Chapter 2

Workforce Supplement

2.1        Of primary concern to the Coalition - and one raised by a significant number of written submissions and personal witness statements - is the issue of the Workforce Supplement.

2.2        The Workforce supplement is listed as a primary supplement in the new Sections 44-5 and 48-3 with the Minister being able to determine by legislative instrument the detail of the supplement.

2.3        As the proposed Workforce Supplement does not include the relevant on-costs, the supplement in its current form has very serious potential to further impede the commercial aspects of operating an aged care facility.

2.4        Mr Ray Glickman, CEO of Amana Living – Western Australia raised four reasons why the workforce supplement should not go ahead:

• It is wrong in principle. To take away funds from ACFI, which essentially belong to our residents, and then transfer them to workers, is wrong in principle. And it is particularly wrong in an environment where a consumer direction will be the future. Also it is futile, because robbing Peter to pay Paul does not generate more money in the system, sustainably, to pay higher wages.
• This measure is secondly wrong because it industrialises what is essentially a funding issue. It centralises industrial arrangements and takes away the outcomes that one negotiates individually as an enterprise. It also seems designed to promote the interests of the unions by driving clauses that have been rejected by many employers in their own enterprise bargaining arrangements. Many of the initiatives that have to be included are also costly and do not directly benefit the residents, or clients.
• Thirdly, it should be rejected because the proposition is not fully funded. So, in addition to recycling existing funds, so we have no more money, it does not cover on-costs. That includes numerous expensive expenditure items that will be part of the overall deal. Our calculations suggest that the cost will outweigh the income by two to one. That seems extraordinary, but it is true once you add up all the elements. We have an example from the bush, where to gain $17,000 will cost $30,000.
• The fourth reason it should be rejected is that it is discriminatory. The majority of regional, remote and rural providers will not be able to comply with the requirements - and they are the organisations who are most in need.[1]

2.5        Modelling undertaken by industry groups and provided to the members of the Committee suggests that each dollar of wage increase flowing from this legislation will cost the employer at least $1.70 on top of the $1 received by the employee.  The Coalition is convinced that such an impost on the industry is not sustainable – short or long term.[2]

2.6        Submissions referred to the Committee indicate that around 60% of all aged care providers are currently operating in severe financial stress with no capacity to cover additional expense through increased salary on-costs without the corresponding increases in the supplement or other subsidies.

2.7        In their written submission, LHI Retirement Services (Lutheran Aged Care Residential Network Members) raised concerns about the significant additional costs associated with the Workforce Supplement:

The Workforce Compact will be a huge cost impost for facilities given that the current COPO indexation was zero and estimated to be 1.5% for 2013/14. What income stream is available to fund these additional costs, plus on-costs, and what opportunities are there to increase income in a tightly regulated environment?  One LACRN member has estimated that the additional cost to them of the Compact will be an additional $240,000 per year on top of the government funding of $140,000.  Based on the above information this could only be achieved by a significant reduction in staffing (equivalent to 8 full-time staff). Another member reports the increases will cost a minimum of $116,000 in the first year and up to $272,000 p.a. by the fourth year. This proposal alone threatens the whole aged care system, which would appear to be the real objective of government. LACRN urges the Senate to commission a full independent review of the assumptions upon which the Compact calculations were based. [3]

2.8        The very real risk associated with the workforce supplement is that many providers would have to reduce staffing levels to release the additional funds to meet the higher unfunded salary expenses.  Coalition Senators do not believe this is acceptable as it challenges their very viability.

2.9        Dr Lucy Morris, Chief Executive Officer of Baptistcare – Western Australia, made the following statement to the inquiry about their concerns with the additional on costs which are not covered under the workforce supplement:

I think that the way the current workforce supplement is constructed is not going to be helpful because, for every dollar that we apparently will get from government if we sign off on all the other caveats that we have to sign up to, we will have to put in an extra $3 to top that up, and there is the compounding effect of that increase year by year as it goes forward. We are losing money out of the system faster than we are getting money in.[4]

2.10      Further concerns were put to the enquiry by the National Presbyterian Aged Care Network supported by similar comments from other employer groups.  These highlighted that the outcomes of the compact negotiations did not really end up with a compact. What did result was a Minister making certain decisions based on negotiations that, in the view of the providers, created a really awkward position where providers support the intention to have better wages but the mechanism that has actually been decided by the government leaves unfunded the on costs that were referred to by the Lutheran Network.[5]

2.11      In their written submission, LHI Retirement Services (Lutheran Aged Care Residential Network Members) also raised concerns about the impact of the non-direct wage conditions associated with the workforce supplement:[6]

The additional non-direct wage conditions associated with the Workforce Supplement eligibility is a significant industrial relations issue for facilities and must be removed so that there is a clear separation of wage and non-direct wage issues. The additional non-direct wage costs include:

• Enhanced training and education opportunities,
• Improved career structures, career development, and workforce planning,
• Review part-time hours
• Casual staff conversion to part-time
• Workload management
• Work health and safety
• Disciplinary matters.

These non-direct wage items add significant unfunded costs to the facilities operations; add another layer of administrative responsibility and costs while the majority provide no direct benefit to the staff.

These matters are also covered by Accreditation requirements, conditional adjustment payments, industrial awards, Fair Work Australia and work health and safety legislation and add another level of cost and compliance to providers that is not necessary. The above must be deleted from the requirements for eligibility for the Workforce Supplement.

Government campaign on workforce supplement is misleading

2.12      Subsidised aged care operations are controlled by the Government ranging from the setting of fees paid by residents and charges levied by providers, fixing wage rates for employees by controlling and managing subsidies; allocating the number of places available in a region; determining the quality and standards of care and accommodation and so many other operational, administrative and clinical processes.  Whether the provider is privately owned or a mission-based operation of a church or charitable organisation, these businesses are very limited in the commercial decisions able to be made in the best interests of their business operations.

2.13      Leading Age Services Australia in their written states that:

The Government has proposed a workforce supplement to be enacted through subordinate legislation to give effect to a ‘workforce compact’ designed to encourage workforce participation and retention.

However, unfortunately the use of the term ‘compact’ is a misnomer as there is no general agreement between all the relevant stakeholders.[7]

2.14      There is no doubt that the hard-working staff employed in all areas of residential aged care facilities are worthy of increased pay rates when compared to their contemporaries in other industries.  This is a view expressed by many witnesses to the hearings and in many written submissions.

2.15      Aged & Community Services – Western Australia   stated that:

ACSWA acknowledges that there is a need to attract and retain aged care staff though improved remuneration and career structure, and a need to enhance their skills to provide the complex care of incoming residents with increased acuity. ... the Workforce Supplement adds a significant cost impost for providers, and unnecessary complexity in industrial relations management.[8]

2.16      It appears to the Coalition that the Workforce Supplement process is using the sensitive issue of promised wage increases for staff as a clear attempt to open the way for mandatory union participation in any wage-setting process in residential aged and community care.  At the same time, in the same process, the lack of any recognition of the high cost to employers who choose to access the wage supplementation processes because of the unfunded on-costs of those increases is the key to the question of the poor sustainability of these wage proposals.

2.17      In their written submission, LHI Retirement Services (Lutheran Aged Care Residential Network Members) summarised that this was a false campaign trying to create the impression that the Government are fully funding the wage increases through the Supplement:[9]

The Workforce Compact is obviously a campaign to shift the cost increase associated with the pay and conditions for low paid workers onto the aged care providers with only a token supplement from government, while intending to create the impression that the government is providing all of the funding for the increases.

2.18      There is no incentive for many operators in the sector to commit to any increase when the significant on-costs could lead to further financial stress to an already constrained business environment.  The potential loss of more jobs through the closure of businesses is a very real and worrying concern.

2.19      In the absence of any certainty that there will be universal uptake of the workforce supplement, the Coalition was dismayed to hear that the Department arranged for information to be posted direct to individual staff in aged care facilities promoting the payment of wage and salary increases from July 2013.  This action completely disregarded the appropriate processes that will be required before there is any possibility that any such increases might be paid to workers.  Indeed, the Government was forced to write to both ACSA and LASA apologising for the Department's error in undertaking such a letter campaign.

2.20      The Minister too is not innocent of similar inappropriate promotion of his workforce supplement with the recent insertion of a paid advertisement in a magazine for the retirement community.  This advertisement was endorsed by the Minister and clearly states that "From July, $1.2 billion will flow into the pay packets of 350,000 aged care workers across Australia thanks to Federal Labor."

2.21      That is an outrageously false statement designed to give the false impression that the Government is responsible for pay rises.

False expectations from the workforce supplement

2.22      The Workforce Supplement is intended to improve productivity, worker attraction and retention in the sector.  However, to qualify for the supplement, providers must have enterprise bargaining agreements in place, pay above minimum wages, and commit to minimum annual increases.  It is difficult to see how the proposed changes will actually improve wages, conditions and career structures when the service providers most likely to participate are those that already meet the criteria i.e. have an EBA in place. It is expected many organisations will not adopt the Workforce Compact in its current form.

2.23      Catholic Health Australia advised that they surveyed all their facility managers and the results revealed that 40% 'would not' or were 'unlikely' to sign up to the workforce supplement.  Compounding this was the stunning response from the remaining 60% who reported as being uncertain about the proposal.  From an organisation of this size and geographical spread, a 100% lack of commitment is a very strong indication of the high levels of anxiety and uncertainty within the aged care industry.

Lack of specific industry consultation

2.24      Kincare[10] made particular mention of their concerns about the lack of consultation with industry over such a significant issue of primary importance to providers.  Rather than a consultation process, the Department of Health and Ageing distributed employee fact sheets and advice on how to meet the Workforce Supplement pre-conditions directly to staff without any discussion or consultation with the aged care sector peak bodies or individual providers

Workforce supplement adding to the industrial complexity of facilities

2.25      In their written submission, LHI Retirement Services (Lutheran Aged Care Residential Network Members) raised concerns about the workforce supplement adding to the industrial complexity:

It must be recognised that the Workforce Compact process adds significant complexity of the industrial relations processes within an aged care facility, which is avoidable. [11]

Workforce supplement issues for Rural, Regional and Remote (RRR) providers

2.26      Dr Lucy Morris from ACSWA, reminded the committee that the not-for-profit providers where the predominant providers in regional, rural and remote place.

We mentioned earlier issues around recruitment costs, retention costs, the cost of training and the cost of accessing allied health. Employers also often find that they have to provide accommodation for staff when they come in. The supplement does not come close to addressing those fundamental issues around living and providing services in rural and regional areas.

We also have a heightened awareness about lower incomes in rural and regional areas generally.[12]

Summary and overview on the Workforce Supplement

2.27      In summary, St Paul’s Lutheran Homes Hahndorf stated that:

The Workforce Compact is a farcical regime to impress staff working in aged care however it doesn’t stack up against the funding or constraints within the financial ability of a Provider.[13]

2.28      Capecare also disagrees with the fundamentals of the Workforce Supplement and made these following comments in their submission:

Capecare fundamentally disagrees with the Workforce Supplement announcements and how the current Federal Government has funded it ... and as a matter of principle, does not support a framework that diminishes aged care funding to providers in order to channel funds to supplement wage increases.[14]

2.29      Mr Ray Glickman from Amana Living summaries his objections to the workforce compact with the following statement:

... this supplement is a very poor piece of public policy. Let us not call it a compact, because it certainly has not been agreed with provider organisations. It takes money from care to return to some employers who can strike a deal.[15]

Updating Workforce Supplement Modelling

2.30      It’s interesting to note, that during the Inquiry on 29 April 2013, Mr Graeme Prior, Chief Executive Officer of Hall and Prior Aged Care Organisation made the following statement:

Our high-level analysis of the Workforce Compact has indicated that it will be cost neutral to us in both WA and New South Wales after taking into consideration all employee entitlements and on costs.

This assumes the workforce supplement continues beyond the 2016-17 financial year. It will be cost neutral to us as we have a very high level of resident acuity and already pay wages well above the margin for the relevant award rates... in summary, we thus support the Workforce Compact and we feel it will invigorate the aged-care workforce.[16]

2.31      However, in a letter to the Senate Community, one month later, Mr Graeme Prior acknowledges that his statement at that the Workforce Supplement would be cost neutral to his organisation and informed the Senate that to sign up to the Workforce Supplement over the next four years would cost his organisation an additional $2.1 million:

At the time of my appearance before the Senate Committee I indicated that our initial modelling was that the Workforce Supplement would be cost neutral to our organisation. However, based on the information in the consultation paper, this is no longer the case. It appears that if we were to sign up to the Workforce Supplement it would cost our organisation $2.1 million over the next four years (in addition to the annual financial increases passed on to employees).[17]

Recommendation

Given the major concerns expressed by so many submitters about the workforce supplement, the deleterious effect it will have on residents and the sector; and in the absence of general agreement between all the relevant stakeholders, all provisions in the package of bills referring to the workforce supplement should be removed.

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