Pay equity deal’s missing millions

Long overdue pay rate increases affecting 55,000 New Zealand care and support workers kick in on July 1. But the Government’s failure to fully fund the changes is threatening to derail service providers

The $2 billion pay equity deal was hailed as a triumph for under-paid care workers and a capitulation by Government funders – but as the July 1 deadline for pay equity arrives, it's becoming clear this was a hollow victory for the sector. In many cases the money - estimated to be at least $250 million for just one group of service providers - won’t be coming, and some providers will go under as they struggle with the reality of higher wage bills and training costs.  

Emails and letters provided to Newsroom detail the Ministry of Health’s persistent avoidance in confirming funding amounts to providers, as well as admissions that its “funding model” does leave some outfits out of pocket. Furthermore, the Care and Support Workers (Pay Equity) Settlement Act, which took only two weeks to be passed into law, has ensured providers have minimal say at the contract negotiating table.

In April, when Health Minister Jonathan Coleman proudly announced the $2 billion pay equity settlement, Kristine Bartlett - whose 2012 pay equity claim with aged care provider TerraNova set in motion the five-year fight that culminated in the May agreement - held back tears as she spoke of the occasion: “I’m so happy for the care and support workers. Because for so long we’ve been struggling ... but we did it.”

At the time, Coleman didn’t miss a beat - calling the pay equity settlement “an historic moment for the Government to address this undervaluing with Ms Bartlett and the unions”.

Since then, four sector organisations - the New Zealand Aged Care Association (NZACA), the New Zealand Disability Support Network (NZDSN), Care Association New Zealand (CANZ) and the Home and Community Health Association (HCHA) - have been in continuous communication with MPs, the Ministry of Health, DHBs and ACC about the millions of dollars missing in funding for the pay equity changes.

So far, none of the organisations has been given the exact information that shows how the Ministry of Health and ACC devised its funding models and calculated the extra costs related to the pay equity changes. Newsroom also asked for the information, and was refused by the Ministry on the grounds it was “commercially sensitive”.

Requests with the Ministry and ACC have since been lodged under the Official Information Act.

Problem one: fairer wages don’t mean fairer funding

Primarily, two different systems are being used to determine how much employers receive to pay higher wages.

At the moment, it appears aged care providers are in the most precarious position, with funding increases for wages determined by the number of beds in a facility rather than actual employee costs. Four different daily rates - ranging from $9.41 per bed for rest home beds to $16.18 for beds assigned to clients who have advanced dementia and mental health problems - are being used by the Ministry to allocate funding. The rates are based on information from “a range of different providers about their operating and staff costs”, according to the Ministry.

Both CANZ and the NZACA have pointed to major flaws in how the Ministry arrived at its “average sum” rates, particularly because employers with more experienced staff are disadvantaged. According to Ministry data, the rates estimate 21 percent of aged care workers have less than three years' experience, 29 percent have between three and eight years' experience,  36 percent have between eight and 12 years' experience, and the remaining 14 percent have more than 12 years' experience.

In an email to a provider, Ministry of Health deputy director service commissioning Keriana Brooking admitted some organisations would be left short under the daily bed rate funding model.

“If you are a provider with all or almost all of your staff at level 4 [more than 12 years' experience] then the average doesn't work for you,” Brooking said in the email, dated June 19.

“It is also determined [using] an average wage rate, penal rate and occupancy rate, so for some providers this also impacts on them if there [sic] figures are quite different than the average.”

Jessica Buddendijk, CANZ committee member, said the Ministry had fundamentally failed to account for “staffing numbers and length of service” in its calculations.

“Where a provider has a lot of very well educated, long serving staff, this tends to push them into the upper pay bands. With large numbers of [carers] needed because of the high dependency of those in aged care, this caused a huge error for which the providers have to bear the cost,” she said.

Simon Wallace, NZACA chief executive, warned that long term “many aged care providers may be forced to employ lower qualified and less experienced staff” because funding was weighted against having higher numbers of experienced and well-qualified workers.

In its submission last month on the pay equity bill - passed unanimously into law on June 8 - the NZACA also highlighted the impact of the bed funding model on smaller providers. “[It] does not take into account that smaller providers are not able to take advantage of the economies of scale available to large providers, meaning that smaller providers who often provide more care hours per bed, will in general, receive less than the actual increased costs they will face as a result of the settlement.”

"[Providers] will be forced to lay off staff, reduce shifts or reduce care hours - all factors that will impact the quality of care for residents."

For providers employing care and support staff working in the community, homes and with disabled persons, wage increases for the next 12 months are based on actual wage costs - however no further funding for planned pay rises has been guaranteed.

Julie Haggie, chief executive of the HCHA - whose members provide more than 95 per cent of government-contracted home and community support services - said she had been unable to get a “straight answer” from the Ministry and DHBs on the future funding.

According to the HCHA’s analysis, employers of home and community support carers need $132.9m to ensure promised pay rate increases for the last four years of the equity settlement period (July 2018 - July 2022).

“Providers are very happy that their employees will be able to earn better wages,” Haggie said. However, the level of uncertainty around what will be funded in regards to wages threatens the sustainability of providers, many of which already struggle to make ends meet in a historically underfunded sector," she said.

Discussions around whether wage inflation - assumed to be 2.2 percent - would be funded demonstrate the difficulty in dealing with the Ministry.

In the latest letter to providers from the Ministry on the issue, Jill Lane, director service commissioning, said:

“The Ministry is cognisant that some contract negotiations between funders and providers have yet to be completed. The interim advance payment will not deduct a 2.2 per cent uplift for status quo wage rises for eligible workers, to allow all negotiations ... to be completed. The funding of the 2.2 percent status quo wage rises for eligible workers in the interim advance payment, and the percentage agreed by funders as part of the annual agreement negotiations, will be included in the wash-up calculation process.”

Haggie said providers were once again unclear about how much they would be receiving from the Ministry, and whether some of it would be clawed back after the initial implementation period. In response to Lane’s June 26 letter, the HCHA has asked the Ministry to be “absolutely specific” about the funding being provided this year, and in future years - as its members, like all employers, had to be able to have some financial outlook past July 2018.

“It’s very confusing, and definitely shows the difficulty faced in getting any real information from the Ministry,” Haggie added.

Problem two: underhanded number fiddling

While providers were not part of negotiations for the pay equity deal, they were assured that costs which increased in line with wages, such as annual leave, statutory holidays, ACC levies and KiwiSaver, would be funded at a rate of 26 percent of direct wage costs.

But after the dust settled, the Ministry announced it would only be funding these on-costs up to 20.9 per cent of wages. Lane stated in a letter to the HCHA the funding drop was due to inconsistencies with “the model”:

“It is correct that 26 percent has been used in the cost model but this relates to the way the model was constructed, and cannot be automatically ‘transferred’ to the on-costs percentage for funding. The on-cost amount to be used for funding purposes is the standard 20.9 per cent,” she said in the May 8 letter.

All four provider organisations were blindsided by the percentage switch.

Garth Bennie, NZDSN chief executive, said the Ministry’s most recent on-cost estimate was based on statutory minimums, and failed to recognise the real costs in the sector. “For example, five days' sick leave when many providers are involved in collective agreements at 10 days.

Haggie said the reduction in on-cost funding would cost an estimated $88m for home and community support providers over the next five years. That money would have been used to cover the full cost of days in lieu, penal rates and extra administrative costs, she said.

Meanwhile, the Ministry has agreed to contribute to the increased cost of annual leave accrued before July 1. Up to four weeks of annual leave for each full-time worker will be funded at an average rate yet to be decided. Leave accrued after July 1 is expected to be covered by on-costs.

Problem three: the realities of upskilling the workforce

As part of the pay equity settlement, new qualification standards for care and support workers were set. To support this, the Government agreed to fund two days of training per full-time employee each year. As details of the settlement emerged, providers realised they were being significantly underfunded for training - which the Ministry deemed to be only 0.8 percent of direct wage costs.

Ministry data for home and community support providers - estimated to employ 24,000 workers - budgets for $17.5m in training costs over the next five years. However, according to the HCHA’s analysis - based on provider costing models and information from a 2015 Ministry report into home and support services - that training cost is estimated to be closer to $30.7m.

The Ministry’s calculation accounted for only a minor element of the cost of training, Haggie said. “They say [it] is based on two fill-days - when you have to provide another worker to fill in ... and not any other costs such as the cost of putting the qualification on the NZQA framework, the cost of assessors and moderators and payment for employees to attend specific training events or assessment.”

“It’s very confusing, and definitely shows the difficulty faced in getting any real information from the Ministry.”

Providers also pointed out the Ministry incorrectly assumed that training costs were the same at all levels.

“[For example], the training time and input is much more for the Level 4 apprenticeship, and the direct qualification payment alone is over $1500 more than at Level 3,” Haggie said of training time and costs for home and community support workers.

Problem four: we can’t cover our costs

All four provider organisations have warned the lack of proper funding will result in service closures, employee cut-backs and difficulties in maintaining care expectations.

The NZACA said it knew of two providers, located in Hamilton and Wellington, that had already closed. “Others will be forced to lay off staff, reduce shifts or reduce care hours - all factors that will impact the quality of care for residents,” Wallace said.

For disability support services, the inadequate funding - estimated by the NZDSN to short-change providers by about 10 percent - was another huge blow for its employers, workforce and clients.

“Disability providers operate in a marketplace that is entirely created and managed by Government through its decisions about funding and pricing,” Garth Bennie said. “It has artificially suppressed prices, and therefore wages, for many years ... creating the need for pay equity legislation. If Government managed its way into such a fiasco, it also has a moral and fiscal responsibility to properly manage its way out,” he said.

Problem five: mixed messages from the money holders

In a phone interview with Newsroom, Jill Lane remained firm on keeping details of the Ministry’s cost-modelling private. When asked why the modelling couldn’t be provided without identifying specific providers, Lane said: “Our position remains the same, that the details of the cost modelling ... is commercially sensitive and we want to respect the providers’ position on that.”

Lane also disagreed that many providers were being short-changed, after being asked why a more accurate cost-model, which better reflected what was happening in the sector, was not being used.

“There are not a lot of providers being short-changed. There’s a huge investment right across a large number of providers,” she said.

“What we’ve put in place is steps to give assurance to those providers as they work through the next few months - how is it tracking for them, how is it tracking with their workers. We will be working with their funders to work out any issues they have through the review process ... and subsequent wash-up process.”

Lane also disputed that providers were unclear about what funding they were receiving, referring to daily meetings, updates, a “call centre” and relationship managers working closely with providers on matters.

Health Minister Jonathan Coleman said he was unaware of any providers being underfunded. “No one has told us that they’re underfunded, but the Ministry is working with some providers who have raised viability issues.”

He also disagreed that providers were being underfunded, even after being told the NZACA, HCHA, CANZ and NZDSN had said otherwise.

“I dispute that. There was a negotiation around the pay equity settlement and basically the Government has funded the hours for all those publicly-funded patients.”

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