Issue number:
10/2017
Date Issued:
27 Nov 2017
Issued to:
All Public Hospitals and Health Services.
Purpose:
To advise on funding for the implementation of the proposed enterprise agreement and to provide approval to pay employees ahead of Fair Work Commission approval of the proposed agreement.

Background

As you would be aware, in-principle agreement was reached on a new four-year agreement (the ‘proposed agreement’) with the Medical Scientists Association Victoria (Health Services Union Victorian No. 4 Branch) with respect to the medical scientists employee group.

The recent ballot of affected employees resolved overwhelmingly (98.46%) in support of the proposed agreement and on this basis, application was made to the Fair Work Commission to approve the new enterprise agreement. 

However, after becoming aware of technical deficiencies in the process leading up to the ballot, the Victorian Hospitals’ Industrial Association (the ‘VHIA’) withdrew the approval application as there was no prospect of the proposed agreement being approved by the Fair Work Commission (see VHIA Bulletin 2231).

The VHIA is assisting public hospitals and health services in the conduct of a fresh ballot to overcome the technical deficiencies.

Approval to Pay

Generally, the Government’s industrial relations policies require that a new enterprise agreement is approved by the Fair Work Commission before payment of any benefit under that agreement can be passed on to relevant employees. However, in recognition of the particular circumstances in this case, Government has authorised an exemption from that requirement.

Therefore, public hospitals and health services are authorised to pay the wages increases and any other benefits described in the proposed agreement immediately, as if it were approved and in operation. (See VHIA Salary Circular 681).

Release of Funding

Public hospitals and health services will receive funding adjustments through the Budget Payment System (BPS) in the 12 December 2017 payment. Users of the Healthcollect portal will be able to view details of this payment via the portal from 11 December 2017.

In the circumstances, the department expects that public hospitals and health services will do all that they can to pass on wage increases and the $750 (pro-rata) once-off lump sum payment to affected employees at the earliest date, and prior to the commencement of the Christmas holiday period wherever possible. Similarly, the Department expects that arrears on these wage increases will also be paid as soon as possible.

Funding to implement the outcomes

Indexation

The previous Victorian Public Health Sector (Medical Scientists, Pharmacists & Psychologists) Enterprise Agreement 2012 – 2016 reached its nominal expiry date on 31 October 2016, with the last annual salary increases payable under that agreement having taken effect on 1 November 2015.

The proposed new enterprise agreement provides four annual salary increases 3.25% occurring on the first full pay period commencing on or after 25 January 2017, 25 January 2018, 25 January 2019 and 25 January 2020. Health services are expected to fund the first 2.5% of these annual increases from annual budget indexation provided under the departmental funding model (DFM).

Deemed DFM indexation is calculated on the relevant wage base at the point of expiration of the previous enterprise agreement. DFM compounds at the rate of 2.5% every year thereafter.

The example below shows how DFM would be calculated for a hospital with a $100,000 Medical Scientists workforce wage base.

 

 

 Base

$

 2016-17*

$

 2017-18

$

2018-19

$

2019-20

$

2020-21

$

 2016-17  100,000 1,658  2,500  2,500  2,500  2,500 
 2017-18  102,500   1,699  2,563  2,563  2,563 
 2018-19 105,063      1,741  2,627  2,627 
 2019-20 107,689        1,785  2,692 
 2020-21 10,381          696 
 Total    1,658 4,199  6,804  9,475  11,078 

* Part-year from 1 November 2016

Therefore, in the case of the proposed agreement, DFM must be accrued from 1 November 2016. This has been factored into the Department's calculations of public hospitals' and health services' capacity to meet the costs of the proposed agreement.

Use of workforce profiles

As previous circulars have intimated. for the current enterprise bargaining cycle, the Department has referred more directly to each public hospital's or health service's workforce profile in its budget modelling than in previous cycles where budget modelling focussed more on 'whole of sector' profiles. This removes some of the more severe 'swings and roundabouts' that might have arisen under the previous approach.

The more 'localised' method of modelling also means a more direct linkage between EBA costs and the application of DFM indexation for each public hospital or health service when determining appropriate levels of supplementary funding. This in turn means that where the Department has calculated DFM indexation as matching or exceeding EBA-related costs in a given financial year (or years), there will be no supplementary funding in the corresponding year (or years).

Other revenue sources

The Department only provides indexation on State funding. Public hospitals and health services are also reminded that the Department does not fund 100% of their activities. 

Hospitals and health services typically have other revenue streams including, but not limited to, Commonwealth funding and grants (e.g. residential aged care bed-day funding), private practice revenue and business unit revenue.

Public hospitals and health services are expected to set aside funding from these other sources to support enterprise agreement costs.

Funding Supplementation

As the annual pay increases under the proposed new enterprise agreement exceed the Government's standard wage increase of 2.5% per annum, Government has agreed to provide funding supplementation equivalent to the difference between the annual pay increases provided for under the proposed new enterprise agreement and the standard 2.5% per annum rate. This funding supplementation will be provided for each year of the proposed new enterprise agreement and recurrently.

Funding supplementation for the salary increases for the 2017-18 financial year will be provided by way of a Specified Grant. The ongoing full year impacts of these and the other pay increases described in the Deed will be built into public hospitals'/health services' budgets from 2018-19 onwards.

Attribution of Incorporated Savings/Offsets

The proposed new enterprise agreement includes some savings/offset provisions as well as benefits that will arise from the Service Delivery Partnership Plan agreed between the parties. The realisation of these benefits will contribute to meeting the ongoing implementation costs of new or improved employee benefits.

Funding Queries

Any public hospital or health service that does not believe the funding it receives properly reflects the costs it faces to implement the 'new' enterprise agreement outcomes is able to present its case to the Department for review. (As a first step, public hospitals and health services should undertake their own calculations, with DFM calculated along the lines outlined in the example above.) The Department will review any such local calculations on request.

The Department will not consider a case for review of funding for this enterprise agreement unless the public hospital or health service has clearly and fully identified the nature and relevance of what is regarded as an 'un-funded' cost. Further, the public hospital or health service must demonstrate that it has identified and applied all available sources of funding and revenue that could contribute to the meeting of the cost(s) in question.

Requests for funding review should state whether they are to address temporary cash flow issues or recurrent budget issues.

Further Information

Hospitals/health services with queries relating to funding arrangements outlined above should contact Simon Chant on telephone (03) 9096 2555 or by email addressed to simon.chant@dhhs.vic.gov.au or Jenny Zahara by email addressed to jenny.zahara@dhhs.vic.gov.au.

 

Greg Stenton
Chief Finance Officer