours, low pay and the pressures of the new Care Quality Commission inspection regime. They are migrating instead to completely different roles: for example, in supermarkets, where pay, hours and working conditions are seen as better.A better wage could make all the difference. In London, Islington council insists that all its care providers have fair terms and conditions for all staff and that they pay the London living wage. This is calculated by the Living Wage Foundation(pdf) and is based on the cost of living – not to be confused with the government’s lower national living wage. The authority provides funds to ensure this is feasible. For one of its providers, the result of higher wages has been a marked reduction in staff turnover and an enhanced ability to recruit new skilled staff. Costs have been reduced, thanks to the low staff turnover and it believes this helps secure a consistent quality of care. The local authority also saves money because there are fewer quality issues to address and the cost of expensive tender processes avoided.Interestingly, Islington is only implementing new responsibilities placed on it by the Care Act to “promote the efficient and effective operation of a market in care and support services”. The statutory guidance states local authorities should see evidence that “service providers deliver services through staff remunerated so as to retain an effective workforce” and that “remuneration must be at least sufficient to comply with the national minimum wage legislation for hourly pay or equivalent salary”.

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To some extent Islington’s approach is not a high water mark of good practice, but only what every commissioner should be doing to ensure the sustainability and quality of services – although by using the London living wage, the council has gone further than this. Islington’s approach, however, is far from the norm with many cash-strapped commissioners cutting back and still refusing to pay for travel time between visits.The national living wage is seen by many employers as a clunky tool that does not allow the flexibility they need to incentivise staff. At the summit, providers said staff want fair and equitable pay. This, many employers feel, is not what the new wage offers.

First, it increases pay only for those workers who are 25 years and over. This could lead to perceived unfairness; a 24-year-old supervisor could be paid the same as the older worker they supervise so why would they take on the extra work? Another unintended effect of the new rates is that performance related pay, for example as reward for gaining new skills, could be too expensive or simply redundant.

The Care Act guidance allows local authorities to recognise other aspects of employment practice that contribute to retention and quality of staff in addition to payment of the minimum wage. It is still largely for employers to decide what approaches they can use to incentivise and engage their workers. However, the Care Act means it is a legal requirement for local authorities to have clear views on how this can and should be done by companies delivering contracts.Another matter to consider is how the involvement of local commissioners in directing pay policy may impact on other work providers carry out outside their local authority contracts. For example, if a company is paying workers delivering local authority contracts in a particular way, it may become much more difficult to treat other workers in differently. As such, local authorities’ views may affect the wider labour market and commercial positions. Is this acceptable? It raises the question about whether local authorities have the skills and resources to gain a sufficient understanding of the care market in their area.

Why Islington introduced the living wage for all homecare workers

Janet Burgess

Will 2016 see providers and users challenge commissioners who do not follow the guidance, and insist on more funding? And, crucially, do commissioners have the funding to allow pay incentives beyond the national minimum and national living wage?

Deborah Hely

partner, employment and pensions group, DAC Beachcroft

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