Reviewing and managing staff costs in general practice

Reviewing and managing staff costs in general practice

With rising utility costs and pressure to increase staff salaries in line with inflation, how can practice managers cut staff costs, keep employees happy and be attractive to potential new employees? As medical accountants, we share some helpful tips for reviewing and managing staff costs effectively within GP practices, including whether you should outsource services such as bookkeeping, and how to monitor staff costs. 

When the five-year GP contract was introduced and set in 2019/20, the British Medical Association (BMA) said: “The £405m provided for 2019/20 means practices would be able to increase staff pay by at least 2%. Under the contract, there’ll be funding uplifts to the global sum of around 1.5% per year, which can be adjusted if the economy experiences particularly high or low inflation”. The current inflation rate, when writing this article, is 9.4%, but no adjustment is going to take place; there’ll be no increase in practice funding for staff salaries. Core GP funding rose by 3% in 2022/23, so GP surgeries are footing the increase in costs above this, themselves.

The five-year GP contract included a 20.68% level of contribution towards staff salaries.  This created a degree of certainty towards income for practices until 2023/24. Unfortunately, with the financial circumstances the country now faces, and other situations outside of our control, costs are spiralling, with rising utility costs and pressure to increase staff salaries in line with inflation. The Government has accepted recommendations from a pay review which will give over a million of NHS staff a pay-rise of at least £1,400 backdated to April 2022. With no extra funding for GP practices to cover these pay-rises, the difficult decision is therefore balancing the additional pay with no increase to turnover.

Employees are essential and could be viewed as the biggest asset a business has. Because of this, staff costs make up a large proportion of the total costs of a medical practice.

Total staff costs can equate to:

• 25-40% of turnover

• Up to 45% of total practice running costs 

It’s therefore essential to review and manage staff costs regularly, setting new budgets each year. It’s important to have the right people doing the right work and it may be worthwhile thinking about how employees could be utilised and structured better. It’s also vital to keep employees happy, and incremental pay increases may be necessary to keep staff morale at a required level. So, how can you cut costs, keep employees happy and be attractive to potential new employees? 

Considerations (for already busy practice managers):

• Is the role of the practice manager clearly defined; are they able to manage effectively?

• Does the practice manager need an assistant to enable them to delegate and manage the practice better?

• Should the practice outsource the bookkeeping, payroll, or HR functions?

• Would the practice benefit from using a cloud accounting software with a bank feed, to minimise the work involved in producing the monthly accounts and VAT returns (if applicable)?

• Would it be possible to reduce the use of locums for both GPs and non-GPs, by increasing the hours of existing employees?

• Is there any ‘slack’ in the system; could someone take on a hybrid role working part-time in dispensing as well as on reception to remove this slack?

• Consider the roles and job titles of employees to make sure they’re paid appropriately based on what they do.

• Should the practice adopt or review pay scales to make sure staff are paid appropriately?

• Is it possible that incremental increases in pay over many years have led to an overpaid employee?

• Use your network to share staff between practices.

• Make sure you’re rectifying any discrepancies between the pension deducted by NHS each month for salaried GPs compared to payroll, and ensuring payments stop when a salaried GP leaves.

HR perspective

• Look at employment contracts, in particular, staff sickness, and make sure all employees’ contracts are aligned, so that everyone is being fairly remunerated.

• Review the overtime policy:

Look at overtime rates and update these if necessary.

Make sure all overtime is approved before it’s worked, so you can assess the need or manage this without incurring overtime if possible.

Make sure adequate controls are in place to monitor overtime.

Release communication to employees clarifying the overtime/sickness policy in place to remind them of the processes to follow.

How to monitor staff costs

• Make sure payroll reports can be filtered by department for easier analysis. If your payroll provider can give you the reports in an Excel or CSV format, this may help you to manipulate the data to aid your budgeting.

• Look at benchmarking statistics to identify typical costs in your area for practices of a similar size and type and look at how you compare.

• Prepare a monthly/annual budget for staff costs based on prior years and the benchmarking figures.

• Each month, add your actual employee costs to the budget and compare budgeted costs with the actual spend. Make sure the difference is reviewed and give details as to why there may be a difference. This will help to justify your actions. Perhaps there is a high level of overtime – was this really needed? 

When looking at staff costs, please remember that, as well as considering an employee’s salary, you need to add employer’s National Insurance and employer’s pension (where applicable) to see the full cost to the practice. This amounts to a further 28.18% on top of someone’s salary.

Need help?

If you’d like assistance with anything mentioned above, or to discuss outsourcing your book-keeping or payroll, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Emma Wood