How GP Practices Can Prepare for Rising Payroll Costs

 

With significant payroll cost changes looming, practice managers must act swiftly to assess and mitigate the financial impact on general practice operations

CREDIT: This is an edited version of an article that originally appeared on Practice Index

With payroll cost changes on the horizon, practice managers must brace for the impact of increased staff expenses on general practice operations. In this article, James Gransby, vice chairman of the Association of Independent Specialist Medical Accountants, outlines the key steps practices should take to mitigate the effects.

Considering NI Thresholds and Increases

Practice managers must first evaluate the financial impact of upcoming changes to National Insurance (NI). From April, the rate of employer National Insurance Contributions (NICs) will rise from 13.8% to 15%, and the threshold at which employer NICs become payable will decrease from £9,100 to £5,000.

For most staff, the reduction in the employer NICs threshold will significantly affect practice finances. Employees earning over £9,100 will now cost an additional £615 per year to employ due to the lower threshold. Combined with the 1.2% increase in the NICs rate, an employee earning a gross salary of £35,000 will cost the practice an extra £925 annually.

Preparing for Changes

There are several approaches to estimating the financial impact of rising payroll costs on your workforce.

Detailed Assessment: Conducting a line-by-line review of each staff member will provide the most precise forecast. This method, though thorough, requires significant time and effort to complete.

Quick Estimation: For a simpler approach, you can assess the effect of employer NICs increases alone. Start by calculating the average cost per employee:

Take the total gross pay for the most recent payroll month and divide it by the headcount on your payroll.

Use this average to calculate the hypothetical extra cost per employee due to NICs increases, then multiply that by the total headcount.

Keep in mind that this rough calculation doesn’t factor in the National Living Wage (NLW) increase.

Hopes for Additional Funding

As of the time of writing, no updates have been provided regarding additional funding to help practices manage rising staffing costs. Unlike many other businesses, GP practices do not qualify for the increased Employment Allowance, leaving them to absorb the full impact of these changes.

Healthcare leaders continue to urge the government to clarify any funding support as soon as possible, ideally before the 2025/26 contract changes are announced next spring.

For now, practices must operate under the assumption that no additional funding will be available. However, it is advisable to hold off on making decisions based solely on this assumption until further funding details are confirmed.