Baker Tilly urges private care businesses to prepare for national living wage

Accountancy firm Baker Tilly is urging private care businesses to prepare for the introduction of the National Living Wage amid concerns that the new rules could place some operators in financial distress.

Following the Chancellor’s announcement in the summer budget that a new national living wage of £7.20 will be introduced from April 2016 rising to £9.00 per hour in 2020, the UK Care Home Association warned that the cost to the care industry could be £753m in the first year alone.

To prepare for the changes, Baker Tilly is advising the following:

  • prepare a detailed five year business plan taking into account the likely wage bill for each year;
  • examine current staff levels to indicate where efficiencies can be made in staff levels and rotas;
  • review the mix of private and commissioned service users to reduce reliance on local authority funding;
  • assess current and anticipated establishment costs as an area for financial savings;
  • prepare contingency plans should sufficient new funding not become available;
  • build up cash reserves where possible; and
  • keep abreast of any new legislation and ensure that the business remains complaint and up to date with any changes.

Dilip Dattani, Restructuring and Recovery Partner at Baker Tilly said:

‘Whilst the government’s Budget announcement to introduce a National Living Wage will be welcomed by many care workers, this move is likely to hit some private care sector providers hard. While the increase to the wage bill will be relatively modest in 2016, the rise to £9.00 per hour in 2020 is significant, so care providers will have to plan ahead.

In recent years, austerity has affected the funding into Local Authorities and consequently funding per resident into care services has reduced. This has put significant strain on private care sector providers and although the government has agreed to review care sector finances in the next parliament, there is a fear that if significant changes are not made, some good homes may be forced to close.

I would strongly advise all care home operators to plan ahead and take a full review of their businesses and assess where cost savings could be made.’