For care providers, payroll has always been the single biggest cost. But in 2025 the pressure has stepped up to a whole new level.
The April increases in National Insurance and the National Living Wage were intended to improve fairness and lift incomes. But for care home and domiciliary providers they have added real financial stress.
Rising costs, widening gaps
Employers are now paying more in wage bills and tax contributions. The Nuffield Trust estimates the rise in employer NICs and minimum wage will add about £2.8 billion in extra costs across independent social care providers. Many of those providers simply do not have the margin to absorb that.
At the same time, most local authorities are giving only modest fee uplifts. In homecare, some councils gave 0% uplift for 2025–26 even though providers face 10–12% cost pressures.
One striking figure: 58% of care workers were being paid below the new National Living Wage before the April 2025 change. That means many employers had to make large upward corrections or risk legal/contractual backpay issues.
All this means the pressure is on for care providers to balance rising outgoings with income that isn’t keeping pace.
The weight of workforce and funding mismatch
Workforce challenges are intensifying the strain. In the 2025 Adult Social Care Workforce Survey, 74.0% of domiciliary care providers said recruitment was “challenging,” and 58.5% said retention was difficult.
In residential care settings, 66.7% reported recruitment issues and 53.9% retention issues.
Vacancy rates remain high. In 2024/25, the vacancy rate in adult social care fell to 7%, a return to pre-COVID levels, but still about three times the vacancy rate in the wider UK labour market.
For independent providers, staff turnover dropped slightly from 25.8% to 24.7%, but that is still a heavy churn.
Every departure or vacant post requires a replacement, training, possibly temporary staff costs, which all feed back into the cost pressures.
What it means for smaller vs bigger providers
Smaller care homes, especially those under 20 beds, are most vulnerable. Many operate with limited reserves and tight margins. The market is already showing signs of contraction: a higher share of small care homes are being sold with vacant possession, indicating closures or exits.
Larger providers have more flexibility. They may pool resources, negotiate better supplier terms, and manage across multiple sites. Many are also tapping into capital markets or investor backing. But scale does not erase the cost pressures — even large groups report tough choices on fee setting and staffing.
Why payroll planning is now a lifeline
This isn’t a matter of back-office detail. Payroll is at the heart of financial survival. A small misestimate or error in pay, NIC, or holiday accrual can cascade into cashflow problems.
Providers need:
- Granular forecasting of wage and tax liabilities
- Visibility over cost centres and service lines to see where pressures are highest
- Flexibility and resilience in cashflow to absorb variance in client income
At Ascend we focus on helping care operators build payroll systems that not only deliver pay accurately and on time, but also provide leaders with the payroll insights that they need
The path ahead
The funding debate is only going to intensify. Many operators are calling for intervention so that providers do not collapse under unfunded cost burdens.
But regardless of external changes, care leaders can act now. Tight payroll control, scenario planning, and strategic alignment between payroll and operations are essential levers for stability.
If rising costs are squeezing you, talk to us. We will help you build a payroll system that supports cashflow, reduces risk, and gives you breathing room to focus on care.
