Unprecedented Cost Blow Out

  




Source: Rebate freezes have ripped $3.8bn out of Medicare, The Australian March 2023


From 1st July 2023 Fair Work wages are up by an unprecedented 7.5%. The annual employer Superannuation Guarantee contribution has increased to 11% of earnings. Many Medicare rebate increases (averaging 3% p.a. based on private mixed billing) announced at the May 2023 budget only take effect at the end of the financial year.

Together with a pending recession, higher interest rates, inflation travelling at 7% p.a. increased medical and healthcare payroll (“sick tax”) compliance costs, and an inability to pass on these costs to patients, many may be left wondering how long they can remain viable.

With a skills shortage and a burnt-out workforce, the last thing any practice wants to do is reduce staff hours or not provide a pay increase.

One drastic change may permanently hurt staff morale unless it is handled carefully. A focus on simplifying your workloads and arrangements is key. Doing more with less via automation is a game-changing solution.

Clearly, there is a pressing need to review your workflows and systems first before making any radical changes. The good news is that it is possible with careful planning.

Increased ATO and Fair Work Audits
BHP recently admitted they were underpaying their staff by $430m.

If BHP cannot get its payroll right. Have you? It is a criminal offence in Victoria!

Mandatory ATO Single Touch Payroll commenced 1st January 2023 for small to medium businesses.

The ATO can now monitor and prosecute in near real-time for underpayments of wages such as overtime and allowances.

Now is a good time to review your employment contracts and make sure they are more payroll- and income-tax-friendly. For example, if you have Tenant Doctor arrangements, remove the word “Medical or Practice” receptionists and amend the job descriptions. At the bottom of this article, there is a template from a law firm that can simplify each pay for every employee into a single rate and include all overtime and allowances. It is possible.

The government is banking on high inflation and a recession at the end of the year. Expect higher interest rates and tax audits to reign in the budget.

To remain sustainable, practices will continue to deeply invest in compliance tools that lift staff productivity.

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We control what we can. The new challenge is how to deal with the new statutory employment remuneration increases deemed necessary 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 a practice’s overhead.
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.

It is clear: unless practices have been carefully monitoring both the financial and non-financial impact, they may experience a significant decrease in profitability between 5% to 10% p.a.

In the meantime, use this 2023 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 are:

1. Employer super to increase from 10.5% to 11% per annum

The big news is the 10.5% employer super will increase to 11% commencing 1st July 2023. There are legal options to make a salary sacrifice and absorb increases if your practice is feeling the pinch.

2. Paying above the Award Rate does not protect you from an underpayment of wages claim

Did you know that from the 1st July 2023, your staff may be legally entitled up to a 7.5 % pay rise? It is important to refer to the specific Awards, such as the Medical, Nursing, and Health Support Staff Awards.

A common error is that a practice believes that because they are paying above an award rate, they are protected from an underpayment of wages claim. The only exception is if you have a valid and up-to-date signed individual flexibility employment contract in place with each staff member.

3. ATO (STP Phase 2) detailed mandatory reporting of underpayment of wage starting from 1st January 2023

The ATO’s Single Touch Payroll (STP) mandatory reporting of overtime and degrossing income means by 1st January 2022 your practice may be facing a Fair Work audit for underpayment 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.

Avoid fines of up to $12,600 per contravention for an individual and up to $63,000 for a corporate.

This means now is a good time to double check that you are recording your pays the right way. Many nationally high-profiled law firms, practices, and businesses have been caught. They assumed but did not actually 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 recommended payroll and income tax-compliant Tenant Doctor 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, that includes employer-paid training.

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

1. Reduce your reliance on Medicare by improving the quality, type, and how you deliver your services

Performance and industry benchmark

The first step is to know your numbers, and then decide what to do next. Think about providing higher Medicare dollar value services, promoting 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 evidence-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). Our “Overtime is no longer a badge of honour” 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. Also, check our blog.

Consider fixed fee outsourcing important areas but non-core areas such as financial benchmarking, bookkeeping or doctor’s pays with our Doctors Pay Calculator Software or outsourcing service.

Finance and accounting require a high level of training, experience, and skills in an ever-demanding high compliance function. It becomes next to impossible for a practice to keep up with the changing technology, laws and regulatory requirements.

Due to new technology, practices can now cost-effectively outsource many of these key functions. This will enable timely and accurate financial reports. With financial reports, you no longer have to wait until the end of the year for your accountant’s annual financial statements. For many, this will be 12 months too late.

Restructure your business and legal structure

Restructuring your practice now may be an effective way to increase its profitability. Most practices report operating a profit margin of 2% to 7% p.a with accounting firms that specialise in medical and healthcare practices. Our clients enjoy operating profit margins between 20% to 30%. This is significantly higher due to experience in implementing better governance structures, business models, and practice controls. Our unique live practice benchmarks prove our clients do achieve these results on a consistent basis.

2. Review your strategy and systems before reviewing your employment contracts and pay arrangements

Stanford business Professor Jim Collins in his book Good to Great once said “You have to make sure you have the right staff on your bus, sitting in the right seats”.

The key here is to make sure you are headed in the right direction. Then work out what, and who you need, and what for. Do this before reviewing your staff’s roles, responsibilities, and remuneration.

Only then can you check you are paying your staff correctly. Our Medical and Healthcare Employment Compliance Self Assessment Checklist will ensure you have identified the most important issues for an employer to consider.

3. 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), unfortunately freezing staff wages or reducing hours may 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 practice’s interest.

The 7.5 % increase can be absorbed in over-award payments if you have documented your employment arrangements correctly. Clients who have correctly implemented our latest “Employment Kit” update (see below) should have this option available.

Linkhill Pty Ltd v Director, Office of the Fair Work Building Industry Inspectorate [2015] FCAFC 99 

5 Steps: Implement sustainable and legally binding employment arrangements

Step 1: Ensure you comply with the correct Awards

The Fair Work Commission’s Minimum Wage Panel (FWC) handed down its decision on the annual wage review. The decision provides an increase of 5.75% to Modern Award Minimum wages for all classification levels, with those increases effective from the first full pay period commencing on or after 1 July 2023.  

  1. Nurses Award 2020
  2. Health Professionals and Support Services Award 2020

Get more information at “Get set for a minimum wage increase“. 

Step 2: Acknowledge there has been a remuneration increase in the relevant Award (if applicable) and a new 11% employer superannuation rate commencing 1st July 2023

A 7.5% increase in the new Award rate increases for the Medical, Nursing, and Health Support Staff Awards is effective from 1st July 2023. 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 as detailed in points 1, 2 and 3 above;

Step 3: In principle reconfirm your employment arrangements with existing staff

Decide in principle whether your staff will receive a pay increase. Ask yourself: Are any staff members in part, or are all statutory and/or performance increases going to require the staff member to sacrifice salary or agree to some other alternative arrangement? Will their hours be reduced or increased, leave cashing out etc.

Before formalising an employment contract, an exchange in writing via 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 involved.

Step 4: Simplify your employment agreements: Individual Flexibility Agreements(IFA’s)

Consider simplifying your contracts. 

By using our recommended, legally prepared Tenant Doctor Employment Template Kit, you can roll up all Award overtime, allowances, and penalty rates into a single hourly rate. The example below illustrates this point. This type of contract is called an individual flexibility agreement. Each of the above Awards permits such an arrangement to occur. This employment kit was co-developed with Hamilton Bailey Lawyers.

The most common mistake is made not complying with the basic Health Professionals and Support Services Award 2020 clauses listed below:

“Clause 5.1 The agreement between the employer and the individual employee must:

  • be confined to a variation in the application of one or more of the terms listed in clause 5.1 Notwithstanding any other provision of this award, an employer and an individual employee may agree to vary the application of certain terms of this award to meet the genuine individual needs of the employer and the individual employee. The terms the employer and the individual employee may agree to vary the application of are those concerning:
    1. arrangements for when work is performed;
    2. overtime rates;
    3. penalty rates;
    4. allowances; and
    5. leave loading.; and
  • result in the employee being better off overall than the employee would have been if no individual flexibility agreement had been agreed to.

Clause 5.3 An agreement may only be made after the individual employee has commenced employment with the employer.

Clause 5.4 An employer who wishes to initiate the making of an agreement must:

(a) give the employee a written proposal;and

(b) if the employer is aware that the employee has,or reasonably should be aware that the employee may have,limited understanding of written English,take reasonable steps (including providing a translation in an appropriate language) to ensure that the employee understands the proposal.

Clause 5.5 An agreement must result in the employee being better off overall at the time the agreement is made than if the agreement had not been made.

Clause 5.6 An agreement must do all of the following:

(a) state the names of the employer and the employee;and

(b) identify the award term,or award terms,the application of which is to be varied;and

(c) set out how the application of the award term,or each award term,is varied;and

(d) set out how the agreement results in the employee being better off overall at the time the agreement is made than if the agreement had not been made;and

(e) state the date the agreement is to start.

Clause 5.7 An agreement must be:

(a) in writing;and

(b) signed by the employer and the employee and,if the employee is under 18 years of age,by the employee’s parent or guardian.

Clause 5.8 Except as provided in clause 5.7(b),an agreement must not require the approval or consent of a person other than the employer and the employee.

Clause 5.9 The employer must keep the agreement as a time and wages record and give a copy to the employee.

Clause 5.10 The employer and the employee must genuinely agree, without duress or coercion to any variation of an award provided for by an agreement.

Clause 5.11 An agreement may be terminated:

(a) at any time,by written agreement between the employer and the employee;or

(b) by the employer or employee giving 13 weeks’ written notice to the other party (reduced to 4 weeks if the agreement was entered into before the first full pay period starting on or after 4 December 2013).

NOTE: If an employer and employee agree to an arrangement that purports to be an individual flexibility arrangement under this award term and the arrangement does not meet a requirement set out in section 144 then the employee or the employer may terminate the arrangement by giving written notice of not more than 28 days (see section 145 of the Act).

Step 5: Confirm do you have sustainable and legally binding employment arrangements?

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

It is important to consult an accountant first to ensure you can afford to pay your staff correctly. Do not forget that your staff represents 60% of your investment in your total overheads. Furthermore, due to the new ATO gross pay degrossing and data matching rules, make sure they have checked that your employment contract information can be correctly entered into your payroll system.

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

Next Steps:

Employers should undertake the following steps: 

  • review minimum rates of pay, terms and conditions for Award covered employees and process increases from the first full pay period in July if necessary;

  • review the salary of Award covered employees to ensure that the salary continues to result in the employee being better off as compared to what the employee would have received under the Award;

  • review the base rates of pay provided under any enterprise agreement to ensure that the base rate of pay is at least equivalent to the updated base rate of pay under the Award; and

  • engage and inform team members who will be undoubtedly receiving information from the media.

  • To ensure your system is prepared for the rate change, please reach out to your accountant and/or payroll provider. After completing the first pay run following the 1st of July, 2023, we suggest verifying that the super is accurately calculated. If any discrepancies arise, your service provider for assistance in resolving the matter. 

    For future rates, kindly click this link on the ATO website.

In the event your employees are covered by an enterprise agreement or individual flexibility agreement see step 4, it is important to ensure that the base rates in those agreements remain at least equal to the new minimum Modern Award Rates.

Order Employment Template Kit

To fast-track the process you can order our recommended Employment Template Kit.

The revised payroll and income tax-compliant Tenant Doctor templates provided in our employment kit 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 content of the employment kit includes useful, legally prepared individual flexibility employment templates, job descriptions, standing orders, and an employment salary bonus scheme for your staff.

The employment template kit has been prepared by lawyers and kept up to date by Hamilton Bailey lawyers.

This cost-effective peace of mind solution will enable you to continue to reward your staff on merit and provide high-quality services, thereby minimizing patient fee increases. If you have any queries, before making any changes, please contact us at no obligation, by email at pa@healthandlife.com.au on 1800 077 222.

To order click here Employment Template Kit or Upgrade.

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 may 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. We continue to provide this unique and exclusive template in Australia. 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. The purpose of this article is to help ask better questions of your advisers.

This will enable you or your practice to save thousands of dollars on expert advice and time. Most importantly, this process will only add to your staff’s morale and recruitment and retention strategies. This may be a perfect solution for your practice if your staff is concerned about their future wages or working conditions.

For more insights visit our blog.

About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.

Chartered Accountant, Chartered Tax Adviser, Registered Tax Agent, Former AGPAL Surveyor 10 years of service

David Dahm is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life and global Founder and CEO of the not for profit project the International Healthcare Standards and Ethics Board (www.ihseb.org)

After a serious work related car accident in 1989, and nine operations later I continue to be a patient and provider advocate. I enter my third decade as a national Chartered Accountant for Medical and Healthcare practices in Australia. I am a former 10-year Australian General Practice Accreditation surveyor. I come from a medico family. I have served on the AAPM national Board and was the inaugural national Chair of the Certified Practice Manager CPM post nominal. I continue to provide accounting tax and practice management advice to many practices all over Australia.

You know who you are and I thank you for this real honour and privilege to serve you and your community through you. Note, I am not a lawyer please seek appropriate legal and accounting advice. This information is for general information and discussion only.

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