Your staff costs – your biggest costs by far – might be higher than you think.

If you aren’t including your extra employer costs then your actual staff costs could easily be hundreds of thousands of pounds a year more than you think. This extra cost needs to be covered by your fees. Please read this to make sure they are.

As a care provider you face significant financial obligations to ensure the smooth functioning of your care home or home care service. While staff costs constitute the most substantial expense, many factors contribute to increase that expense by a significant amount.

Extra costs such as national insurance, pension contributions, and cover costs, can be substantial and if you aren’t calculating these extra costs then they will add to the financial burden that you have to bear.

The hourly cost for one of your staff is more than simply that employee’s hourly rate. You also have to pay On-cost and Cover-cost.

Employer On-cost

One of the primary financial obligations for employers, is the payment of national insurance and pension contributions. National insurance contributions are made to fund state benefits and pensions for employees.

At currently 13.25%, national insurance contributions is a significant expense for employers. Additionally, employers are required by law to contribute 3% to their employees’ pension schemes, adding another layer of costs.

That’s 16.25% On-cost. If you are large enough to need to contribute an apprenticeship levy that’s an extra 0.5%. I’ll ignore that here as most providers don’t have to pay this.

Take the current national living wage of £10.42 an hour. Add 16.25% On-cost and you have an hourly cost of £12.11. That extra £1.69 an hour adds up to an extra £63.34 a week, based on a 37.5 hour week.

That’s an extra £3,293.68 a year On-cost that you have to pay for one staff member on the national living wage.

Employer Cover-cost

You have to provide continuity of care around the clock, ensuring that residents receive the necessary attention and support.

This means that staffing needs must be met even when employees are on leave, ill, on maternity leave, absent for some other reason or receiving training.

Cover-costs encompass the expense of paying staff to work extra shifts or hiring temporary or agency staff to fill these gaps and maintain the continuity of care.

Calculating the extra percentage for On-cost is easy because they are set percentages. Calculating the Cover-cost percentage is a little more challenging.

You need to know how days a year on average you need to allocate as cover days for each Full Time Equivalent (FTE) staff member and divide that total by the number of days an FTE works on average each year to reach a percentage to add on to your hourly cost.

Rather than go into how you do this here. I recommend you download my report 5 Steps to Make Your Care Business Financially Secure in 2023 and Beyond. This report takes you through how to set accurate fees and includes how to work out this cover-cost percentage.

This Cover-cost percentage can be 10% or as much 25% depending on how many of your staff need to be covered.

Going back to the £10.42 NLW hourly rate, which has increased to £12.11 because of On-cost. Now, you need to add Cover-cost to that higher rate. Let’s say Cover-cost is 15%. The new hourly cost for this person becomes £13.93.

So, in this case the employer cost is actually and extra £3.51 an hour or £131.63 a week (based on the same 37.5 hour week). That’s an employer cost of £6,844.76 a year for one person on the NLW.

Let’s say you employ 50 care staff some of whom will be on higher rates than NLW and for this exercise we’ll put them all on NLW rate.

That’s an extra employer cost of £342,238 a year just for a team of 50 care staff all on the NLW hourly rate.

Apply these percentages to all your staff (including salaried) and you are looking at a significant extra cost.

Of course, your numbers will be different but I hope you see why it’s so important that you need to calculate this extra employer cost.

If you aren’t working out these extra costs, please go back to your staff costs and do this and if you are concerned about how to do this accurately then download that report, 5 Steps to Make Your Care Business Financially Secure in 2023 and Beyond to see exactly how to do this and also the best way to calculate your staff costs. (Hint: it’s not simply by taking your payroll costs.)

While the focus is on providing compassionate and high-quality care to vulnerable individuals, the financial aspect cannot be overlooked.

Put another way – if your care home or home care service isn’t calculating bed fees that cover all costs and returns a healthy profit then no matter how good your service is your business isn’t sustainable and will one day run out of money.

Please check that you are covering your extra employer costs.

If the idea of working all of this out and following the other steps to setting the right fees concerns you then don’t worry.  We have developed a tool that will help you do this and set accurate fees.

It’s called the Care Fee Calculator and you can try it for 30 days for free, which will give you plenty of time to review the fees you currently receive and check if they are enough to give you the financial return your business needs.

Don’t forget to download the report to see the steps you should take to calculate accurate fees. All the steps are followed in the Care Fee Calculator.

Download the report 5 Steps to Make Your Care Business Financially Secure in 2023 and Beyond

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