Author: Tom Wardrip
PRN stems from the Latin phrase pro re nata, meaning "as needed." A PRN employee typically works without a set schedule — or "as needed" — by the organization. PRN or per diem employees, as they're most commonly called, offer a saving grace for scheduling managers when a team member calls off. Conversely, per diem programs can create a headache for managers when building work schedules.
Flex staffing as needed
Per diem programs allow employers to call in employees when needed. Certain medical procedures can be scheduled, but healthcare organizations can't count on the number of patients on any given day. Many healthcare employers schedule to a lower need to save costs and supplement the staffing as needed.
Saving benefit costs
Healthcare organizations commonly don't pay medical and dental insurance benefits to per diem employees. These employees typically receive a slightly higher wage in lieu of benefits because the organization assumes it's cheaper to employ per diem employees versus full- or part-time workers. Many employees love per diem roles that pay a higher wage for the same work, because they have access to health and dental benefits through a spouse or domestic partner's employer.
The ACA throws a curve ball
Passage of the Affordable Care Act (ACA) in 2010 significantly impacted healthcare organizations using the per diem or PRN system, requiring employers to offer medical benefits for employees who worked an average of more than 30 hours per week. As a result of the 30-hour rule, employers who previously offered benefits to spouses and domestic partners looked for measures to offset increased expenses and stopped offering benefits if the spouse or domestic partner could access benefits through their own employers.
Since the passage of the ACA, employers have used a range of approaches to address mounting costs. Some simply offered medical benefits to all employees, while others restrict employees' schedules, so they don't cross the 30-hours per week threshold.
Many healthcare organizations have begun to question their per diem compensation policies in an effort to remain competitive.
Some healthcare employers have lost sight of the original intent of these programs. Employers find themselves operating a broken system where they pay employees a higher per diem wage in lieu of benefits, then pay the same employees benefits because they work nearly full-time and exceed the 30-hour threshold. Then the employer further pays shift differentials and weekend differentials — all while struggling to meet staffing needs.
Per diem employees work as needed, but don't tailor their availability to the needs of the organization. These employees may not feel compelled to work during weekends, nights and holidays. Organizations do their best to fill the gaps by offering additional compensation to employees who agree to work a minimum number of shifts per week/pay period. These ad-ons pile more costs into a program designed to cut staffing costs during periods of low census.
Gallagher survey finds widely ranging associated per diem costs
Recently Gallagher completed a survey of 135 facilities to understand organizations' per diem or PRN practices. The survey identified 12% of the workforce as per diem status, revealing widely ranging associated costs.
Fully 50% of facilities employing per diem staff paid these employees no differently from regular staff. In other words, employees choose per diem status for the flexibility and are willing to forgo benefits. However, the survey found that most compensation plans paid a per diem premium. For plans that pay a flat rate to per diem employees in a certain position, the calculated premium ranged from 1% to 65% with an average of 15.2%. For the plans that paid a differential, the calculated premium ranged from 3% to 32% with an average of 12.1%. Overall, the per diem premium reached 14.3% above the base wage.
Organizations need to take stock of their per diem program and determine its true cost. To understand the impact of the per diem premium, look first at the average cost of all benefits. Many assume that because per diem employees don't get benefits, the higher premium makes up for the loss of benefits.
Below is an example of an organization that pays a per diem wage of $28.30 per hour for an average of 35 hours a week. The per diem employee receives federal- and state-required benefits of social security and Medicare taxes, plus unemployment and worker's compensation — about 8.7% depending on the state for the average per diem salary.
Many organizations continue to contribute to retirement plans if per diem employees meet certain requirements. The example below assumes an additional 3.5% of salary in retirement contributions. Adding these numbers shows a potential benefit load of 12.2% of salary. Add the medical benefits at an estimated $9,189 or 17.7%, and the benefit load rises to 29.9%. The survey identified the average per diem premium at 14.3%. Adding the premium to the benefits load of 29.9% pushes the full value of the per diem to 44.2% above base pay.
|
Average Pay @ 35 hrs/wk |
Est. Benefit Cost |
% of Salary |
Cumulative % |
|
$28.30 - $51,506 |
|||
|
SS/Medicare/Unemployment/WC |
$4,455 |
8.7% |
|
|
Retirement Contribution of 3.5% |
$1,803 |
3.5% |
12.2% |
|
Medical Coverage |
$9,128 |
17.7% |
29.9% |
The survey results showed that per diem programs cost more than organization leaders may realize. This cost doesn't include the difficulty of managing per diem staffing and the added expense of programs to entice per diem employees to work.
Making per diem fit the organization
Organizations must consider the different approaches to compensating per diem employees and to what degree those approaches fit organization goals — particularly when employees move from per diem to full-time or part-time, and back again.
Some per diem programs pay a flat rate regardless of the employee's level of experience. Such an approach can create difficulty when experienced employees move from full-rime status to a per diem status at a reduced flat rate.
Other organizations may add pay to the full-time employee's base rate when the employee moves to per diem status. The additional pay can be a specific dollar amount or even a defined percentage. Unfortunately, the additional pay approach increases the base rate of pay, compounding the per diem increase when managers calculate merit increases off this base rate year after year. The equation becomes more difficult when the organization must determine by how much to reduce employees' base rate when individuals move from a per diem status back to full-time status.
A better approach
A more effective design assigns all employees a base rate determined by experience and pays them a differential when they move to per diem status. If the employees change their status to full-time, the employer simply removes the per diem differential and the employee receives the same base rate.
The employer calculates the merit increase off the base rate only. Such an approach allows the organization to adjust per diem rates across the organization based on market factors. The organization can track the cost of operating a per diem program through these differentials. The organization should determine an effective per diem differential for employees first by understanding the average cost of benefits for the various components and adjusting the program from there.
Gallagher can help
A per diem program requires careful implementation and maintenance, involving more than simply paying employees in lieu of benefits. If your per diem or PRN program isn't delivering the best possible outcomes, our team can help you craft a tailored solution that balances your unique priorities, goals and financial realities.
