The difficulties of pay inflation

05/10/2022. As the cost-of-living crisis grows more and more, GP practices are asking the questions on everyone’s minds, mainly - how to deal with the issue of staff pay.

As the cost-of-living crisis grows more and more, GP practices are asking the questions on everyone’s minds, mainly - how to deal with the issue of staff pay.

It’s not an easy issue and one that impacts all businesses – the difference with GP practices being that its main customer, the NHS, controls the income streams practices get.
Each nation is different. Scotland, Wales and Northern Ireland have indicated that the GP contract funding will be increased by 4.5% to match the NHS pay award given to some NHS staff.. In England though there has been no further increase on the basis that the five-year deal that runs until 23/24 sets out what funding uplifts will be applied, and this is limited to the increase of 3.1% made to the Global Sum back in April.

What are the pressures?

It’s clear that staff are feeling the impact of inflation on household budgets and anything but a pay increase that matches inflation will end up with less in their pocket. But its not just limited to that. Practices have to be mindful about what staff in other parts of the NHS are being offered. For example, if a PCN physio employed by a Hospital Trust gets a 4.5% increment in pay clearly that could impact on what other PCN staff get paid who may be directly employed by practices. Other business sectors are also short of staff, so pay rises for administration, reception and management staff will be under pressure from the local economy.

In addition to pay pressures, there have also been changes in National Insurance. Whilst the government reduced the impact of the 1.25% rise to cover Health and Social care by increasing the threshold of income on which this is charged in July, most NHS staff will still find their national insurance cost has risen over the current year. Employer contributions have also gone up since April. The recent mini budget announced changes from November which have reduced the impact going forward.

In October 2022, we are saw a change in the superannuation rates for some pay bands although not in all regions. Whilst many people may see a reduction in contributions due, particularly part time workers, some will see an increase.

Looking ahead the recent Autumn statements also announced significant uplifts to the National Living and Minimum wage increasing this to £10.42 per hour for people aged over 23.

Pressures are coming from all angles.

Are all staff impacted?

GP staff are not covered by the recent NHS pay deal announcements in England, except where they are salaried GPs on the standard BMA contract or have contracts covered by Agenda for Pay. That said, as covered above everyone is under pressure at the moment with household budgets.

What are the solutions?

Sadly, there are no simple answers here.  Practice budgets are already being squeezed by the increase in general costs.

Practices will need to weight up their options. These include:

  • Across the board increments to all staff members at the same rate;
  • Applying differential uplift rates – taking into account that lower paid staff members will feel the inflationary impact on their household budgets the most;
  • Consider a combination of a lower inflation uplift with a one-off cost of living bonus. The latter being non-pensionable, leaving more in the pocket of the staff member but with no requirement for an employer’s pension contribution.

When considering costs, also bear in mind that this is a tax-deductible expense for partners. It also reduces pensionable pay for partners and so reduces their pension contributions. Any increase in expense therefore reduces tax, national insurance and pension contributions to partners so the full increase is significantly offset by these savings.

Practices also need to look at staff productivity. Again, in the current climate where staff are under extreme pressure from patient demand this is not easy. But any adoptions of digital solutions that help reduce the impact on staff may help keep the staff budget under control. In addition, practices more than ever need to review the profitability of additional non-core work they are doing. If the costs are rising to provide a service, it may mean it’s not worth doing it.

Get in touch

Mazars can assist helping practices consider their options. If you would like to contact our team, please do not hesitate to use the link below:

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