UKHCA Briefing
A Minimum Price for Homecare
Version 3.1, November 2015
Colin Angel, Policy Director
United Kingdom Homecare Association Ltd
Sutton Business Centre
Restmor Way
Wallington
SM6 7AH
Telephone: 020 8661 8188
E-mail: policy@ukhca.co.uk
Website: www.ukhca.co.uk
Company Registration Number 3083104
Registered in England
Table of Contents
Introduction ..................................................................................... 4
Definitions .................................................................................... 5
Statutory rates, defined in legislation (or proposed legislation): ........ 5
Voluntary Living Wage rates, set by the Living Wage Foundation: ..... 5
What’s new in Versions 3.0 and 3.1 ................................................. 6
Why adequately funded homecare is under scrutiny .............................. 7
Near-monopsony purchase power of local councils .......................... 8
Calculating the cost of homecare: The UKHCA Costing Model ................12
Assumptions used in our calculations .................................................15
Contact time ................................................................................15
The National Minimum Wage ..........................................................16
The National Living Wage ..............................................................16
UK Living Wage and London Living Wage .........................................17
Unsocial hours working ..................................................................17
Travel time and travel costs ...........................................................18
Travel time ..................................................................................18
Mileage rate and distance travelled .................................................19
Staff costs ...................................................................................20
Gross Margin ................................................................................21
Profit / Surplus .............................................................................22
The minimum price for homecare services ..........................................24
Summary of assumptions used .......................................................24
Breakdown of prices at National Minimum Wage and National Living Wage
.....................................................................................................26
The Minimum Price for UK Living Wage and London Living Wage ...........28
Breakdown of prices at the (voluntary) UK Living Wage and London Living
Wage .............................................................................................29
Comparing the minimum price for the National Minimum Wage, the
National Living wage and the (voluntary) Living Wages ........................30
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Disclaimer and caution
The “minimum prices” for homecare services to comply with National Minimum
Wage, the National Living Wage or the (voluntary) Living Wages are intended to
be indicative rates for information purposes.
The rates suggested in this briefing should not be used by care providers as an
alternative to the accurate pricing of individual tender bids, nor by councils or
other purchasers to set maximum prices in contracts. UKHCA accepts no
responsibility for actions taken or refrained from solely by reference to the
contents of this briefing.
Homecare providers should be mindful of the Competition Act 1998, particularly if
contemplating collective actions to influence the purchasing decisions of statutory
sector bodies. Guidance on UK Competition law issues for homecare providers is
available from www.ukhca.co.uk/downloads.aspx?ID=436.
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Introduction
Growing focus has been placed on the quality of home-based care services
and public sector spending constraints which have severely impacted on
the homecare sector. There has been increasing concern that a
proportion of the workforce may not always receive the National Minimum
Wage, and that the quality of homecare services may not always be
adequate for the people who use them.
The question “what is the minimum price of an hour of homecare?” is one
of vital importance not only to providers, but also to local and central
government, statutory regulators, trades unions and the media.
It is essential that a viable regulated homecare sector is available to
support the care of older and disabled people who choose to remain at
home. To this end, the price paid for care must:

Cover the costs of the workforce, including - as a minimum - fullcompliance with the prevailing National Minimum Wage and (when
it becomes effective in April 2016) the National Living Wage,
including the time spent travelling between service users’ homes;

Recognise that local labour markets often require wage rates above
the minimum wage to recruit and retain a suitably skilled,
experienced and stable workforce;

Recognise the costs of statutory regulation, and the levels of
management supervision, organisation, training and development
necessary to meet the purchaser’s expectations of quality and
safety.

Enable businesses to cover their costs of sale, operating costs and
return on capital invested.
In addition, there is a growing interest from the statutory sector in subcontracting with organisations which pay their workforce at the Living
Wage or above,1 with recommendations to this effect being advanced by a
1
Payment of the Living Wage is voluntary and enjoys no statutory compulsion. There are two
rates: (a) The London Living Wage applies to all boroughs in London and is set annually by the
Greater London Authority; (b) The UK Living Wage for outside of London is set annually by the
Centre for Research in Social Policy at Loughborough University. From November 2012 both Living
Wage figures have been announced annually in November of each year, with an expectation that
employers participating in this voluntary scheme should implement the new rate as soon as
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range of stakeholders, including the Burstow Commission2 and Unison’s
Ethical Care Charter.3 In September 2015 Scottish Government issued
Statutory Guidance4 under the Procurement Reform (Scotland) Act 2014
to address fair work practices, including the introduction of the Living
Wage into public sector contracts.
This paper adopts an identical methodology to estimate the minimum
price for homecare services purchased by councils and the NHS at the
prevailing National Minimum Wage (including the National Living Wage,
when it becomes effective), the UK Living Wage and London Living Wage.
Definitions
Four rates of pay are described in this document, as follows.
Statutory rates, defined in legislation (or proposed legislation):

National Minimum Wage (NMW) – For the purposes of this
document we refer to the statutory rate applicable to adults aged 21
years and above.

National Living Wage (NLW) – An enhanced statutory rate of pay,
applicable to adults aged 25 years and above, which will be introduced
in April 2016.
Voluntary Living Wage rates, set by the Living Wage Foundation:

UK Living Wage – A pay rate calculated by the Centre for Research
in Social Policy at Loughborough University.

London Living Wage – A pay rate calculated by the Greater London
Authority.
possible and within 6 months of the annual announcement. For more information see:
www.livingwage.org.uk. The (voluntary) Living Wage predates the National Living Wage which will
be law from April 2016 for workers of 25 and over.
2
Koehler, I (2014) Key to Care: Report of the Burstow Commission on the figure of the home care
workforce, pages 6-7. See: www.lgiu.org.uk/wp-content/uploads/2014/12/KeyToCare.pdf.
3
Unison (2013) Unison’s Ethical Care Charter, page 5. See:
www.unison.org.uk/upload/sharepoint/On%20line%20Catalogue/22014.pdf.
4
The Scottish Government (2015) Statutory Guidance on the Selection of Tenderers and Award of
Contracts Addressing Fair Work Practices, including the Living Wage, in Procurement.
URL: http://www.gov.scot/Publications/2015/10/2086/downloads.
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What’s new in Versions 3.0 and 3.1
Version 3.0 provided calculations for:

A revised rate for the National Minimum Wage effective from
October 2015;

A new rate calculated in advance of the introduction of the National
Living Wage announced in the July 2015 Budget, which will apply
from April 2016, and for which some of our assumptions have been
amended, as indicated.
Version 3.1:

Provides revised calculations for the UK Living Wage and London
Living Wage, effective from 2nd October 2015;

Removes references to calculations based on wage rates which are
no longer effective;

Updates and makes minor amendments to the body of the text.
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Why adequately funded homecare is under scrutiny
A growing body of evidence makes the case for concern and scrutiny over
the rates that the statutory sector pays for homecare services, including:

In October 2015 ITV “Tonight” reported findings by UKHCA on
instability in the homecare sector,5 building on work already
undertaken as part of UKHCA’s contribution to Government’s Spending
Review 2015.

The announcement of a new statutory “National Living Wage” 6 has
further called into question the economic sustainability of the social
care sector.7

In March 2015 UKHCA’s report “The Homecare Deficit” used Freedom
of Information legislation to reveal the extent of under-funding of
older people’s homecare across the United Kingdom.8

UKHCA’s research “Care is not a Commodity” identified the inadequacy
of contract terms issued by councils and the combined impact of
aggressive cost-cutting through real-terms price cuts and shortened
visit times.9

Government committed to “rule out crude ‘contracting by the minute’”
in the Care and Support White Paper “Caring for our future”;10
5
Angel, C (2015) Market Stability Survey, September 2015. Sutton: United Kingdom Homecare
Association. URL: www.ukhca.co.uk/downloads.aspx?ID=486.
6
The National Living Wage is effectively a higher band of the National Minimum Wage for workers
aged 25 years and above. It was announced in the Chancellor’s July 2015 Budget Statement
(See: www.gov.uk/government/speeches/chancellor-george-osbornes-summer-budget-2015speech).
7
Brindle, J (2015) George Osborne’s ‘living wage’ could be the death of social care. The Guardian.
24th July 2015. URL: www.theguardian.com/society/2015/jul/14/george-osborne-living-wagedeath-social-care
8
UKHCA (2015) The Homecare Deficit: A report on the funding of older people's homecare across
the United Kingdom. Sutton: United Kingdom Homecare Association. URL:
www.ukhca.co.uk/downloads.aspx?ID=458.
9
Angel, C (2012) Care is not a Commodity, Sutton: United Kingdom Homecare Association. URL:
www.ukhca.co.uk/downloads.aspx?ID=356.
10
Department of Health (2012) Caring for our future, London: Department of Health. URL:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/136422/White-PaperCaring-for-our-future-reforming-care-and-support-PDF-1580K.pdf.
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
The Equality and Human Rights Commission (EHRC) reported on the
impact of maximum prices imposed by councils in contracts with
homecare providers.11

The Low Pay Commission has repeatedly identified that statutory
sector commissioners must take the actual costs of providing care,
including National Minimum Wage, into account to ensure that care
providers can meet their obligations to pay the NMW.12

HM Revenue and Customs (HMRC) reported in 2013 on the pattern of
non-compliance with National Minimum Wage in the residential and
homecare sectors.13

Unison has challenged local authorities to sign-up to an “Ethical Care
Charter”, calling for councils to commit to paying homecare workers,
including those outsourced to the independent and voluntary sector,
the applicable (voluntary) Living Wage and to ensure that careworkers
are paid for travel time, travel costs and other necessary expenses.14
Near-monopsony purchase power of local councils
The majority of homecare providers operate in the independent and
voluntary sector (an estimated 94% in England). However, they operate
in a market dominated by statutory sector purchasers, primarily local
authorities, who exercise – and sometimes arguably exploit – their
dominant purchasing power in an attempt to pay for care from their
constrained budgets.
11
Equality and Human Rights Commission (2013) Close To Home Recommendations Review, pages
15-16. URL:
www.equalityhumanrights.com/uploaded_files/close_to_home_recommendations_review_web.pdf.
12
Low Pay Commission (2013) National Minimum Wage, Low Pay Commission Report 2013, pages
130-131. URL:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/226822/National_minimu
m_wage_Low_Pay_Commission_report_2013.pdf.
13
HM Revenue and Customs (2013) National Minimum Wage Compliance in the Social Care Sector:
An Evaluation of National Minimum Wage Enforcement in the Social Care Sector Over the Period 1st
April 2011 to 31st March 2013. URL:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/262269/131125_Social_C
are_Evaluation_2013_ReportNov2013PDF.PDF.
14
Unison (2013) UNISON’s Ethical Care Charter. URL:
www.unison.org.uk/upload/sharepoint/Research%20Material/Final%20Ethical%20Care%20Charter
%20PDF.pdf.
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The precise dominance of local councils is difficult to calculate, but our
working assumption is that they purchase over 70% of all hours of care
delivered by independent and voluntary sector providers.15
In 2013 The Equality and Human Rights Commission found that around a
third of local authorities set a maximum commissioning price in tenders
with independent and voluntary sector providers. The lowest rate paid for
an hour of day-time homecare (at the time) was £8.98, with one-in-five
local authorities paying £11.00 per hour or less. The Commission
concluded:
“… the rates that some local authorities pay care providers do not
always appear to cover the actual costs of delivering care, a
significant proportion of which is workers’ wages which should include
travel time. Poor working conditions may lead to a high turnover of
staff and increase the risks to the human rights of older people”.16
UKHCA first published its Minimum Price for Homecare in February 2014.
At the time, BBC journalists revealed that just four of 101 councils in
England who responded to a Freedom of Information Act enquiry
consistently paid the published rate of £15.19/hour at that time.17
UKHCA’s more recent analysis18 found that just 28 councils of the 203
authorities in the United Kingdom where an average price could be
established paid their independent and voluntary sector homecare
providers fees at or above UKHCA's minimum price for homecare of
£15.74/hour at that time.19 UKHCA’s findings are illustrated in Figure 1,
below.
In its 2014 report, the Low Pay Commission stated:
15
Very little data exists on privately purchased homecare. UKHCA’s estimate is built-up on
knowledge of the size of statutory purchase (where known) and reasonable estimates of privately
purchased care.
16
Equality and Human Rights Commission (2013) Close To Home Recommendations Review, page 6.
URL:
www.equalityhumanrights.com/uploaded_files/close_to_home_recommendations_review_web.pdf.
17
See: “Councils in England 'pay too little for home care'” at http://www.bbc.co.uk/news/uk26021026 and the transcript of the “File on 4” broadcast “Cut Price Care”, broadcast on 4th
February 2014 at http://www.bbc.co.uk/programmes/b03szh9m.
18
UKHCA (2015) The Homecare Deficit: A report on the funding of older people's homecare across
the United Kingdom. Sutton: United Kingdom Homecare Association. URL:
www.ukhca.co.uk/downloads.aspx?ID=458. See also: http://www.bbc.co.uk/news/health31700664.
19
Including the five Health and Social Care Trusts in Northern Ireland.
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“The adult social care sector continues to be under severe financial
pressures stemming from the reductions in local authority budgets
and the related constraints on the level of fees paid to independent
care providers. On our visits around the country and in written and
oral evidence, we were given many examples of very low levels of
care fees. In our judgement providers will be faced in such
circumstances with either being NMW non-compliant or failing to
meet some other duty…”20
UKHCA believes that dominant purchasing power in a sector which is
largely dependent on the use of a local labour market constitutes an
effective monopsony market, where a combination of price-fixing by
councils when letting contracts and the use of competitive tendering
processes to depress prices is widespread.
20
Low Pay Commission (2014) National Minimum Wage, Low Pay Commission Report 2014,
paragraph 4.61, page 141. URL:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/288841/The_National_Mi
nimum_Wage_LPC_Report_2014.pdf.
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Figure 1: Average prices paid for older people’s homecare during a sample
week in September 2014.
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Calculating the cost of homecare:
The UKHCA Costing Model
The Equality and Human Rights Commission observed that they had found
evidence of some authorities using costing models which do not take
account of workers’ travel costs, travel time and essential overheads. The
Commission concluded:
“We recommend that all local authorities use costing models which
incorporate essential elements for safe and legal care and that they
demonstrate transparency about how their home care commissioning
rates are calculated by putting costing models on their websites.” 21
In 2013 UKHCA released a free on-line costing model for homecare
services.22 The model aims to calculate a fair and sustainable price for
care in an open and transparent format. It has been designed to allow
the person using the model to specify how the costs are proportioned;
however, it makes no independent cost assumptions for individual
calculations.23
The UKHCA Costing Model can be used to aid discussions between
providers and commissioners about the real costs of care in a local area,
and assist providers estimate whether they can operate in a local care
market.
We have used the formulae of the on-line model in producing the
minimum prices for care in this briefing.24 We have based many of the
assumptions about the costs of care, described in the following sections,
in line with advice supplied by providers who contributed to its
development.
21
Equality and Human Rights Commission (2013) Close To Home Recommendations Review, pages
18 and 29. URL:
www.equalityhumanrights.com/uploaded_files/close_to_home_recommendations_review_web.pdf.
22
The UKHCA Costing Model is available at www.ukhca.co.uk/CostingModel. The model was created
with the generous assistance of finance directors from different size organisations drawn from
UKHCA’s membership, and has been widely tested by homecare providers and local authority
commissioners.
23
The model will, however, caution the user against inputting a pay rate for contact time which is
below the main adult rate for the prevailing National Minimum Wage.
24
The model round-figures up to down to the nearest penny, which accounts for any variations
(usually £0.01) difference in the price quoted in this paper compared to the use of the on-line
version.
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Although disputing UKHCA’s original minimum price of £15.19/hour, the
then President of the Association of Directors of Adult Social Services
(ADASS), Sandie Keene, publically endorsed UKHCA’s Costing Model:
“We're strongly recommending that people use the UKHCA model to
work through with providers alongside looking at all local conditions
that would then determine what is a reasonable price for care.
“But there isn't a set amount for the price of homecare because of
course it costs very different amounts of money depending on where
people are in the country, whether it's a rural area or a city and
urban area.”25
Commenting on the disparity between the average prices paid by councils
and UKHCA’s Minimum Price for Homecare, the immediate past President
of ADASS, David Pearson, subsequently added:
“Each local authority should work with providers to establish between
themselves the costs of care. This must take into account the local
economic environment, so that fees are consistent with the
expectations of an improving social care market.”26
Since the publication of our original minimum price, the Care Act 2014 has
come into force in England. The Statutory Guidance for Section 5 of the
Act states:
“4.31. When commissioning services, local authorities should assure
themselves and have evidence that contract terms, conditions and
fee levels for care and support services are appropriate to provide the
delivery of the agreed care packages with agreed quality of care.
This should support and promote the wellbeing of people who receive
care and support, and allow for the service provider ability to meet
statutory obligations to pay at least the national minimum wage and
provide effective training and development of staff. It should also
allow retention of staff commensurate with delivering services to the
agreed quality, and encourage innovation and improvement. Local
authorities should have regard to guidance on minimum fee levels
necessary to provide this assurance, taking account of the local
economic environment. The tools referenced may be helpful as
examples of possible approaches.”27
25
See: www.bbc.co.uk/news/uk-26021026.
26
See: www.adass.org.uk/adass-press-release-ukhca-homecare-deficit-report/.
27
Department of Health (2014) “Care and Support Statutory Guidance; Issued under the Care Act
2014”, paragraph 4.31. URL:
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The Guidance specifically cites UKHCA’s Minimum Price for Homecare as
one of the forms of guidance on minimum fee levels. Where councils
undertake costing exercises and choose to deviate from the assumptions
described in this paper (particularly where such deviation decreases the
prices paid) they should have a clear rationale, supported by engagement
with their local providers and robust evidence from their local employment
market.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/366104/43380_23902777
_Care_Act_Book.pdf.
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Assumptions used in our calculations
We quote four hourly rates for homecare, which we believe are the
“minimum price” necessary to achieve compliance with:

The National Minimum Wage, for workers aged 21 years or above,
which came into effect in October 2015;

A combination of the National Minimum Wage and the new National
Living Wage, when it comes into force in April 2016;

The UK Living Wage (outside London);

The London Living Wage.
We have used a consistent methodology for calculating minimum prices
throughout this paper, as follows:
Contact time
Our assumption is that councils pay for homecare services by reference to
“contact time” – the time spent delivering care in the service user’s
home.28
Local authority contracts generally require providers to meet all their
arising costs from the fee paid for contact time,29 with the expectation
that the workers’ pay rate is uplifted sufficiently to recognise all working
time, including applicable travel.30 We believe this practice is now almost
universal and is an attempt by councils to reduce transactional costs of
invoice processing.
28
In practice “contact time” may refer to the time commissioned by the purchaser, the time spent in
the service user’s home, as recorded on a paper time sheet, or as recorded by “electronic call
monitoring systems”, as specified in the contract between the purchaser and the provider.
Different payment systems are operated by a number of homecare providers, including those who
provide “live-in” care.
29
In 2012, UKHCA’s research suggested that fewer than 2% of providers in England were paid
anything at all towards careworkers’ travel time (8% in Scotland, but none in Wales and Northern
Ireland). See Angel, C (2012) Care Is Not A Commodity, Sutton: United Kingdom Homecare
Association. Page 39. URL: www.ukhca.co.uk/downloads.aspx?ID=356.
30
It is not necessary to make separate payments for the worker’s travel time, so long as the
worker’s basic rate of pay (before enhancements or other allowances) divided by the total working
time over the specified reference period is paid at or above the applicable National Minimum Wage.
An explanation of the complexity of issues around payment of travel time in homecare services is
available at www.ukhca.co.uk/mediastatement_information.aspx?releaseID=231492.
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It is a fundamental assumption in the minimum prices published in this
document that payments to the provider are calculated solely by reference
to “contact time”.
The National Minimum Wage
Reference to the National Minimum Wage refers to the prevailing adult
rate, applicable for workers of 21 years of age and above.31 We estimate
that workers below this age account for just 6% of the domiciliary care
workforce.32 We are not aware of any widespread practice of employers in
the homecare sector offering lower pay rates to workers less than 21
years of age and therefore believe the use of the main adult rate is
therefore reasonable. Our assumption is therefore:
National Minimum Wage from 01 October 2015:
£6.70 per hour.
The National Living Wage
From April 2016, a “National Living Wage” will come into force for workers
aged 25 years and above. This is effectively a new band within the
National Minimum Wage of £7.20 / hour.33
We have analysed the age profile of the homecare workforce to form an
average wage that will be applicable from April 2016, as follows:34
31
The National Minimum Wage rates are published each year by central government, and are
available at www.gov.uk/national-minimum-wage-rates.
32
Estimate from data in table 5.7 “Adult social care workforce by main service group, by age group”
in Skills for Care (2012) The State of the Adult Social Care Sector and Workforce in England 2012,
page 18. URL: www.skillsforcare.org.uk/research/research_reports/SOASCW_2012.aspx
33
34
See: https://www.gov.uk/government/publications/national-living-wage-nlw/national-living-wagenlw. Our working assumption at the time of writing is that the National Living Wage will be
introduced through a statutory instrument amending the National Minimum Wage Regulations
2015.
Analysis of 120,623 records held on the National Minimum Dataset for Social Care (NMDS-SC) for
staff working for private, voluntary and third sectors in adult and children’s homecare services.
The sample includes roles described as: care staff, senior care workers, personal assistants,
employment support staff, community support and outreach staff, childcare support workers in
roles that directly provide care for service-users across the whole spectrum of need. Note that this
data source only contains records of workers in England; the age profile of the homecare
workforce in each UK administration may be subject to some variation. Analysis undertaken on 08
July 2015.
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Workers’ age
Proportion of
workforce
Applicable
hourly wage
rate from April
2016
National Minimum Wage (assumed to be
paid to all workers under 25 years of age)
13.7%
£6.70
National Living Wage paid to workers aged
25 years and above
86.3%
£7.20
Combined rate
£7.13
Our Minimum Price for the combined National Minimum Wage and the
National Living Wage is therefore:
Combined rate for National Minimum Wage and
National Living Wage from April 2016:
£7.13 per hour.
UK Living Wage and London Living Wage
The equivalent UK Living Wage rate has been calculated at the rate
published by The Living Wage Foundation, and the London Living Wage by
the Greater London Authority.35 Our calculations for equivalent minimum
prices to comply with these rates are therefore based on the following pay
rates for working time, which are correct at the time of publication:
UK Living Wage until 30 October 2016:
London Living Wage until 30 October 2016:
£8.25 per hour.
£9.40 per hour.
Unsocial hours working
To create a “minimum price” for homecare services, unsocial hours
working is assumed to be paid at a flat rate (ie. no enhanced pay rates for
anti-social hours, weekends or public holidays).
35
From November 2012 both living wage rates are published each November, Living Wage
Employers expected to implement the rate as soon as possible and within 6 months of the
announcement. See www.livingwage.org.uk/calculation for links to how the living wage figures are
calculated.
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We emphasise that our calculations describe terms and conditions of
employment for careworkers which allow full compliance with the
applicable wage rates.
In the case of the National Minimum Wage a flat rate of pay for unsocial
hours working is unlikely (in most parts of the country) to attract and
maintain a suitable workforce, willing to provide essential homecare
services at times of the day when homecare is required or at times of the
week when many workers expect to be resting.
Under no circumstances should our “minimum price” for homecare,
particularly at a flat rate of National Minimum Wage without
enhancements, be treated as a national acceptable price capable of
achieving a stable workforce, or a sustainable organisation.
Travel time and travel costs
In 2012, we found virtually no evidence of councils making additional
payments to providers for travel costs or the time careworkers spent
travelling.36 We have no reason to believe that this situation has
improved and we therefore include these costs within the hourly rate that
the provider is paid for “contact time”.
Travel time
There is no national data set recording the time careworkers spend
travelling between service users’ homes. Travel time is obviously highly
variable and is influenced by the relative urban or rural travel conditions
experienced by careworkers and the employer’s ability to allocate
careworkers to a cluster of service users who live in a local area.
The increasing number of very short homecare visits the councils are
purchasing has a marked effect on the amount of travel that careworkers
undertake. Travel time is a significant variable in calculating the price of
homecare services based on “contact time”.
Councils whose commissioning arrangements require significant amounts
of travel time or where there is a high use of short visits should be
36
Angel, C (2012) Care is not a Commodity, pages 39-40. URL:
www.ukhca.co.uk/downloads.aspx?ID=356.
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particularly concerned that the prices paid for contact time may be
inadequate to cover the real costs of care services they purchase.
The episodic nature of homecare, with visits taking place at peak times of
demand (mornings, lunchtime and evenings) with gaps in-between make
it difficult to ascertain the amount of careworkers’ travel that must be
included for the purposes of National Minimum Wage compliance. Health
and social care analysts, LaingBuisson, report data supplied by electronic
call monitoring supplier CM2000, estimating travel time of 19% of contact
time in 2010. 37 We have therefore based our calculations on:
Workers’ travel time:
Add 11.4 minutes to 1 hour of “contact time”.
Mileage rate and distance travelled
HM Revenue and Customs publish a maximum mileage rate of £0.45 per
mile for use of private vehicles.38 HMRC’s rates are for tax and National
Insurance purposes, rather than recommended mileage rates.
Our assumption of £0.35 per mile is a reasonable estimate at the time of
publication and assumes that the majority of careworkers use private cars
for their work.
The assumption of 4 miles of travel to 1 hour of contact time is a
reasonable estimate when taking into consideration the extremes of urban
and very rural travel across the UK and suggests an average speed of
21.1 miles per hour. Greater precision would be possible when calculating
the costs of care for a local authority area or individual contract.
While in urban areas some careworkers may use public transport or nonmotor vehicles, we believe this is generally a small proportion of the
national workforce and the lower costs of travel are likely to be absorbed
by increased travel time, or at least balance these out.39
37
Mickelborough, P (2011) Domiciliary Care UK Market Report 2011, Page 35. Percentages quoted
are 22% in 2007; 17% in 2009 and 19% in 2010.
38
See: www.hmrc.gov.uk/rates/travel.htm.
39
For example, bus fares in London from January 2014 were at a standard £1.50 per journey,
capped at £4.40 per day using Oyster and contactless cards. London Underground fares and daily
caps are at higher rates. Daily bus tickets in Manchester or the West Midlands around £4.00 £5.60 / day.
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The assumptions used in our calculation of a minimum price for care are:
Mileage Rate:
Distance travelled:
£0.35 per mile.
4.0 miles per hour of contact time.
Staff costs
The following assumptions were reached with the assistance of the finance
directors of several UKHCA member organisations during the development
of UKHCA’s Costing Model, and revised in response to subsequent
analysis:
Employers’ National Insurance:
Holiday pay:
Careworkers’ training time:
Pension contributions:
9.50%
12.07%
1.73%
1.00%
of
of
of
of
total
total
total
total
gross
gross
gross
gross
pay.40
pay.41
pay.42
pay.
At present, UKHCA’s Minimum Price does not include the costs of statutory
sick pay, which employers have been unable to claim back from
Government since April 2014.43 We intend to recognise these additional
costs in a future version of this briefing.
40
The announcement of the National Living Wage in the Summer Budget 2015 stated that
government will increase the National Insurance Contributions Employment Allowance from £2,000
to £3,000 a year (See HM Treasury (2015) Summer Budget 2015, paragraph 1.127. URL:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_
Budget_15_Web_Accessible.pdf). As this reduction is applied on a “per organisation” basis (not to
the individual worker), the effect on employers’ National Insurance contributions for all but the
very smallest organisations will be negligible. Our assumption for Employers’ National Insurance
Contributions therefore remains 9.5%.
41
The costs of statutory holiday pay can only be earned while the employee is actually working and
is therefore 52 weeks less the 5.6 weeks that the worker takes as annual leave. The calculation
for holiday pay expressed as a percentage is (5.6 ÷ 46.4) × 100 or 12.07%. For more information
on holiday pay see: www.gov.uk/holiday-entitlement-rights.
42
This figure covers the cost of paying the worker’s wages while he/she attends training and
supervision (and is therefore not generating a fee for services). The other costs associated with
training (trainer, course materials, room hire etc) are met from the provider’s gross margin.
43
See: https://www.gov.uk/employers-sick-pay/help-with-sick-pay.
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Gross Margin
Provider’s Gross Margin covers the costs of running their business and will
include (but not be limited to) the following:
 Branch staff:
Registered manager, supervisors, coordinators,
finance and admin staff, quality assurance costs;
 Office costs:
Rent, rates, maintenance, water, lighting and
heating, insurance, cleaning and equipment hire;
 Training etc:
Induction training, external training and
qualifications;
 Recruitment:
Recruitment advertising, criminal record
disclosures;
 IT equipment:
Computer systems, telephones, electronic call
monitoring;
 Marketing:
Advertising and marketing;
 Consumables:
Uniforms, personal protective equipment;
 Finance:
Bank charges, interest, depreciation.
 Print and postage:
Printing, postage, stationery;
 Business travel:
Fuel, tax, insurance, vehicle leasing, repairs,
mileage, accommodation and subsistence;
 Legal/professional:
Legal, professional accountancy, registration
fees;
 General:
Donations, subscriptions, translation services,
general expenses.
 Profit / Surplus:
Excess of revenue over expenditure and/or
reinvestment in the business.
We have discussed reasonable expectations for gross margin with a
number of homecare providers of differing sizes and recognise the
possibility of a small degree of variation between providers and those able
to take advantage of economies of scale.
In August 2016 we surveyed a number of homecare providers on their
gross margin figure for local authority business before the introduction of
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the National Living Wage. The median gross margin figure was 30.4%
and confirms our assumption at the time as being reasonable.44
The introduction of a National Living Wage from April 2016 has called for a
review of the gross margin figure. Two possible options were considered.
Either:
a. Assume that the wage costs of branch staff (which account for the
majority of a homecare provider’s operating costs) should increase,
as supervisory and managerial staff will expect to maintain pay
differentials between themselves and front-line workers. The
assumption for gross margin would therefore remain unchanged
from our previously published figure of 30% of the total price on
implementation of the National Living Wage;
Or:
b. As the intention of the National Living Wage is to improve the
wages of the lowest-paid workers, to revise our gross margin
assumption downwards, to 28.5% of the total price. This was our
preferred option.
Our assumptions for this exercise is as follows:
Gross margin (on National Minimum Wage
calculations valid until April 2016):
30.0% of total price.
Gross margin (on all other rates):
28.5% of total price.
Profit / Surplus
Organisations undertaking social care under contract with local authorities
realistically make a net profit or surplus of 2-3% and usually not more
than 5% of the total price. For the purposes of illustration in this paper,
we show profit/surplus as 3% of the total price, and the remaining items
of Gross Margin as “Running the business”, equivalent to 27% of the total
cost until April 2016, and 25.5% of the total cost from April 2016
onwards.
44
Responses from ten national providers, including franchise operators, ranged from 21.2% to
42.4%. The median figure (30.4%) has been selected to reduce the impact of any skewed
distribution of the sample.
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Some councils maintain that they can and should indicate the
profit/surplus which their subcontractors should be able to earn, arguing
that they have a responsibility as to how public money is spent. Councils
should be aware that profit/surplus requirements are effectively the cost
of an organisation’s willingness to do business. Councils attempting to
cap profit/surplus expectations in the local market are advised to
remember that this can reduce providers’ willingness to trade with them
and such practices may exclude some providers from the local market.
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The minimum price for homecare services
The following prices apply for National Minimum Wage (NMW), National
Living Wage (NLW) and the voluntary Living Wage rates:
NMW
1 October 2015 to
31 March 2016
Combined
NMW & NLW
From 1 April 2016
£16.16
£16.70
per hour
per hour
UK
Living Wage
London
Living Wage
2015-16
2015-16
£19.03
per hour
£21.40
per hour
Summary of assumptions used
These rates use consistent assumptions, as follows:

Payment to the provider is calculated solely by reference to
“contact time” (the time the worker spends in a service user’s home);

Workers are paid a flat-rate at the prevailing National Minimum Wage,
National Living Wage, UK Living Wage or London Living Wage;

Workers receive no enhanced pay rates for working unsocial hours,
weekends or public holidays;

Workers are paid for other elements which constitute “working time”
(ie. applicable travel time, and when undergoing supervision and
approved training) at the same hourly rate as for “contact time”; 45

Business mileage is reimbursed at a reasonable rate;
45
We have applied the principles of “working time” from the National Minimum Wage Regulations
consistently in all calculations.
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
Workers receive statutory paid holiday entitlements;

Workers are enrolled in a Workplace Pension scheme;

The care provider covers reasonable operating costs and a
profit/surplus that enables a sustainable business.
Our assumptions have been made to reach a theoretical minimum price
for an hour of homecare commissioned by local authorities. We do not
suggest that this rate adequately recognises the demanding tasks
required of homecare workers; employers’ ability to be competitive within
their local employment market; nor the additional costs associated with
providing care services to individuals who fund their own care.
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Breakdown of prices at National Minimum Wage and National Living Wage
Until
31st Mar 2016
From
1st Apr 2016
£6.70
£7.13
of basic hourly rate
£0.00
£0.00
min per hr of contact time
£1.27
£1.35
9.5%
of gross pay
£0.76
£0.81
12.07%
of gross pay
£0.96
£1.02
1.73%
of gross pay
£0.14
£0.15
Pension contributions:
1%
of gross pay
£0.08
£0.08
Distance travelled:
4.0
miles to 1 hr of contact time
£1.40
£1.40
£4.37
£4.26
£0.48
£0.50
£16.16
£16.70
At National Minimum Wage (and National Living Wage from April 2016)
Hourly rate for “contact time” (see page 16ff)
Enhancement for unsocial hours, etc:
Travel time:
National Insurance Contributions:
Holiday pay (see footnote 41, on page 20):
Training and supervisory time:
Mileage rate:
0%
11.4
£0.35
per mile
27.0%
of total price until 31 March 2016
25.5%
of total price from 1 April 2016
Running the business (see page 21):
Profit or surplus:
3%
of total price
Total price:
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The cost of the combined National Minimum Wage and the National Living
Wage from April 2016, is illustrated as follows:
Profit / surplus
£0.50
Running
the
business
£4.26
Contact
time
£7.13
Other staff
costs
£2.06
MileageTravel time
£1.40
£1.35
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The Minimum Price for UK Living Wage and London
Living Wage
UKHCA is highly supportive of councils who have expressed a genuine
interest in contracting with the independent and voluntary sector at a rate
which enables providers to pay their staff at the prevailing (voluntary)
Living Wage.
However, we believe that some local authorities are attempting to achieve
payment of Living Wage to workers without recognising the substantial
costs incurred by providers of uplifting workers’ wage rates.
We are particularly aware that the vast majority of councils pay providers
solely by reference to “contact time” and may incorrectly calculate the
costs of Living Wage on this basis, without recognising that the time
workers spend travelling and training also constitutes “working time” and
should be paid at the same rate. UKHCA’s minimum price for the UK
Living Wage and London Living Wage assumes that all working time is
paid at the prevailing Living Wage rate.
In this section we use a consistent methodology to calculate a minimum
price for the (voluntary) Living Wage and London Living Wage,
summarised, presenting the calculations as follows:
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Breakdown of prices at the (voluntary) UK Living Wage and London Living Wage
UK
Living Wage
From 2nd Nov 2015
London
Living Wage
From 2nd Nov 2015
£8.25
£9.40
of basic hourly rate
£0.00
£0.00
min per hr of contact time
£1.57
£1.79
9.5%
of gross pay
£0.93
£1.06
12.07%
of gross pay
£1.19
£1.35
1.73%
of gross pay
£0.17
£0.19
Pension contributions:
1%
of gross pay
£0.10
£0.11
Distance travelled:
4.0
miles to 1 hr of contact time
£1.40
£1.40
At UK Living Wage and London Living Wage
Hourly rate for “contact time” (see page 16ff)
Enhancement for unsocial hours, etc:
Travel time:
National Insurance Contributions:
Holiday pay (see footnote 41, on page 20):
Training and supervisory time:
Mileage rate:
Running the business (see page 21):
Profit or surplus:
0%
11.4
£0.35
per mile
25.5%
of total price
£4.85
£5.46
3%
of total price
£0.57
£0.64
£19.03
£21.40
Total price:
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Comparing the minimum price for the National Minimum Wage, the National Living wage
and the (voluntary) Living Wages
£25
Profit / surplus
£0.64
Profit / surplus
£0.57
£20
Profit / surplus
£0.48
£15
£10
£5
Running the
business
£4.37
Staff on-costs
£1.94
Profit / surplus
£0.50
Running the
business
£4.26
Staff on-costs
£2.06
Wages & travel
£9.37
Wages & travel
£9.88
National Minimum
Wage (£16.16)
NMW & NLW
(£16.70)
Running the
business
£4.85
Staff on-costs
£2.39
Wages & travel
£11.22
Running the
business
£5.46
Staff on-costs
£2.71
Wages & travel
£12.59
£0
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UK Living Wage
(£19.03)
Version 3.1
London Living Wage
(£21.40)
If you have particular needs which make
it difficult for you to read this document,
please contact 020 8661 8188 or
accessibility@ukhca.co.uk and we will
try to find a more suitable format for
you.

UKHCA, Sutton Business Centre, Restmor Way, Wallington, SM6 7AH
020 8661 8188 | enquiries@ukhca.co.uk | www.ukhca.co.uk
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