This article was first published by the Medical Republic on 13th July 2021.
From 1st July 2021Medicare rebates on average went up by 0.9%, Fair Work wages up by 2.5%, COVID19 skyrocketing cost$ and more over time is now a criminal offence (Vic other States coming). Something will have to give.
It has been another tough year for medical and healthcare practices. Practices continue to find their weary COVID-19 feet.
We control what we can. The new 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 a practice’s 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 a lockdown has taken a toll on the front line staff. Significant amounts of overtime, job description revisions and expectations means practice staff are naturally expecting an increase. The absence of a cash boost will be felt this time around.
It is clear: unless practices have been carefully monitoring both the financial and non-financial impact of COVID-19, they may find a significant decrease in profitability of up to 5% to 10%.
In the meantime, 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
Did you know that from the 1st July 2021, your staff may be legally entitled up to a 2.5 % 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 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 will increase to 10% commencing 1st July 2021. There are legal options to salary sacrifice and absorb increases if your practice is feeling the pinch.
3. Mandatory electronic ATO report of underpayment of wages starting from 1st July 2021
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.
Avoiding fines of up to $660,000 per incident means now is a good 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 by improving the quality and type of services you offer
Performance and industry benchmark
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). 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.
Finance and accounting requires 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.
For example, smart practices use our live monthly financial benchmarking tool as a global position satellite to know what their next move is by knowing how similar practices to their own are trending.
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% p.a with accounting firms who 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 uniquely live practice benchmarks prove our clients do achieve these results on a consistent basis.
2. 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 book 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 will ensure you have identified the most important issues for the practice 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 practices’ interest.
The 2.5 % 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) released last year should have this option available.
5 Steps: Implement sustainable and legally binding employment arrangements
Step 1: Ensure the correct Awards apply to your staff
These are the latest Awards commencing 1st July 2021
4. Pay Guides:
Step 2: Acknowledge there has been a remuneration increase in the relevant Award (if applicable) and new 10% employer superannuation rate commencing 1st July 2021
A 2.5% increase in new Award rate increases for the Medical, Nursing and Health Support Staff Awards is effective from 1st July 2021. 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 be receiving a pay increase. Ask yourself: Are any staff in part or are all statutory and/or performance increases will require the staff member to sacrifice salary or agree to some other alternative arrangement? Will there 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: Individual Flexibility Agreements(IFA’s)
Consider simplifying your contracts. By using our 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.
An example is the Health Professionals and Support Services Award 2021:
“Clause 7.3 The agreement between the employer and the individual employee must:
(a) be confined to a variation in the application of one or more of the terms listed in clause 7.1 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
(b) result in the employee being better off overall than the employee would have been if no individual flexibility agreement had been agreed to.
Clause 7.4 The agreement between the employer and the individual employee must also:
(a) be in writing, name the parties to the agreement and be signed by the employer and the individual employee and, if the employee is under 18 years of age, the employee’s parent or guardian;
(b) state each term of this award that the employer and the individual employee have agreed to vary;
(c) detail how the application of each term has been varied by agreement between the employer and the individual employee;
(d) detail how the agreement results in the individual employee being better off overall in relation to the individual employee’s terms and conditions of employment; and
(e) state the date the agreement commences to operate.
Clause 7.5 The employer must give the individual employee a copy of the agreement and keep the agreement as a time and wages record.
Clause 7.6 Except as provided in clause 7.4(a) the agreement must not require the approval or consent of a person other than the employer and the individual employee.
Clause 7.7 An employer seeking to enter into an agreement must provide a written proposal to the employee. Where the employee’s understanding of written English is limited the employer must take measures, including translation into an appropriate language, to ensure the employee understands the proposal.
Clause 7.8 The agreement may be terminated:
(a) by the employer or the individual employee giving four weeks’ notice of termination, in writing, to the other party and the agreement ceasing to operate at the end of the notice period;…”
Use this Medical and Healthcare Employment Compliance Checklist as a starting point.
Step 5: Confirm you have sustainable and legally binding employment arrangements?
It is important 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. Furthermore, due to 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.
Order Employment Template Kit
To fast track the process you can order an Employment Template Kit.
The revised 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 email@example.com 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 have been taken advantage of in these unprecedented and changing times.
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 so you can ask better questions from 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 morale and recruitment and retention strategies. This may be a perfect solution for your practice if your staff are concerned about their future wages or working conditions.
About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.
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 use and discussion only.
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