Matt Wort, senior partner and employment lawyer at Anthony Collins, sets out the support private sector care homes need to tackle the pay gap and avoid National Minimum Wage breaches

The planned increase in the National Minimum Wage (NMW), which takes effect on 1 April 2024, will have a disproportionate effect on care homes and other care service providers. Without more funding, many will be operating on a knife edge when it comes to compliance, with a greater risk of attracting penalties.

Staffing costs typically absorb between 45-60% of care home fees and whilst many publicly funded care homes might aspire to pay the NMW, at a time of rising costs and local authority cuts, they simply can’t afford to do so. From 1 April, the NMW increases to £11.44 per hour for workers aged 21 and over, and 18- to 20-year-olds must be paid a minimum of £8.60 per hour. These increases could be sufficient to push some publicly funded care homes to the brink of insolvency.

The problem is that many publicly funded care homes are already operating with squeezed margins due to higher staffing and other costs, and local authority funding has failed to keep up. Research by Care England and learning disability charity, Hft, shows that workforce costs were the most significant financial pressure for adult social providers in 2023, and 79% reported that local authority fees weren’t enough to cover costs associated with the increased NMW.

To address the funding shortfall, some publicly funded care homes are putting the strongest case they can to their Local Authority or NHS Commissioners (Commissioners). For example, they might aspire to pay the National Living Wage (more than the NMW) to attract and retain skilled workers and drive improvements in the quality of their care services, but they need the support of their Commissioners to achieve this. Depending on how their case is received, they could end up having to pull the plug on their services if they cannot get the increases they need. 

Where more funding is not an option, many publicly funded care homes feel that they are being forced to operate on a knife edge, with an increased risk of breaching the NMW legislation. For example, if workers are training for NVQs or other professional qualifications in their own time, this could cause their overall pay to fall below the NMW. There is a special NMW rate for apprentices, but this only applies to those aged 16 to 18 years or for the first year of study, and only as part of a formal apprenticeship agreement.

There are many other potential risks for employers. For example, if workers are required to come to work wearing black trousers and sensible shoes, and to provide them at their own expense, this could reduce their overall pay. Charging workers a fee of £1 for an attachment of earning order – a relatively common practice – could leave some employers in breach of the NMW legislation.

In other situations, employers might have introduced a salary sacrifice scheme where, for example, contributions made to a pension scheme, or childcare vouchers would be deducted from a worker’s pay. If workers are expected to be ‘on call’ over a weekend but can’t be certain how much time they will be required to work, this could mean they are ineligible to be treated as a salaried worker. If this happened, it could push their pay in a specific month below the NMW. Finally, if a care home deducts more than £9.88 per day for providing accommodation to a worker from overseas, this could result in their pay falling below the NMW.

In the latest report published by the Government, two major care home groups have been named and shamed for breaching the NMW legislation. This shows that even employers with relatively strong back-office support can find themselves in a position of non-compliance.

Seeking specialist advice in all areas of human resources management is vital and care homes can’t afford to leave any compliance matter to chance.

One thing that might help going forward is a national framework for social care services pay, which all providers must adhere to. Of course, if this were made a legislative requirement, Commissioners would also need to be obliged to provide the necessary funding. Despite calls from industry bodies, such a framework has not yet been proposed. Other suggested solutions include national pay bargaining, but this is unlikely to be feasible given the many independent providers the social care sector is comprised of. Instead, recommendations on the minimum rate should come from the Low Pay Commission as the independent body advising the Government on the NMW.

To mitigate risk as far as possible, publicly funded care homes should consider their strategy for negotiating with Commissioners. Whilst it’s important for care homes to remind local authorities of their statutory obligation to provide adult social care services, it may also help to share any goals that the organisation has to increase pay, attract and retain skilled workers and commit to the delivery of high-quality services. Ultimately, local authorities want to partner with care homes and other care service providers who are committed to improving outcomes for users.

Matt Wort is senior partner and employment lawyer at Anthony Collins. He specialises in the social care sector.