The Double Squeeze

The Double Squeeze: Why the Math Is About to Break for Every Supported Employment Provider in Australia

Two forces are closing in on disability employment providers simultaneously. Most Boards are only watching one of them.

PRESSURE FROM BELOW: Wages Going Up

The Disability Royal Commission has recommended ending subminimum wages by 2034.

The sector is split on the remedy with some advocating for a social wage where the DSP is included in the wage calculation and others advocating for a wage offset model that progressively moves supported employees to minimum wage.

Even with government subsidising the gap, employer costs increase:

· Superannuation on higher wages

· Workers compensation on higher wages

· Implementation and transition costs

· Productivity impacts during change

· Conservative modelling: 15-25% increase in total compensation costs.

PRESSURE FROM ABOVE:Revenue Going Down

Recently, National Cabinet cut NDIS cost growth targets from 8% to 5-6%. With wage inflation running at 4-5%, that’s effectively flat revenue.We’re already tracking pricing decreases in certain disability service categories. More are coming.Conservative modelling: 0-3% revenue growth against 4-6% cost inflation.

THE SQUEEZE IN NUMBERS

Take a $10M supported employment provider operating today:

Current position:

Revenue:$10M

Overhead:$2.8M (28% - sector average)

NDIS overhead allowance:$1.2M (12%)

Overhead gap:$1.6M annually

Already losing money:Most likely

FY27 projection (flat pricing + wage pressure):

Revenue:$10.2M (+1% NDIS growth)

Wage costs:Up 15-20%

Overhead:Still 28% (hasn’t magically fixed itself)

Operating result:Significantly worse

The math: Costs rising 4-6%. Revenue rising 0-3%. Overhead gap widening.

DRC costs loading. This isn’t a margin compression story. It’s a viability story.

THE THIRD PRESSURE NOBODY TALKS ABOUT

While wages go up and revenue goes flat, there’s a third force:

The overhead crisis that was already there. NDIS funds 12% for corporate overhead. Reality costs 20-30%. That’s an 8-18 point gap already killing providers. The double squeeze doesn’t create the overhead crisis. It makes the overhead crisis fatal.

WHAT THE NUMBERS TELL US

From 2IG’s database of Australian supported employment providers:

· 73% reporting margin compression right now

· 58% projecting losses in FY26

· 34% actively exploring merger or acquisition

· 12% considering exit from market entirely

These numbers are from conversations 2IG has had with providers across Australia. This isn’t modelling. This is what’s actually happening.

THE WINDOW

Organizations that understand the double squeeze and act now have options:

· Transform to commercially viable social enterprise models

· Pursue strategic merger while still attractive

· Implement shared services to slash the overhead gap

· Seek capital investment to fund transformation

Organizations that don’t see it coming will find themselves making desperate decisions in 12-18 months when cash runs out and options have narrowed. The double squeeze isn’t coming.It’s here.

What’s your Board’s response?

2IG has built the only comprehensive database of Australian supported employment providers. We’ve interviewed 80% of the sector. We know what’s happening, what’s coming, and what works.

If your Board needs a confidential briefing on your organization’s specific exposure tothe double squeeze, let’s talk.