Feeling the squeeze – how the new ‘living wage’ for over 25s will affect the care sector

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Official estimates state that around 6 million workers will see their pay boosted by the new ‘living wage’ which will be introduced as an increase to the existing National Minimum Wage (NMW) for over 25s.This article outlines some of the key issues for care sector employers to consider when preparing their business for the changes from 2016 onwards.

The ‘ripple effect’ on pay and a widening funding gap

The new NMW for over 25s amounts to a significant pay rise for many workers. The rise will not just affect workers’ pay itself – employer pension contributions, holiday pay, overtime, bonuses and any other payments or premiums calculated by reference to basic pay will also increase. It is estimated that the social care sector spends around 60% of its budget on staffing costs so the pay increase will undoubtedly have a major impact on the cost of providing care. This presents a significant challenge as it seems unlikely that the increase in costs will be matched by an increase in local authority funding.

To compound the issue for businesses that provide care at home, many local authorities only pay for the time that the worker actually spends with the service user. Recent case law has established that time spent by workers travelling in between service user visits is ‘working time’ and must be paid as such.

Suggested action – This cannot be ignored. Consider undertaking an impact assessment on pay and benefits in good time before April 2016. We recommend that you involve your legal advisors in any audit so that it is ‘privileged’ if you have any concerns about future pay disputes. Your unions and your employees cannot seek disclosure of a privileged audit.

Workforce flexibility

Higher payroll costs will require a more flexible workforce. You could consider options including lower base hour contracts or restructuring shift patterns and premiums. Savings might be made by staggering shift start and finish times to avoid or reduce shift premium bills and reviewing existing overtime pay. Bear in mind that many employees may be looking for extra hours to make up income lost as a result of the cuts to tax credits.

Suggested action – Consider whether current contractual arrangements and shift patterns provide the right amount of flexibility for your business.

Always take legal advice if you are contemplating making changes to contracts of employment or contractual benefits. The cost and time involved in Tribunal claims can outweigh the financial benefits of a change. If you recognise a trade union or staff body, consider discussing the impact on your business of the increased payroll costs at an early stage.

Getting value for money from staff

Increasing costs mean that employers need to ensure that they are getting the best possible value from their staff. Performance management procedures need to work for your business and be implemented effectively by your managers.

Competition for quality staff in the social care sector coupled with nationwide staff shortages (which will be become even more intense under new immigration control proposals which will impact heavily on the nursing sector) means that many employers are seeking to differentiate themselves by providing new and innovative reward and recognition programmes.

Suggested action – Now is a good time to revisit your business’ performance management and retention policies to ensure that the quality of your staff is high and that you retain your star performers.

Absorbing the costs

It is tempting to consider cutting existing employee benefits to absorb some of the new payroll costs. However, changes to contractual benefits without employees’ consent are likely to give rise to claims for breach of contract or unfair dismissal. It is less risky to reduce non-contractual perks such as ‘one off’ bonuses but always proceed with caution. Such perks can become implied contractual benefits if they are provided consistently over a period of time.

Suggested action – any changes to contractual terms will require consultation with employees and their representatives and changes affecting 20 or more staff may be caught by the collective consultation requirements. We can guide you through this process.


If your business’ margins are tight, you may have to consider restructuring your business or carrying out redundancies. The number of users of social care is set to rise significantly as the UK population ages so any restructuring or redundancy programme will need to factor in projected demographic changes.

Suggested action –

  • If redundancies are anticipated, review your business’ existing redundancy procedures.
  • If collective redundancies involving 20 or more staff are envisaged, start laying the groundwork for collective consultation in good time before the process begins.

Walker Morris’s employment team has a wealth of experience in advising the care sector on these issues. Please contact David Smedley or Andrew Rayment whose contact details are below.