Jerry Meyer was a member of a panel of “Legendary Leaders” of the senior housing industry at the June meeting of the American Seniors Housing Association. Excerpts of his comments will be presented over several installments as part of Active Living International’s outreach activities.
The Actual Cost of a Caregiver
by Jerry Meyer
Labor is the largest of the controllable costs in most senior housing communities worldwide. It can account for as much as 50% to 65% of controllable operating costs. Most of this cost is for the individual caregivers.
Too often we only focus on the hourly rate of a caregiver, but there are other, tangential costs that are very real and that dwarf the hourly rate.
Let’s say, for the sake of argument, that the cost of care is just the cost of a $10 per hour employee. Missing are the other components of the cost of a caregiver. There are payroll taxes, benefits, and other fringes to consider like vacation, sick pay and holidays. There are mandates and leaves of absence in which coverage by others is needed–often requiring the payment of overtime. Also, bear in mind, overhead costs like uniforms, hiring, employee meals, and staff use of utilities.
It’s pretty easy to show how that hourly cost is actually about $30 an hour.
Productivity is another important factor when considering the cost of a caregiver. “Productivity is measured by comparing the amount of goods and services produced with the inputs used in production. Labor productivity is the ratio of the output of goods and services to the hours devoted to the production of that output.” (US Bureau of Labor Statistics). In a personal service business like senior housing most care-giving staff are perhaps 50% productive. That is, the output that produces revenue is only being done half of the time. Staff members take lunch and other breaks, attend staff meetings, stock equipment and supplies, travel from one department to another, but none of these activities are directly producing revenue yet those are real operating costs. No one expects employees to be 100% productive as there are so many activities which staff complete that do not directly produce labor.
Lastly, we must also add in the fact that senior housing is about the provision of care. We are in the business of selling labor; that labor, like any other resource must be provided at a margin. If 32% is a desired operating margin, then labor has got to have that margin as well.
When all of these cost elements are added together it is very easy to demonstrate that a $10 an hour employee is more like a $30 to $36 an hour employee.
That may complicate significantly the ability to provide a good, quality, affordable product.
Suffice it to say that the developer/sponsor/manager in the senior housing industry must be keenly aware of the hidden costs of providing care.