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Understanding the National Minimum Wage Increase and the Real Living Wage

The recent increase in the UK National Minimum Wage (NMW), is excellent news for a large number of care workers and is therefore, excellent news for the care sector.  Rewarding care support workers with higher pay can only help to drive better quality and continuity of care.   Many care providers look to their Local Authorities to fund this cost increase, only to find that in most cases the cost increase will not be covered.  Not only are Local Authorities not funding the cost of the wage increase, most care providers have nowhere to turn to in order to find help to close what is yet another cost pressure.

The ‘Real Living Wage‘ is a voluntary wage rate calculated to reflect the actual cost of living, ensuring that workers can meet their basic needs. Unlike the government-mandated National Living Wage, the Real Living Wage is independently calculated by the Living Wage Foundation based on the cost of living, including expenses such as housing, food, and transportation. It is higher than both the National Minimum Wage and National Living Wage and is updated annually to keep pace with rising living costs. Employers who choose to pay the Real Living Wage do so to support fair wages and improve their employees’ quality of life. Given the staffing issues faced by the social care sector, more organisations paying real living wages will act as a means of attracting and retaining more staff in the sector. Many care organisations recognise the benefits of paying the Real Living Wage to their staff and have strong desires to do so but their mounting costs have not allowed them to do so.

Over the years there has been a consistent trend of downward fee income pressure and rising costs.  General wage inflation, then the Pandemic and PPE costs, then insurance inflation, then the energy spike, followed by, in many cases the quadrupling of contingent or temporary labour costs, followed then by double digit food inflation.  The reaction to these unforeseen circumstances has meant most care providers have already closed some of their operations, have sought additional borrowing, have made redundancies and have eaten into or even exhausted their reserves.

So how do we support our social care sector to cut operating costs without compromising on the quality of care?  The answer is to carry out a comprehensive procurement programme across the supply base to ensure value for money is secured and savings are maximised.  The savings can be material and can impact the bottom line with immediate results.

For many organisations in the sector, labour costs are likely to be one of, if not the largest cost, a proportion of this will be the contingent labour market.  For a high performing care provider the percentage of contingent labour costs to permanent resource costs ranges from 2-3.5%.

Strategies for Mitigating Costs

The one golden rule for all care providers is that quality of care and continuity of care must be paramount.  Any costs savings must not be to the detriment of their users. At Marr Procurement, we specialise in social care procurement with this understanding in mind.  We ensure the correct levels of Apprenticeship Levy, Pensions, National Insurance and agency margins are paid.  Minimising all of these cost components delivers what we call a supply side saving and it’s not uncommon for that to amount to a 10-15% net saving on your contingent labour spend.

Beyond labour spend, there are many other areas for care organisations to make large scale savings.  We work with care providers to cut their consumption, lowering costs for the care provider.  Areas may include Digital Care Planning solutions, rostering systems, Neutral Vendor systems. Another important factor to consider when attempting to trim costs is a deep understanding of your organisations’ costs data in order to determine which areas can be optimised and what savings to expect ahead of committing to new suppliers or contracts.  Marr Procurement have dedicated Data Analysts to process and present this cost data to our clients as part of our proposal, something not all procurement specialists can offer.   A clear understanding of what your current costs are is vital to establish what savings can be expected.

Steps to Take

So, what practical steps can care organisations take to reduce the impact of the recent rise in staffing overheads:

  • Understanding how your organisation manages its temporary agency spend is crucial. Is your temp agency supply base proliferated and agreeing rates locally or are you being supported by either an in-house or Neutral/Master Vendor solution?
  • What was your April 2024 NMW position, are you aware of what % increase was accepted following the NMW uplift and the impact this will have overall?
  • Is your organisation dictating the charge rates to suppliers or are you accepting their recommendations to ensure supply is provided? How do you know this represents value for money?
  • Do you have tiers of agencies and if so, do you know what % is with your most competitive suppliers?
  • Reviewing your requirements on a site by site/shift by shift basis to focus your recruitment into the right areas for high agency users.
  • Having this data by supplier and shift also supports focus on negotiations to know what the overall impact of increases will be and to push back where required.
  • What is your current focus on transitioning workers from agency positions to perm and bank and what is your success rate?

By gaining a better understanding of your organisation’s data and requirements you will be better placed to start reviewing where savings can be made.  This can be a stressful and time consuming exercise if you don’t have the required information. External help from procurement experts such as M-Resourcing from Marr Procurement can help you navigate this process minimising risk.

If you think your care organisation would like some assistance with implementing a cost-optimisation strategy with expert procurement specialists to guide you through the process, please get in touch with us. We have clients today which have seen a 50-85% reduction in overall temp agency costs within 12 months. We have worked with 41 care providers over the last nine years, we’d love to work with you too.

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