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Update on “Worker retention payment” calculations, case studies and on-cost coverage released by DoE
Jason Roberts
Oct 22, 2024
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The Department of Education has updated its guide to the worker retention payment with additional context on how “worker retention payments” will be calculated alongside some further clarity on how on-costs will be accounted for in the process.
Although the update does not break down how the calculation of the retention payments will be conducted, it does provide a high level guide alongside some example scenarios which illustrate how differing inputs can impact the total payment to be received.
This article will aim to step through the update from the perspective of an approved provider, and in so doing aim to provide additional context for providers that are navigating the finer details of the grant, and application, process.
What do we know thus far about how the retention payment amounts will be calculated?
Around two weeks ago the Grant Guidelines for the “workers retention payment” were released.
The document provided information on the grant opportunity with particular reference to who can apply for it, how the grant is calculated, key timelines, what the grant can be used for and how to apply, as well as information on the selection process and notification of outcomes.
It also provided the first insights as to how the Government was intending to calculate the grants themselves, with the detail in the Guidelines confirming that it won't be calculated via a “claim and acquit” process (ie: hours worked and rates paid are submitted by the employer (the claim) and then the “retention payment” calculated as 10 per cent of the sum of the two inputs is paid (the acquit).
Instead the Department of Education will use a “top down” or “one size fits all” approach whereby the amount a service receives is determined by a standardised “funding calculation” that uses estimated labour costs per hour of care multiplied by the number of chargeable hours of care provided over a specific period.
So was there enough info provided for a provider to calculate how much they will get before applying?
No, unfortunately not.
The Grant Guidelines provided no numerical specifics that would help an approved provider calculate with certainty exactly how much they will receive if they apply for the worker retention grant.
Is that a good or a bad thing from a provider's perspective?
That of course depends on the unique characteristics of an approved provider but on balance it is probably not ideal because they are signing up to a commitment to deliver a pay rise, plus the costs associated with the rise, to their team members over a 2 year period but have no way of ensuring that all the costs spent will be re-imbursed in the payment.
So is this type of concern one of the reasons why the update has been provided?
Yes, quite possibly.
The Department is in close contact with members of the ECEC community and is likely aware of any concerns that are arising.
The inability for providers to understand with certainty how much they will receive in advance of applying is an issue and the new update is more than likely an attempt to provide additional context to mitigate these concerns.
So what does the update say about how much providers can expect to receive?
From a specific input perspective, unfortunately not too much.
The actual detail of the funding calculation has not been released, so from a certainty perspective providers are in the same position as before.
So what new information was provided?
In the absence of sharing specific details of the funding calculation the Department of Education instead elected to illustrate how the funding calculation might work via the use of three centre based care, and one outside school hours care, examples of different services with different team, pay rate and chargeable hours.
The first example, referred to as Service Profile 1, is a business with 24 eligible workers on an average award of $33.48 per hour that bills 4.7 CCS session hours (total chargeable hours delivered divided by eligible labour hours incurred). This service, the example shows, would receive funding to support the full 10 per cent wage increase, with over 20 per cent additional funding for on-costs.
In the second example, Service Profile 2, the business has just 10 eligible workers on an average award of $30.22 per hour that billed 4.2 CCS session hours and according to the Department of Education would also receive funding support for the full 10 per cent wage increase, with over 20 per cent additional funding for on-costs.
However, in the third example, Service Profile 3, a service with 24 eligible workers on an average award of $30.06 per hour that bills just 3.9 CCS session hours yielded a different “retention payment” amount with the wage increase being covered but only 15 per cent additional funding for on-costs provided for.
So what does this tell us?
Honestly, it tells us that unfortunately there appears to be winners and losers in the calculation process.
It is unclear from the examples what is driving the different payment amounts across service set-ups but it is more than likely that roster configuration vis a vis ratio and labour cost are key factors.
So by extension services that run lean rosters versus ratio and have low average wage costs appear to receive relatively higher retention payment allowing them to cover 20 per cent plus on costs, where those services with more generous rosters and higher wages would appear to receive closer to 15 per cent for on-cost set off.
So, what happens if my service is configured like Service Profile 3?
The update suggests that if you have a configuration like Service Profile 3 you will be able to cover the wage payment but residual funds will only be enough to cover 15 per cent of on costs.
With actual on-costs more than likely exceeding 20 per cent, this type of service will face a financial shortfall according to the update.
That's not ideal, will there be a review process that may see us plug the gap?
There is a bit of uncertainty around the review processes as well.
The update does make it clear that they appreciate that “there may be a small number of services that provide a unique service offering outside the scope of the funding calculation” and that “these services may believe they are not receiving enough funding.”
They then go on to add that these “services will be able to apply to have their funding reviewed” and will be considered on “a case-by-case basis.”
However, it is unclear the degree of shortfall a service is experiencing that will qualify it to proceed with a review claim.
Is there likely to be any more guidance on review processes going forward?
Yes, there will be. more information about funding reviews will be released in early 2025.
So where does this new update leave us? Are we any the wiser?
Yes, and no.
Yes, because we now know that there is a range of possible retention payment outcomes that depend on variables like team size and cost per hour and, although the wage component is more than likely to be covered, that on-cost coverage may vary as a result of a services particular characteristics and, no because an approved provider is still not able to calculate with certainty what their final receipts ahead of submitting an application.
So what is an approved provider to do given what we know?
Well that very much depends on the individual circumstances and risk appetite of each and every approved provider.
If a provider's service characteristics mirror those in Service Profile 1 and 2, there is a high probability that wages and on-costs will be covered and that may be enough for them to be comfortable submitting an application.
If however their circumstances are closer to Service Profile 3, the fact that on-costs may not be covered may be enough for them to defer signing up, especially without clarity on whether they are able to access review channels to rectify the shortfalls.
So in light of that is there anything more the Government could do to mitigate some of this residual uncertainty?
Yes, there is.
A very useful step would be to release the funding calculation details. This would solve for the uncertainty as to how much services will receive immediately and help providers forecast in advance how much they received and if costs were fully covered and then they can make decisions as to whether to apply or not.
If however, that was not an option, then a broader range of example scenarios and case studies would be helpful. Providers could then match their services position more easily to a given example of payments and then infer how much they might receive more confidently.
And finally, perhaps the more details around review processes would be useful for providers, like in Service Profile 3, who know that they will not be able to cover 100 per cent of their on-costs but are prepared to apply on the premise that shortfalls would be made good via a review process, regardless of whether it was $10 or $10,000.
To visit the Department of Education website and review the updated guidelines click here.
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