The National Living Wage - How will the changes impact on your healthcare business?

The National Living Wage - How will the changes impact on your healthcare business?


Author: Emma Gibson

Applies to: UK wide

The introduction of a National Living Wage and its implications on the National Minimum Wage has been one of the biggest headlines of the Summer Budget 2015 - and one that is causing tremors throughout the healthcare sector.

The announcement that the minimum wage for workers over 25 will rise to £7.20 from April 2016 is likely to hit domiciliary and residential care providers hard, at a time when funding for care is already of serious concern in the healthcare sector. According to the charity Age UK, government spending on elderly care homes was cut by nearly a fifth between 2010 and 2014. These cuts and the pressure on care funding have already had implications for the sector. Wage costs are typically the biggest cost to care home operators and so, unless the fees paid by local authorities for state-funded residents increases comparatively, it will be the care providers that are squeezed.

Commentators suggest that the results of the change to the minimum wage may result in consolidation, business failures and service withdrawal in certain areas. However, it may also result in greater employee retention and consistency across the sector.

Concern regarding the proposed changes to the minimum wage has been further compounded by the recent case law decision in Tyco, which held that time spent by workers who have no fixed place of work travelling from their home to clients' premises counts as 'working time' - in other words, arguably all time travelling to clients should be included as "working time" when auditing compliance with minimum wage regulations.

Unfortunately, these proposed changes are also coming at a time when employers' mandatory contributions toward pension auto-enrolment schemes will be increasing, rising to 2% during the 'second transitional period' from 1 October 2017 to 30 September 2018, and then up to 3% during the 'steady state period' from 1 October 2018 onwards.

Unless (or until) the financing of social care funding is addressed, many providers are going to struggle to meet these increased costs.

The government has confirmed that it will consider social care funding in the next spending review in November, and until such time, it is difficult to assess the full impact these measures could have on the industry.

In the meantime however, it is crucial that providers use the coming weeks and months to consider strategy, update business plans and work with funders and advisors accordingly to ensure they comply with and are able to deal with these changes.

The changes to the National Living Wage will have implications for healthcare businesses across the UK. The main concerns are:

  • Employment tribunal claims, which can be expensive and extremely disruptive, especially in the event of class actions and union involvement.
  • Fines and penalties from HM Revenue & Customs, who are cracking down on care providers large and small for minimum wage non-compliance.
  • Regulatory compliance failures; providers must ensure strict quality standards are met otherwise they risk fines, investigations or even suspension.

Healthcare businesses should take action now to avoid being hit by fines and penalties for non-compliance.

Our recommendation is to:

  • Carry out an internal audit of employment contracts and business process, reviewing and updating where necessary.
  • Check compliance with minimum wage laws (which can be complex to assess) and rectify if needed.
  • Seek advice on regulatory compliance matters and how to deal with any issues that arise
  • This will be particularly important for multi-site and/or franchise-based care providers. Carry out a risk assessment and work with your advisors to protect your position.

In order to remain compliant healthcare businesses will need to create a business strategy that will consider cost saving measures, disposals, market opportunities, cost sharing with other providers and fee negotiation.

Shoosmiths has an excellent understanding of the healthcare sector's challenges and opportunities, which enables our healthcare clients to access not only legal advice in many areas of law, but also business and strategic insights based on our market knowledge and experience. For more information on how we can help you, please contact our healthcare team.


This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.