Clients often ask us how much it will cost to take on a member of staff. The simple answer is gross salary plus employer national insurance and pension contributions. However, calculating the real costs, actual and hidden, is a more complex matter.
Costs can be split between hard costs (actual cash that has to be paid out) and soft costs (usually someone’s time). Here the value of the time must be calculated and consideration given to whether the time could be used more profitably in a different way.
There are also potential costs that might flow as a result of being an employer.
1 Interrogate your staffing strategy
At this initial stage, only time is required, but skimping on this could be costly. Ask yourselves these questions:
- Why is a new team member required?
- Is there an existing team member who is suitable (and would this create a different vacancy)?
- Can the tasks be shared among existing staff?
- What skills are needed?
Then ask:
- What benefits will this position bring to the practice?
- Will it improve administration?
- Will it improve patient experience and encourage patient retention?
- Will it enable new services to be offered, and what money will these services bring in?
- Will it enable work to be carried out at a lower and cheaper level, and what effect will that have on those who are delegating the work (will it enable GPs to take on other lucrative work)?
It is too easy to automatically replace someone who is leaving without considering alternatives. Equally it is too easy to recruit someone to provide a new service without comparing costs to income (and alternative uses of time)
Time spent at this stage will ensure that the search is for the right person at the right level with the right skills.
2 Look at ways to reduce recruitment costs
The cheapest option is to ask other members of staff if they know of anyone. It is noticeable that the power of today’s social media can result in several candidates coming forward at no cost at all.
When weighing up the costs of advertising versus recruitment agencies, factor in the time costs of sifting through large numbers of potentially useless CVs in a systemised way. Make sure that the practice is protected against potential discrimination claims for choosing not to interview an applicant (a potentially very expensive risk area).
Again, time costs apply to running an interview process. Depending on the position, interviewing may involve all the partners or it might instead be carried out by an administrator with the practice manager.
The practice should have proper systems in place to protect against claims by unsuccessful applicants and to ensure that the right person for the job is selected. Different roles will need different procedures, but again time spent here to get it right will save the costs of getting rid of a wrong choice and starting again.
At the offer/contract stage, many practices will use specialist firms or services to ensure that contracts are compliant and protect both the staff member and the practice. It is false economy not to pay to ensure that you are up to date with employment law. You may not wish to use expensive legal advisers for this type of task, but as a minimum you should consider subscribing to one of the many HR packages on the market.
3 Plan the induction
Induction is another area where time costs equal money well spent. Every practice should have an induction system for new team members. Time spent at the beginning ensuring team members understand how they fit into the organisation, exactly what their role/duties entail, how to use any systems, software and equipment and where to find things, who will help them as they settle in, to whom they are answerable and what they should do if they have any problems, will minimise future time spent by expensive team members and give new recruits the best chance at succeeding in their roles.
It is rare that there are extra hard costs such as desk, chair or computers for a new employee replacing someone, but you should always consider the effective cost to the practice. Could that space be used more profitably in another way?
If a new role is being filled, the extra costs for space and kitting out, including any expensive equipment, should have been considered at the initial stages before employing the team member.
4 Add up the salary, NIC and pension costs
This is where the hard costs start. The basic salary is the starting point plus employer contributions to pension and national insurance (see table for examples).
| Examples | % | £ | ||||
|---|---|---|---|---|---|---|
| Part time administrator not in NHS Pension Scheme | ||||||
| Salary | 8,000.00 | |||||
| Employer’s NIC | 8000-7488@13.8% | 70.66 | ||||
| Total cost | 8,070.66 | |||||
| Salaried doctor in NHS pension scheme | ||||||
| Salary | 72,000.00 | |||||
| Employer pension contribution | 14% | 10,080.00 | ||||
| Employer’s NIC | ||||||
From | To | |||||
| 5,564 | 7,488 | -3.40% | - 65.42 | |||
| 7,488 | 40,040 | 10.40% | 3,385.41 | |||
| 40,040 | 72,000 | 13.80% | 4,410.48 | |||
| Total cost (before defence costs, etc) | 89,810.47 | |||||
Overtime can be a considerable cost and monitoring systems must be in place. While occasional overtime can be cheaper than having an additional member of staff who is not fully busy, there comes a tipping point where overtime is more expensive. If not properly monitored, jobs can be stretched so that overtime is worked unnecessarily. If the work is being carried efficiently overtime should not be required.
Time spent on improving systems and efficiencies can be a good investment if it saves additional salary costs.
5 Take your time adding a new employee to the payroll
The administration of the actual payroll can be a minefield. PAYE rules are strict and there are substantial penalties for errors, innocent or otherwise, and interest payable on late payments.
All is changing with real time information (RTI) reporting to HMRC where returns will need to be submitted online at or before each payment of any wages. Many practices already outsource their payroll work and the introduction of RTI this year may well encourage others to do so too. The changes under RTI are too complex to discuss in detail here, but any practice managers dealing with the payroll in-house who are not aware of the upcoming changes will need to educate themselves fast or look at the costs of outsourcing.
For further discussion and information about RTI go to the HMRC website.
Where professional subscriptions and other reasonable expenses are paid for staff, it is sensible to apply for a dispensation so that these can be paid without having to complete benefit returns at the end of the year. This is another area where penalties can build up to uncomfortable levels if the practice is not aware of its obligations.
6 On-going training/appraisals
Practices generally have regular appraisals for their staff and these should be used to ensure that everyone is providing the services needed by the practice. This will often lead to on-going training. This does not have to mean expensive outside courses. Local evening classes and on-the-job training may well suffice. It is, however, false economy not to train people to do the job the business needs (which is not necessarily what the individual would like to learn to do). Some practices are worried that if they train people up, they will leave and another practice will benefit from the costs spent. A better way of looking at this is that staff who are not trained and are subsequently unable to do their job still need to be paid yet the practice is left covering for their inadequacies.
7 Plan for annual increments and professional development
Historically staff have expected to receive pay rises each year, regardless of the benefits they have been providing to their employer. In times of falling profits and additional pressures on the whole team, many practices have stopped paying automatic increases. While it makes sense to be able to provide some increase to counter the effects of inflation, particularly at the low end of the pay scale, any increase does need to be considered in line with achievements. If an individual is providing services that, directly or indirectly, improve the profitability of the practice, then that should be taken into account at pay reviews.
It is much harder where individuals are employed on a specific scheme that promises annual increments regardless of achievements. In the worst case this can result in a very loyal, longstanding expensive workforce who are totally out of touch with what is needed in modern primary care.
If you have staff on Agenda for Change contracts there are pre-determined payscales and increases. Theoretically it is designed to provide recognition for the skills and competencies of the staff as they progress in their careers, but it is important to use the appraisal process to ensure that they are growing the skills and competencies the practice needs, and not just getting automatic pay rises which can be very expensive.
8 Factor in additional and contingent costs
In looking at additional staff costs don’t forget to include Christmas bonuses, performance bonuses, staff events (Christmas parties, summer BBQs etc), uniforms, long service awards, leaving and retirement gifts.
The costs of maternity, paternity or adoption leaves can be significant for a practice. In direct terms, payments will need to be made in accordance with the practice’s terms and conditions of employment. Statutory payments will need to be made (via payroll) and larger practices are unlikely to recover all payments. If Class 1 NICs are no more than £45,000, then the practice can recover 100% of statutory maternity pay (SMP) plus 3% compensation. If Class 1 NICs exceed £45,000 only recover 92% of SMP can be recovered. Further details can be found on the HMRC website.
9 Prepare for cover
On top of the direct costs of these statutory leaves, there is of course the cost of replacement cover, whether via internal locums (in both the traditional sense for GPs and the practical sense of administration staff covering for the absentee) or by employment of temporary staff. It is essential to get the temporary contract drawn up correctly so that it can be terminated without problems when the person on leave returns to work.
This is an area where legal helplines can be very useful, giving you easy access to all the latest rules and regulations which are continually changing. Note that plans are in place for increases in paternity leave where child care leave can be shared between the mother and father.
Sick leave and statutory sick pay is another complex area that all practices will be involved in at one time or another. Systems need to be in place to monitor sick leave and for post-leave interviews and again time costs are a major consideration. However, the costs of not spending this time could be far greater if the employee has a case for compensation because, for example, stress at work has caused the problem. Contracts of employment must make it clear what sick pay is available over and above statutory sick pay (this is something that we have seen in recent years to be less generous than in the past). Again legal advice is sensible in determining and wording the policy,
10 Don’t forget the cost of dismissals and redundancies
If an employee does not work out there will be substantial time costs involved in following the rules for reviews and warnings prior to dismissal, not to mention the costs for starting the process all over again to find a replacement.
Other potential costs include risk of claims by staff members or former staff members. The list of potential claims is endless; harassment claims, discrimination in various formats, unfair dismissal etc. Again a legal helpline or service is essential to ensure you do not fall foul of any of these danger areas.
There are redundancy risks to consider too, particularly if a service is withdrawn or in a worst-case scenario there is a practice failure (a risk that is likely to increase with the threatened removal of MPIG). Legal advice can minimise claims against the partners (who have full personal liability in a normal partnership), but basic redundancy costs can be very high. We have seen an example of a salaried GP being entitled to huge amounts of redundancy money despite only being employed by the practice for a short time, because it is employment in the ‘NHS family’ rather than the individual practice that counts.
Overall therefore the answer to the question ‘how much will a new employee cost?’ is far from straightforward. Practices should ensure they keep up-to-date and employ professional assistance to fill any gaps in knowledge and protect against any unexpected additional costs that can arise from being an employer.
Liz Densley is a director at Honey Barrett Limited, a member of the Association of Independent Specialist Medical Accountants (AISMA).
