How increased staff costs will affect your practice, and action to take now – By AISMA

Source: Practice Index November 14, 2024 by AISMA in AISMA, General Practice, GP Practice Management

Looming staff cost increases are causing sleepless nights for many Practice Managers. James Gransby,
Vice Chairman of the Association of Independent Specialist Medical Accountants, analyses the financial
impact of last month’s Budget on general practice and says an update from the government on how these
additional costs might be reimbursed can’t come soon enough.

Big changes in payroll costs are on their way. While we know what’s changing from 6th April 2025, there’s
a vital piece of the jigsaw missing; namely, how much funding will be provided to help practices manage
these additional costs.

This information vacuum is making it difficult for Practice Managers to decide what they should be doing now.

Should you wait to see what funding will come between now and April? Or should you be taking robust
action around staffing levels in anticipation of higher costs on top of what will already be very stretched
budgets?

Realistically, details of any reimbursement may take some months to become clear. So, what is the best way
to plan for what comes next?

The first step is to work out how the changes will affect your own practice.

Assessing the impact for your practice

First, look at the changes announced relating to employer National Insurance contributions (NICs).

There are two changes:

1. The rate of employer NICs is increasing from 13.8% to 15%
2. The threshold at which employer NICs start to be paid is reducing from £9,100 to £5,000.

For most staff, the employer NICs threshold change will have a greater impact on practice finances than the
increased rate. This is because all staff earning over £9,100 will now cost you an extra £615 a year to employ
(£9,100 – £5,000 = £4,100 extra pay subject to employer NICs at 15% = £615).

The 1.2% rate increase will cost an extra £310 for someone earning £35,000 gross (£35,000 – £9,100 =
£25,900 at 15% instead of 13.8%). This person will therefore cost the practice an extra £925 a year to
employ (£615 + £310).

Then turn your attention to the National Living Wage (NLW) which is increasing by 6.7% from £11.44 to
£12.21 per hour. The National Minimum Wage for 18-20 year-olds will increase to £10 per hour.

Example

The table below illustrates the effect of the increases on the cost of employing a full-time staff member
earning the National Living Wage.

For practices paying staff above the NLW, the margin of their pay above the NLW will become less and there
may be upward pressure on staff pay throughout the pay scales in order to maintain the margin that they
currently enjoy compared to the NLW, and each other.

Applying the changes to your whole staff base

There are a few methods of how to assess the impact of the increased costs across your whole staff base.

A line-by-line, staff-member-by-staff-member assessment will give the most accurate forecast but will take
the most time and effort to put together.

Alternatively, there’s a rough-and-ready way of looking at the effect of the employer NICs increases in
isolation. Take the overall headcount on your payroll for the most recent payroll month and divide the
total gross pay for the month into the headcount to get an average cost of your employees. Then work
out the hypothetical extra cost per average employee and re-multiply that by the headcount.

This is by no means accurate and should not be used for detailed planning, but if you wanted a quick
way to get to a rough figure quickly then this method could be used. Note that it doesn’t take account
of the NLW increase. This will be a key factor in overall pay increases for many and so use with caution.

What funding might a practice expect to receive towards these extra costs?

This is the fundamental question and at the time of writing there is no answer.

Many other businesses will benefit from an increase to the Employment Allowance, but GP practices do
not qualify for this. Even if practices could make use of the allowance, it wouldn’t cover the extra costs
of employer NICs for an average surgery.

There’s pressure to release information about any extra funding quickly, certainly before the 25/26 contract
changes are announced next Spring. If information is withheld until then, practices run the risk of finding out
about available funding too close to the first payroll run date when the new costs take effect. This is not
acceptable for forward planning.

How will any reimbursement be received?

Based on previous methodologies, any additional money to support these increased costs is likely to come
to contract holders via the Global Sum. This, however, is a blunt instrument and already falls considerably
short of the amount required by many practices, especially those running additional contracts over and
above their GMS/PMS activities.

The staffing expenses element of the Global Sum was calculated, some time ago, to be 44% of the Global
Sum and reimbursed at a rate that includes on costs, including employer NICs and pension contributions.
Careful calculations need to be performed to ensure practices are not underfunded again.

Can practices take action now?

It’s impossible to know the extent of any funding. Therefore, the only option for now is to assume no funding
is forthcoming, but to delay any action resulting from this assumption until the funding amount is known.

As the changes don’t take effect until April 2025, there’s a small grace period, but that time will come round
quickly so start considering your actions now.

What actions might a surgery take if funding, once known, isn’t sufficient

A scenario to plan for, in terms of underfunding, may be the non-replacement of any staff leaving between
now and April 2025. This method may have been used extensively before and, of course, you need to have
sufficient staff to deliver the contract, but this is another time where this option may be at the forefront of
our minds.

The curtailment of any planned pay rises for next year is the most common approach expected to be
adopted. Those who need an increase due to the increase to the NLW will clearly need an uplift, but
for other staff, any increases would need careful thought and budgeting.

Summary and actions

If you haven’t yet done so, carry out a line-by-line assessment of the effect of the changes, together with any
other known headcount changes or hours worked, to arrive at the total cost increase from April 2025 onwards.

Unlike the DDRB recommendations, where there’s an expectation of a mid-year pay review and back-dating,
this change is happening in the future and so there’s some time now to plan before the first payroll is run
with the new figures.

If we find out soon what funding may be coming to practices, then planning can be more accurate. If the
more likely outcome happens and surgeries don’t find out the funding levels until a few days before 6th April
2025, then there will be very little time to take action, resulting in confusion and anxiety for those setting staff
budgets for the 2025/26 tax year.

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