Don’t let April pay changes come as a nasty surprise

Practice Index gives advice on what to expect from the April pay changes

We all know how stressful pay and payroll can be – who can blame their staff if they give their instant feedback when problems or changes affect them negatively? After all, they are working hard and have an expectation that there will be money at the end of the month. If payroll is late, or overtime missed, it can have a significant impact on family finances. Unusual circumstances aside, there are significant changes headed for us as a country and, in particular, for those working in the NHS.

Firstly, there are changes to the national living wage (NLW), with a significant increase in the rate from £8.91 to £9.50 per hour. This should have a significant positive impact on some staff and their take-home pay. However, with many administrative staff in the NHS working at, or close to, the NLW a significant increase in their pre-tax pay may mean that salaries for other staff members will also need to be considered. If you haven’t yet looked into the impact of this change on your existing pay structure, you might want to do so now.

Aside from the potentially positive impact of the increase in the NLW for some staff, there are more negative impacts ahead. Having been announced in September 2021, many of us will have forgotten that April sees the introduction of the ‘health and social care levy’. Initially, it will appear as a temporary increase in the national insurance line of PAYE deductions; this ‘temporary’ change will mean that only staff under the state pension age will see the increased deduction this year. From April 2023 all staff will see the deduction as a separate line in their PAYE deductions, and only at this point will staff over state pension age have the money deducted from their pay. 

The health and social care levy is 1.25% and is subject to the same reliefs, thresholds and requirements as national insurance. According to government figures someone earning the median basic rate taxpayer salary of £24,100 would, as a result, be subject to a £180 additional deduction. If earning the median higher rate taxpayer salary of £67,100, the additional deduction would be around £715.

As a ‘double whammy’ for some staff, changes to contributions to the NHS pension scheme are also under consideration. The longer-term vision driving the proposed changes to the tiers for contribution is that staff will all pay closer to the 9.8% average that the scheme costs – meaning that cross-subsidy between tiers will need to be reduced. In career average schemes there is also a drive towards contributions reflecting actual earnings, rather than the whole time equivalent which the NHS scheme has used for some years. 

Most part-time staff should see some benefit from this. It should also do away with the ‘cliff edge’ encountered by some staff, where an increase in gross pay led to a reduction in take-home pay because their increase was not greater than the change in pension contributions. 

The proposed changes to the scheme will mean there are some winners and some losers; individual circumstances will dictate who sees an immediate financial benefit. That said, the NHS pension scheme is an incredibly valuable addition to staff pay and conditions and, despite changes to contributions for some staff, it would be sad to see anyone leave due to it becoming unaffordable for them; it may be a case of short-term pain for long-term gain.

In summary, staff may see changes to their pay that they weren’t expecting and it would be prudent to give them enough notice to be able to plan their finances effectively. With the cost of energy and fuel rising, not everyone will be able to withstand the additional expense. Early communication with staff about these changes will be key to ensuring that you don’t have a queue outside your door in April.

The Ockham Healthcare Podcast from 6th December (available here) gives further insights into the challenges ahead, and commentary about the impact on staff and practices, from James Gransby, who is a leading expert in primary care accountancy.

This article was written by Practice Index. Practice Index supports over 15,000 GP practice management staff throughout the UK.