13 July 2021

Beware the super and award changes

KnowCents

As of this month, Fair Work has mandated all its federal award wages to go up by 2.5% and all employers have to pay their employees an additional 0.5%.

What do you have to offset these potential overhead increases?

On the upside not much: Medicare rebates were increased on 1 July but only by an average of 0.9%.

Meanwhile covid is putting significant new cost impositions on most practices. Worst case, you are now in lockdown in Sydney and don’t have any face to face patients – again.

Some practices in the west of Sydney, which haven’t prepared alternative telehealth arrangements, are losing nearly 100% of their income.

The Sydney lockdown is especially messy for GPs because whether you are in Sydney or not, most practice managers should be dusting off their initial lockdown plans and checking they are OK to revert at short notice to a primarily telehealth business model.

Amid all this mayhem, if you don’t make sure your 1 July changes to your Award staff are right, or your contracts don’t cover off the increase of employee super guarantee payments to 10% (the increase can be absorbed if you have the right employment contract), then you it’s feasible an owner could end up facing criminal charges.

Something may have to give.

But we control what we can.

The immediate challenge is how to deal with the new statutory employment remuneration increases deemed by the Fair Work Commission and Employer Superannuation Scheme that employers are obliged to observe.

For most medical and healthcare practices, wages represent over 60% of overheads.

Covid-19 has placed acute pressure on practice workloads and incomes. The plethora of changes to Medicare rules, systems and patient expectations have severely impacted a general practice’s bottom line and staff overtime.

The last thing most practices want to do is reduce staff hours or not provide a pay increase. Such drastic changes may hurt staff morale unless they are handled carefully.

Snap lockdowns and the fear of them have their taken a toll on the front line staff.

But unless practices have been carefully monitoring both the financial and non-financial impact of the pandemic, they may find a significant decrease in profitability of up to 5% to 10%.

Prime Minister Scott Morrison yesterday announced a payment of between $1,500 and $10,000 a week to businesses that can demonstrate a 30 per cent decline in turnover – you’ll be hoping it doesn’t come to that.

You can use this 2021 End of Year Payroll Checklist to perform a quick check that you have updated your payroll systems and contracts correctly.

Three major factors impacting the sustainability of your practice:

1. Fair Work CPI 2.5% wage increase

As of 1 July 2021, your staff may be legally entitled up to a 2.5 % pay rise. It is important to refer to the specific Awards of your staff such as the Medical, Nursing and Health Support Staff Awards.

A common error is that a practice may still have to pay an increase even if their staff are being paid above the Award. The only exception is if you have a valid and up to date signed individual flexibility employment contract in place with each staff member.

2. Employer super to increase from 9.5% to 10% per annum

The other big news is the 9.5% employer super has gone up to 10%. There are legal options to salary sacrifice and absorb increases if your practice is feeling the pinch. It will depend on your employment contract if the additional 0.5% can be absorbed into their existing wage. Your contracts will need to specify that your employee is on a total remuneration package which includes, among other things, superannuation.

Even if you do have this clause you need to be careful to have communicated this with your staff as you don’t want a staff member seeing 0.5% of their take home salary disappearing off their pay packet and not understanding why. Sometimes, tactically, it might even be better to wear the increase, alert your staff you are doing that this time around because times are so hard, and then you have banked some emotional credit in times you will likely need it.

3. Mandatory electronic ATO report of underpayment of wages

Mandatory report of overtime and degrossing income means by 1st January 2022 your practice may be facing a Fair Work audit for under payment of your staff wages regardless of whether you believe you are paying them the right salary or above the Award.

We have produced a Medical and Healthcare Employment Compliance Self Assessment Checklist to help you check that you have ticked all the right boxes.

The devil is in the details.

Having a poor system that does not map the correct and up to date signed employment contracts to your payroll system is the most common error.

Fines of up to $660,000 per incident means it’s time to double check you are recording your pays the right way.

Many nationally high profiled law firms, practices and businesses have been caught. They had assumed but did not check whether the systems and procedures were up to date and working.

Our article “Overtime is no longer a badge of honour” covers the most common errors and ways you can find out if you have a similar problem.

These challenges represent an important opportunity to positively engage your staff to enhance recruitment and retention, which will aid in improving the sustainability of your practice.

If you are unsure about where to start, our newly revised employment kit provides practices with a better employment package template for key staff in the short and long term. These templates are developed to provide a solid career structure, which includes employer-paid training.

Three key strategies to overcome the impact of a staff pay increase

1. Reduce your reliance on Medicare

The first step is to know your numbers then decide what to do next. Think about providing higher Medicare dollar value services, promote annual patient care cycles, alternative incomes e.g. consumables, vending machines in the waiting room and reducing bulk billing on services patients value e.g. procedures.

Make sure you have the most efficient and effective practice systems in place before finalising any employment arrangements.

Many of our clients start with an evidenced-based industry benchmarking review before making any big decisions. This reduces any unnecessary staff unrest as an objective external measure has been used to decide future roles and responsibilities.

Improve workflows and or outsource

The other key areas are either improving systems/workflows (see our slide deck on How to increase my income).

This article will provide you with some practice ideas on how you can make your practice more efficient without having to reduce your staff wages or hours.

Consider fixed fee outsourcing important areas but non-core areas such as financial benchmarking, bookkeeping or doctor’s pays.

Restructure your business and legal structure

Restructuring your practice now may be an effective way to increase the profitability of your practice.

Most practices report operating a profit margin of 2% to 7% pa with accounting firms who specialise in medical and healthcare practices.

However, consider that certain practices enjoy margins between 20% to 30% and ask your advisor what practices like this have done to achieve such high margins.

You will often find that these higher margin practices have stepped back and mapped a strategy that involves implementing far better governance structures, business models and practice controls.

Review your employment contracts and pay arrangements

The key here is to make sure that after considering all the above factors.

As the famous Stanford business Professor Jim Collins says in Good to Great “you have to make sure you have the right staff on your bus, sitting in the right seats”.

Only then can you check you are paying your staff correctly. Our Medical and Healthcare Employment Compliance Self Assessment Checklist might help you start to identify some issues for your practice to focusing on.

Freeze staff wages or reduce staff hours and or increase productivity

If restructuring your practice or increasing efficiency is not an option (other than cashing out unpaid leave), freezing staff wages or reducing hours can be an option, as long as you are paying staff above the Award rates.

Clearly, compromising your standards is not in the patient’s or practices’ interest.

The 2.5% increase can be absorbed in over-award payments if you have documented your employment arrangements correctly.

Five steps to sustainable employment arrangements

Step 1: Ensure the correct Awards apply to your staff

1. Medical Practitioners Award 2020

2. Nurses Award 2010

3. Health Professionals and Support Services Award 2020

4. Pay Guides:

Health Professionals and Support Services Pay Guide 2021

Nurses Pay Guide 2021

Step 2: Acknowledge the pay changes

If you pay staff above the Award, unless there is a current and signed employment contract (this may not be correctly worded so you may still have a problem), the practice may remain liable for underpayment of wages.

Check that all work classifications, overtime and allowances payments have been agreed in writing and any above Award payments exceed any of these minimal Award entitlements. Seek professional advice in relation to Award free staff.

Prepare to update and reconfirm your employment contracts in writing and ensure they are signed off by your staff member. First, check you can afford the pay increases.

Step 3: Reconfirm your employment arrangements

Decide in principle whether your staff will be receiving a pay increase.

Ask yourself: Are there statutory and/or performance increases that will require the staff member to sacrifice salary or agree to some other arrangement? Will their hours be reduced or increased, leave cashing out etc.?

Before formalising an employment contract, an exchange in writing via an email of any key terms of your arrangements subject to a signed formal contract should be agreed to first. This will save a lot of time and money especially when external advisers are being involved.

Step 4: Simplify your employment agreements

You can roll up all Award overtime, allowances and penalty rates into a single hourly rate (see our Employment Template Kit).  

This type of contract is called an individual flexibility agreement. Each of the above Awards permits such an arrangement to occur.

Read clauses 7.3 to 7.8 of the Health Professionals and Support Services Award 2021 for a good example.

Use this Medical and Healthcare Employment Compliance Checklist as a starting point.

Step 5: Confirm your employment arrangements

It is prudent to consult an accountant first to ensure you can afford to pay your staff correctly. Do not forget your staff represents 60% of your total overheads.

To avoid issues with the new ATO gross pay degrossing and data matching rules, make sure they have checked your employment contract information can be correctly entered onto your payroll system.

Then seek legal advice from a lawyer to ensure legal compliance and finalise any agreements.

The revised templates provided in our Employment Template Kit, which is kept up to date by Hamilton Bailey lawyers, will help identify, train and reward your key staff plus offer flexible working arrangements without significant risk to the practice. It is a win-win for everyone. The kit includes useful legally prepared individual flexibility employment templates, job descriptions, standing orders and an employment salary bonus scheme for your staff.

Remember, good staff employment contracts are good for staff morale. Generally, staff prefer to work with practices that are open and transparent. This can only build trust and prevent any further feelings that they have been taken advantage of in these unprecedented and changing times.

Disclaimer: We strongly recommend you consider reconfirming your employment agreements in order to implement these changes at your next semi-annual staff performance appraisal.

Please note we are not lawyers. It is important you seek independent legal advice before implementing any ideas from this article or related links referred to.

David Dahm is the CEO and founder of Health and Life, a specialist accounting and tax advisory firm for medical practitioners. This article was originally published on Health and Life.

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