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Managing staff costs



What are the additional costs for a member of staff on top of their salary?

Employed members of staff attract two specific tangible ‘on-costs' – employer's national insurance (at the rate of 13.8% for anyone earning above £136 a week) and employer's pension contributions to the NHS Pension Scheme at the rate of 14%.

This means that for each £10,000 paid to the employee, the cost to the practice is £12,780. Indirect employment costs, such as paid holiday leave, parental leave and so on, also need to be considered when thinking about how much each employee really costs.

These can be hard to predict, but it is worth looking at historical costs as a percentage of payroll over the previous year as a guide.

The climate at the moment is so uncertain. How can we evaluate whether it is cost-effective to take on another member of staff to deliver a new service?

Practices need to assess the income from the service, and then subtract the overall costs, including the staff costs. Look at whether the income stream is sustainable – for example, is the contract for a fixed term or open-ended? Remember to subtract the cost of all supplies and facilities needed to support the service as well as the obvious salary and employment costs. For example, does the provision of the new service require investment in new equipment or computer software? Will it require the practice to stay open for longer hours with a receptionist in attendance?

The expenses shown in your practice's profit and loss account can provide a good starting point for this assessment. But do not forget ‘opportunity costs' of service provision – could the use of rooms in the surgery prevent their alternative (more profitable) use? See the case study below for an example of how to do this.

I read that partners are a better investment now, compared with salaried GPs. Is this correct?

In our experience, the trend is now moving back in favour of practices seeking to attract new GP partners rather than employees.

The cost to a practice of employing a salaried GP on £70,000 per annum is over £87,000. Offering a GP a partnership that is likely to pay the same amount (with employers superannuation at 14%) will cost the practice £79,800. In addition, there are the sometimes hidden costs of employment. It may be controversial, but experience shows that being a stakeholder in a business means that the level of ultimate dedication to the practice's cause will be greater than if you are an employee.

Is it a good investment to employ a business manager?

While larger practices can undoubtedly reap the rewards of having a business manager on their payroll, it may not be the best option for a smaller practice. Business managers in any organisation demand premium salaries, and there is a risk that it will lead to a duplication in roles with the practice manager.

Often the best course of action, especially for smaller practices, is to outsource the business manager function to a qualified consultant over a set period of time, perhaps for a specific project. For example, a business manager or consultant could look at the alternative methods of providing an extended hours service to fulfil the requirements of the new DES.

Identify the areas of income that you wish to concentrate on and offset this against the costs of employing the manager, and set a clear strategy with goals and outcomes for the exercise.

How can we reduce the amount we spend on locum fees?

There will always be unexpected absences when the use of a locum is unavoidable, but practices can use some basic planning techniques to ensure costs are minimised. For example, the use of a holiday planner can ensure that not too many GPs are away at the same time.

Practice agreements should also be reviewed to ensure that partners are aware of their responsibilities to pay for locum cover. Is appropriate insurance cover in place? When does payment responsibility commence (such as after four weeks' absence)? What are the timescales for payment during maternity or paternity leave? Practices should always speak to their primary care organisations to find out if any form of locum expenses reimbursement is available. Practices should also take into consideration the HM Revenue and Customs and NHS Pensions Agency guidelines that warn against using long-term locums in order to avoid employment on-costs, such as employer's national insurance and pension contributions. If you pay locums using an ‘employment contract' then you could get stung by the HMRC.

What are the costs of redundancy, and what are other options to reduce staff costs?

Employees who have worked for you for more than two years are generally statutorily entitled to redundancy pay. The amount you have to pay depends on the age of the employee and how long they have worked for you, and ranges from 0.5 weeks' pay for each year of service while the employee was under 22, to 1.5 weeks' pay for each year of service while the employee was 41 or over. However, weekly pay is capped for these purposes at £400 per week, and only up to 20 years' service can be counted. As long as the statutory redundancy pay together with any ex-gratia payments are under £30,000, they aren't taxable.

There are also indirect costs of redundancy, such as the effect on staff morale, and the loss of certain skills – such as knowing how your practice works on a day-to-day basis. Recently there has been a trend towards reducing working hours, or changing staff roles to avoid redundancies, but as with any change to terms and conditions of staff employment this can be fraught with difficulty.

Practices with employment contracts should check the small print to ensure that the employee has no further non-statutory benefits payable if they lose their job, such as severance benefits or long-service awards. As far as the costs of statutory redundancy are concerned, a useful calculator can be found at

It is essential for practices to take professional advice from an appropriately qualified employment law specialist solicitor before embarking on any form of staff reorganisation or redundancy, or any employment change that will affect employment terms and conditions.

One practice we know has a successful scheme where the staff do not get a pay rise, but they will be paid £250 in October as a lump sum. Should we be considering similar incentive schemes?

In our experience, many practices have talked about introducing incentive schemes, but the complexities of introduction and running the schemes have prevented them being used.

Bonuses generally have to be very closely linked to individual or group performance to motivate staff, and have to have fair and effective targets.

The problem with ‘blanket' awards is inequality. The £250 is a pay award to staff and as such will be subject to normal taxation and pension rules, so a £250 bonus is a 3.1% pay award for someone earning £8,000 per annum, but just a 1.3% pay award for someone earning £19,000 a year. I would suggest that blanket awards are generally unfair and could lead to more problems than benefits, and there are far more cost-effective ways of motivating your staff.

Motivation for some will simply revolve around money – for example: ‘I'll do the job more quickly if you pay me more.' For others, the motivating factor will be recognition of performance, for example a promotion. In some cases a simple ‘thank you' from a GP partner can work wonders.

The trick for the GP is to recognise what is most effective for their workforce and take steps to manage the practice in the right direction. There are many excellent management training consultants who can provide a range of courses and seminars on this subject, and if you speak to your solicitor or accountant they might also be able to give recommendations.

Now is a challenging time – how can we involve staff in making our business more efficient?

Setting targets for efficiency involves the difficult task of motivating staff to feel involved and responsible for their particular area. It's important to make clear that everybody can and should help, from dispensary staff identifying wastage and changing ordering procedures, to support staff noticing energy wastage and controlling central heating timings or switching off lights at the end of the day. This encourages ‘ownership' of the issue and gives staff the necessary momentum to see the task through. For example, I know

of a practice where after discussion of benchmarking figures for expenses at a accounts meeting, a practice manager undertook a full review of their practice's costs – including medical consumables, heat, light and telephone bills, and sundry repair bills. By shopping around rather than simply ordering from the same supplier, switching utility and telephone suppliers, doing some research and comparing prices, the four-partner practice saved almost £1,000 per partner during the year.

How can we evaluate whether we have the right mix of skills in our practice?

Overall financial performance is therefore a very good initial indicator of whether the practice is as efficient as it should be. Wherever possible practices should look to compare their own performances against widely available financial benchmarking figures and ‘drill down' in areas where they appear to be outside normal parameters.

Benchmarking information for both practice income and expenditure is widely available for GPs who are clients of specialist medical accountants. Organisations such as the Association of Independent Specialist Medical Accountants ( or the Institute of Chartered Accountants Healthcare Special Interest Group ( can provide details of specialists in your area.

How can we ensure we develop and train our staff in a cost effective way?

Staff training should be geared towards achievement, and improving the relevant staff member's overall job performance. Performance should always be measured against the key elements of the job description such as knowledge and attributes, and focused on need, so for example if a practice nurse needs to improve his/her knowledge in the area of diabetes, then training should be concentrated in that discipline.

GP practices can be inundated with flyers for training courses so care must be taken to select the most appropriate, taking into example technical levels, location and travelling as well as overall course cost. Never forget also that some of the most valuable training can take place "in-house" with on-the-job training and mentoring.

Deciding which courses are most suitable for staff often begins with the creation of a ‘training needs analysis'. There should be specific discussions with staff at performance reviews to see which areas they feel are most appropriate to their needs. Training on common topics of interest are often organised by practice manager groups or LMC's. These tend to be locally focussed and less expensive that courses offered by commercial organisations and can be much more appropriate to the needs of certain staff members.

Should we be looking at sharing staff resources with other practices to develop new services or share back office functions?

Many group practice or health centre models work well and back office functions are often outsourced in the wider commercial world.

Once again, an overall costing exercise needs to be carried out to assess if the project is profitable in financial terms, but also workable from the logistical point of view. For example whilst financial savings could be made, would sharing work for practices in different areas of a large town or city?

Practices considering this form of working together need to take great care with how the joint operation is set up, as it is easy to fall into various taxation and pension traps. For example a centralised management company set up to employ staff may find itself operating outside of the NHS pension scheme and also having to charge members VAT on the service, thereby negating the cost savings. Advice must be sought by any GP's considering a venture of this type.

How can we reduce recruitment costs?

This largely depends on the level and grade of the job being advertised. So for example, advertising the role of a junior receptionist in a national magazine would be of little benefit to the practice, whereas attracting a new partner would merit greater expenditure on the job advert.

Wherever possible therefore, it is sensible to match the job proportionately to the cost of reaching the candidate.

Jeanette Brown is head of the medical/healthcare accountancy team at Dodd & Co chartered accountants Dr Lisa Silver is a GP in Nettlebed, Oxfordshire

Case study: Extended hours DES

A surgery with 7,000 patients is considering whether or not to continue with the extended hours DES. The surgery is currently open for 3.5 hours every Saturday morning. The session is covered by one of the GP partners, who takes an extra half day off during the week in exchange for working on Saturday. The weekly session is covered by a locum. One receptionist is on duty while the surgery is open on Saturday.

As the surgery is in a prime location, a local independent physiotherapist, specialising in treating sports injuries, has offered the practice £3,000 to allow him to use the same consulting room on Saturday mornings. He provides his own reception cover. So the question is, from a purely financial point of view, should the practice continue with extended hours?

While at £1.90 per patient under the new DES, the practice would receive an extra £13,300 in income, the costs, comprising locum costs (at, say, £300 per session – £15,600) and reception cover (at, say, £7.50 per hour plus on-costs – £1,745) would mean that in this instance the practice would be making a financial loss even before any allowance has been made for additional overheads, such as the running costs of the building.

Therefore from the point of view of profit, the practice should accept the physiotherapist's offer of £3,000 rental income, although there may be other reasons to continue the extended hours service.

Staff costs