A guide to the sleep-in pay crisis
Recent changes to how the rates of pay for sleep-in shifts are calculated has caused a crisis in the care sector with an estimated liability of £400m in back pay owed to staff. In this guide, we will explain what the sleep-in pay crisis is and advise on ways to minimise the impact of the ruling.
For particular information, you can jump to one of the topics listed below;
What is the Sleep-in pay crisis?
For years it had been believed that sleep-in shifts were not ‘working time’ for National Minimum Wage purposes and it was industry practice to pay a flat rate of around £30-45 per shift. This was effectively paid as an on-call allowance on the basis that staff were allowed to sleep, and in many cases were rarely, if ever, asked to carry out any duties..
However, a number of Employment Tribunal cases have found that sleep-in shifts are working time and subject to the National Minimum/Living Wage. This was also confirmed by the Employment Appeal Tribunal (EAT) in the recent case against Mencap.
What does the ruling mean for care providers?
The EAT ruling has left providers liable for up to six years of back payments, and income tax and NICs on those payments, which are actively being pursued by HM Revenue and Customs (HMRC).
This unexpected and significant cost will have serious consequences for the financial viability of providers and the sector as a whole.. Some providers face closing their services, deplete their reserves or sell properties to meet the cost. Some providers will be at risk of insolvency.
This comes amid an existing financial crisis in social care, with yearly cuts since 2010 amounting to £6.3 billion and planned savings in 2017/18 of a further £824m. There have been a number of judicial review cases against local authorities whose fees rates don’t even cover the actual cost of providing the care.
Local authorities have paid providers sleep-in rates which are substantially below the National Minimum/Living Wage for many years. Some continue to do so. However, the liabilities rest with the care provider, not the local authority.
In addition to the National Minimum Wage implications, providers also need to review their working arrangements to ensure compliance with the Working Time Regulations. Time spent asleep will also be working time for the purposes of the Regulations and providers may be non-compliant with rights relating to maximum working hours, limitations on night working, and entitlements to rest periods and daily and weekly breaks.
What is the Government doing?
The government has confirmed that HMRC will not impose the usual 200% penalties which are usually payable on top of the 6 year back pay payable to staff for any non-compliance prior to 26 July 2017.
It has also set up a Social Care Compliance Scheme (SCCS). This is a voluntary scheme for providers to join and declare their non-compliance to HMRC. Providers will then have to repay staff the sums owed.
Should providers opt-in to the SCCS?
Care providers need to carefully assess whether to join the Scheme. A decision will need to be made on an individual basis but some of the relevant factors will include:
- whether HMRC already know about non-compliance
- the possibility of future financial support from the Government, although this may be unlikely
- the extent of liability and whether they have sufficient reserves to pay it
- whether they would prefer repaying workers in a managed and planned way under the Scheme
- whether they are willing to take a punt that they won’t be inspected by HMRC, with the risk of HMRC enforcement action if they are
- whether they are planning to sell their care business and want to prioritise a smooth transaction without the need for onerous indemnities
- whether it is worth waiting for the outcome of the Mencap appeal in the hope for a change in the law
Many of our clients are waiting for more clarity about the Scheme, and the outcome of the Mencap appeal, before deciding whether to opt-in. However, some have already received letters from HMRC alleging that they are not compliant and requesting that they opt-in to the Scheme within just 30 days. We have been assessing on a case by case basis how best to deal with these requests.
Are you prepared for the outcome of the Mencap appeal?
The Mencap case was appealed to the Court of Appeal in March and a judgment is expected at the end of May or beginning of June. Providers need to ensure that they have a properly formed strategy for dealing with the implications of the ruling, including:
- appropriate communication of the ruling to staff and how the organisation is dealing with it;
- how to manage queries, complaints and Tribunal claims from current and past staff;
- whether to join the SCCS;
- how to manage the financial liability for historic non-compliance and related tax issues; and
- implementing changes to working and pay arrangements to ensure future compliance.
Legal advice for care providers around sleep-ins
Our specialist Social Care team has been working with care providers since 2014 (after the Whittlestone case first highlighted the issue) to calculate potential sleep-in liability; advise on restructuring pay and working arrangements to become compliant; advising on related HR issues; building strategies for dealing with historic non-compliance and ensuring future compliance; and negotiating with local authorities on sleep-in rates.
James Sage is Head of the Health & Social Care team at Royds Withy King. He specialises in advising care providers on employment law, HMRC investigations and enforcement, safeguarding, and regulatory issues.
The Social Care Team provides expert advice to care providers on CQC registration, compliance, and enforcement; HR and employment law; safeguarding; mental capacity and DOLS; inquests; and buying, selling and developing care businesses. The team is recommended lawyers for the Care Association Alliance and numerous regional care associations.