Margins Under Pressure: Why the NDIA's 2% Profit Target Doesn't Survive Reality

Parth Patel

May 21, 2025 · 8 min read

If a Subway® franchise can comfortably achieve a 10–20% profit margin selling sandwiches, why are NDIS providers expected to survive and thrive on a mere ≤2% margin, particularly given the substantial clinical, regulatory, and reputational risks they shoulder? The harsh reality lies hidden within a document rarely scrutinised outside Canberra or beyond circles of self-proclaimed NDIS economists.

A Four-Layer Model That Sets the Price

The NDIA Disability Cost Model (DCM) 2024–25 breaks every billable support hour ($67.56) into four distinct cost buckets:

1. Labour Costs: Direct wages paid to support workers.
2. On-Costs: Employee entitlements like leave, superannuation, and allowances (excluding Workers' Compensation Insurance [WCI], payroll, or fringe benefit taxes).
3. Operational Overheads: Costs that ensure frontline labour remains productive and compliant, including:
   • Supervisor salaries (includes rostering functions assumed as supervisor responsibilities)
   • Utilisation costs (non-billable hours like participant centric admin, breaks, and training)
   • Workforce casualisation expenses
   • Workers' Compensation Premiums
4. Corporate Overheads: Business administration expenses (HR, finance, quality & risk management, IT, audits).

After deducting these layers, the residual margin calculated by the DCM is just 2%.

Labour Costs and the Perceived "Remainder"

The base wage set by the SCHADS Award (Social & Community Stream Level 2 Pay Point 3 – SACs 2.3) is $35.51/hr. Subtracting this from the unit price leaves an apparent remainder of $32.05/hr. At first glance, this might seem substantial, until reality intervenes.

Reality Check: The Pay-Rate Gap No One Talks About

Under the SCHADS Social & Community Stream, a Level 2 Pay Point 3 worker earns a base of $35.51/hr, rising to $44.39/hr after the mandatory 25% casual loading.

Now, compare this to a leading platform-provider:

• HireUp's advertised casual rate for FY2024-25: $41.13/hr
• $3.26/hr lower than the SCHADS rate assumed by the NDIA's model.

Is HireUp underpaying? Not necessarily. Rather, strategic organisational structuring and carefully selected service offerings allow certain providers to classify support workers under the more affordable Home Care Stream's Disability Classification.

(Note: SIL providers cannot use this classification for support workers in SIL homes - details in an upcoming article.)

We reference HireUp not to single them out but because their wage transparency underscores a broader trend: many providers, especially marketplace apps and a significant portion of providers, remunerate staff under the Home Care Stream rather than the pricier Social & Community Stream embedded in the NDIA's cost model. This discrepancy distorts real labour costs, complicating accurate cross-provider benchmarking.

This topic merits deeper exploration, which we'll cover in a future piece.

On-Costs: Hidden but Significant

On-costs represent additional employee entitlements calculated as percentages of the base salary:

• Permanent employee leave entitlements: approximately 22%
• Casual loading: 25%
• Superannuation: 11.5%
• Allowances (excluding broken shifts): 1%

This results in minimum on-costs of:

• Permanent employees: 36.91% ($13.11/hr)
• Casual employees: 40.5% ($14.38/hr)

The casual workforce incurs an additional 3.32% direct on-cost translating to an extra $1.18 per hour (equivalent to 1.75% of the unit price of $67.56). This seemingly small increase significantly affects profitability, particularly for mid-sized NDIS providers heavily reliant on casual staffing. This scenario is especially pronounced among providers primarily offering social and community participation supports, where casual staff frequently constitute 60% or more of their workforce, rapidly escalating actual labour costs.

For calculation simplicity, the NDIA's standard assumption of a 70% permanent and 30% casual workforce mix is used throughout.

Operational Overheads: The Hidden Cost Engine

Operational overheads, allocated at $10.53/hr (15.6% of the price cap), encompass:

Workers' Compensation Insurance Premiums (WCI): Although directly calculated as a percentage of cumulative labour costs and their associated on-costs, WCI premiums sit within operational overheads. With a modest 2.5% WCI premium, the weighted cost of WCI supervision per billable service hour equates to approximately $1.24.

Note: Previously, WCI was categorised under direct on-costs within the DCM but has been repositioned from FY22 onwards.

Supervision Costs: The DCM assumes a supervisor base wage of $38.42/hr (SCHADS SACs Level 3.2), amounting to just under $76,000 pre-tax annually. The total cost to the organisation, inclusive of direct on-costs, rises significantly to $55.02/hr. Consequently, to merely break even at the allocated supervision budget of $4.85/hr per billable service hour, each supervisor must oversee at least 431.14 billable hours per week. (In reality, an experienced supervisor typically commands a base salary exceeding $82,000 annually, further increasing the supervision workload required.)

Casual Workforce Impact: The seemingly minor 3.3% differential between casual loading and permanent leave entitlements significantly erodes margins at scale. The higher the casualisation of the workforce, the greater the negative impact on the provider's bottom line.

Utilisation Costs: The DCM optimistically assumes a 92% utilisation rate - meaning for every 92 hours billed, the provider pays the support worker for 100 hours allocating $4.43/hr to cover non-billable activities such as travel, participant-centric administration, paid breaks, training, and miscellaneous costs (including broken-shift allowances, not explicitly accounted for in the DCM). Realistically, providers, particularly those supporting participants with high or complex needs or requiring frequent participant-specific training (capped at 6 shadow shifts per participant annually), face significantly lower actual utilisation rates, substantially inflating true utilisation costs.

Corporate Overheads & Margin: The Narrowest Slice

Corporate overheads cover essential functions for sustainability, compliance, and growth:

• Human Resources: Recruitment, retention, compliance
• Finance & Payroll: Budgeting, invoicing, audits
• Quality, Compliance & Risk Management: Regulatory standards adherence
• Information Technology: Infrastructure, cybersecurity, software licensing
• Governance & Administration: Strategic oversight, legal consultation

The NDIA's Disability Cost Model 2024–25 provides $7.11/hr (10.5% of the unit price) to cover all corporate overheads. Yet any experienced CFO or CEO will confirm this barely scratches the surface of actual corporate costs, especially considering growing cybersecurity threats, escalating compliance requirements, and administrative pressures. Excess costs inevitably consume the already meagre 2% margin.

Note: The corporate overhead allowance excludes marketing costs; every ad, referral bonus, or business development expense must be carved from your 2% margin or offset elsewhere.

The Mirage Margin: Felt but Never Realised

At first glance, the NDIA's calculations appear straightforward:

• Base wage: $35.51/hr
• Direct on-costs: $13.11/hr
• Operational overheads: $10.53/hr
• Corporate overheads: $7.11/hr

These combined costs suggest a theoretical margin of approximately $1.32/hr.

However, a realistic and nuanced recalculation paints a far less optimistic picture. When explicitly factoring in Workers' Compensation Insurance premiums at approximately 2.5% (previously included within operational overheads), the true distribution of costs per serviceable hour becomes clear:

• Weighted Labour Costs (including all direct on-costs and WCI): rise to approximately $50.29/hr (74.4%)
• Operational Overheads (excluding WCI): reduced to approximately $9.29/hr (13.7%)
• Corporate Overheads: remain fixed at $7.11/hr (10.5%)

Consequently, the actual residual margin dramatically shrinks to merely $0.87 per billable hour, equating to a razor-thin margin of just 1.29% and that represents a best-case scenario.

The Casual Serviceable Hour Caveat:

When examining service hours delivered exclusively by casual employees at Social and Community Stream Level 2 Pay Point 3, the margin nearly disappears entirely:

Calculation:

• Unit Price: $67.56
• Casual loading (25%): $35.51 × 1.25 = $44.39
• One-percent allowance: $44.39 + $0.36 = $44.75
• Superannuation (11.5%): $44.75 × 1.115 = $49.89
• Overheads: $49.89 + $10.53 (operational) + $7.11 (corporate) = $67.53
• Remainder: $67.56 – $67.53 = $0.03 (after rounding up)

Bottom line: After accounting for casual loading, allowances, superannuation, and all overheads, providers are left with just three cents per hour effectively breaking even.

Providers must understand that every dollar spent comes directly out of the margin or from one of the cost buckets above and removing any element can lead to serious operational and financial consequences.

The Chain Reaction: When Margins Shrink

A margin hovering near zero doesn't simply jeopardise profits - it threatens flexibility, resilience, and participants' quality of care. Shrinking margins result in:

• Reduced Quality of Care: Less supervision means higher incident rates and poorer participant outcomes.
• Staff Burnout: Overwhelmed supervisors and frontline workers lead to turnover, increased recruitment expenses, and loss of expertise.
• Financial Instability: With slim margins, even minor fluctuations in utilisation, wages, or unexpected costs (NDIA payment delays, workers' compensation spikes, wage adjustments) can trigger severe cash-flow crises or insolvency.

In short, a thin margin isn't just inconvenient - it's an existential threat.

A Hint of What's Next: Introducing "The Last Lever"

Most NDIA cost-model assumptions base wages, utilisation, supervisor costs are relatively fixed by market and regulatory conditions. So, is there anything providers can influence?

Yes, but it's often overlooked. We call it "The Last Lever": where strategically thinking NDIS providers regain financial control and secure sustainable margins. Our upcoming articles will reveal precisely how you can leverage this and other smaller levers to stabilise and grow your margins.

Want to See Your Numbers Clearly?

Curious how close your organisation is to the margin cliff-edge? We've built a fully configurable, transparent NDIS Disability Cost Model calculator pre-loaded with NDIA assumptions but easily adjustable for real-world scenarios.

About the Author

Parth Patel

Parth is a Senior Consultant at Stratex Consulting Services, specializing in NDIS provider operations and financial sustainability.