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HMRC’s Social Care Compliance Scheme for sleep-ins
Plastering over the cracks or setting new foundations?

With the sleep-ins crisis hitting the headlines on a weekly basis, Lloyd Clarke summarises the HMRC Social Care Compliance Scheme and whether providers should opt in, or wait until the law is settled on the subject.

Having previously waived financial penalties for employers found to have underpaid their staff and delayed their new enforcement approach for several months, on 1st November 2017, the Government finally announced the resumption of National Minimum/Living Wage (NMW) enforcement and, perhaps more importantly, the introduction of a new Social Care Compliance Scheme (SCCS).

The SCCS was introduced on the back of the recent joint appeal of three separate appeal cases dealing with the issue of sleep-ins, the most notable of which involved Mencap. The case did provide some helpful guidance on sleep-ins by developing a ‘multifactorial test’ to determine whether the NMW should be paid for each hour of a sleep-in shift.

However, in delivering their judgment, the Employment Appeal Tribunal (EAT) were keen to stress that ‘no bright line can be drawn’, with each case turning on its particular facts. It is also important to note that Mencap is due to appeal the EAT’s decision in March 2018 and, therefore, the law here is by no means settled.

Unfortunately, it remained the case that even after the Mencap ruling, confusion amongst social care employers (providers) continued to reign and therefore it was hoped, optimistically perhaps, that the SCCS would provide further clarity and a helping hand to those operating in the sector, particularly with the Government having previously faced accusations that its guidance had not kept up with developing case law.

What is the Social Care Compliance Scheme?

The SCCS is a voluntary scheme, open to providers until 31st December 2018. It is aimed at encouraging providers to reimburse workers for any NMW underpayments related to sleep-in shifts, the practice by which providers pay low flat fees, typically around £30 per shift, to staff who they require to remain present on their or a customer’s premises overnight and during which they are allowed to sleep, only having to wake up and perform any duties if and when required.

An independent sleep-ins survey carried out by VODG, Agenda Consulting and Trowers & Hamlins LLP has revealed that:

  • 99.7% of sleep-in shifts are spent asleep.
  • 95% of all sleep-in shifts are undisturbed.
  • 66% of providers do not currently pay the NMW for sleep-ins.
  • 32% of those providers plan to start paying sleep-ins at the NMW.
  • Nearly 80% of providers pay at or above NMW if a sleep-in is disturbed, the average disturbance lasting a maximum of 30 minutes. 

The SCCS gives participating providers that may have paid workers below NMW a further year to identify any underpayments to workers, supported by advice from HMRC (‘self-review period’).

Where an employer identifies any underpayments once the self-review period is complete, they will then be given a further three months to pay any arrears to the workers concerned. HMRC described the introduction of the SCCS as, ‘a proportionate, time-limited, sector-specific approach which recognises the importance of continued care for vulnerable individuals whilst securing arrears of pay for care workers working sleep-in shifts’. It also argued that it provided social care employers with more time to get their house in order, whilst also allowing them to avoid being ‘named and shamed’ on the Department for Business, Energy and Industrial Strategy’s website or being subject to HMRC’s normal financial penalties tariff (up to 200% of the underpayment or £20k per worker).

Progress with the Social Care Compliance Scheme

Four months on from its introduction, how is SCCS faring? As briefly touched upon above, when the scheme was first introduced it appeared to be an attractive proposition for employers who remained concerned about the complex and muddy landscape that is sleep-in shifts and NMW compliance.

However, soon after the fanfare around its introduction had subsided, concerns were raised about the lack of detail in the supporting guidance. For instance, it remains unclear what support the Government will actually provide in helping employers to pay for any underpayments to staff or how far back in time the scheme may extend, albeit I have set out below my thoughts on the latter.

HMRC also appear to be attempting to oversimplify what is a complex area of law, in spite of the fact that they have already admitted that previous guidance issued by them on the subject was ‘potentially misleading’.

Furthermore, some commentators have said that they see the SCCS as a bullish attempt to place further pressure on an already severely-strained sector, by giving the sector a deadline to settle what some estimate to be a £400m bill, such a sum being even more stark when considered that this is in addition to the further estimated £1.3bn cash injection required to simply keep the social care system afloat.

Should providers opt in?

All of the above begs the question…should providers opt in to the SCCS or not? Although every provider is encouraged at a very early stage to broadly assess their potential exposure, for instance by ascertaining how many sleep-in shifts have been undertaken in the past six years and at what rate they were paid, at present I see little benefit in participating in the SCCS.

Firstly, no provider would want to complete the very significant administrative work of carrying out a self-assessment before the Mencap decision is given in March 2018.

Also, given that a provider can delay opting to self-review until December 2018 (and, therefore, any arrears would potentially go back six years from this date), it would appear to be beneficial for providers to start any self-review as late as possible, assuming that NMW compliance is started now or before December 2018.

Secondly, HMRC can go back six years with respect to underpayments of NMW, albeit there remains a number of reasonable arguments to be made to challenge this period. For instance, the initial case the Government relied upon in enforcing sleep-in NMW compliance was not decided until November 2013 (Whittlestone v BJP Homes Support Limited [2013]). In suggesting that all hours of the shift (even when asleep) count towards the same, it could be argued that providers cannot be expected to go back beyond that point in paying NMW arrears to staff.

In addition, and as a further fall-back position, HMRC has also accepted that guidance issued before February 2015 was potentially misleading (given that it stated that time spent asleep did not count in a typical sleep-in setting) and therefore, again, how can HMRC legitimately enforce the periods before February 2015 against providers?

Nonetheless, it remains the case that a provider would still need to persuade HMRC of such arguments via inspection or the self-review process, and potentially challenge through the courts if ultimately a notice of underpayment is served on them with respect to periods before February 2015.

Government efforts

Ultimately, many providers, particularly smaller ones, remain reluctant to sign up to SCCS in the absence of any funding assurance from the Government, with some commenting that to do so would be akin to ‘writing their own suicide note’. Such a point leads on nicely to the question of what efforts, if any, the Government is making to minimise the impact to providers.

The answer, simply put, is very little at the time of writing.

Back in July 2017, the Government voiced its commitment to seek a solution to the £400m liability hanging over the sector, recognising that it could pose significant challenges to providers and, in extreme circumstances, result in providers being unable to meet their repayment obligations. Such rhetoric was repeated when the SCCS was introduced, with the Government stating that it had opened discussions with the European Commission to determine whether any financial support, if deemed necessary, would be subject to EU State aid rules.

However, as we stand today there remains little indication that such help will be forthcoming any time soon, leaving providers to fend for themselves and attempt to keep their heads above water in the meantime.

As such, the current position regarding arrears for NMW remains largely the same. With no Government intervention on the horizon anytime soon and many providers having neither the reserves nor income in their budget to make provisions for back pay, the liabilities for which run into the tens and, in some cases, hundreds of thousands of pounds, large parts of the social care sector face collapse.

Some providers, in an effort to mitigate further exposure going forward, have resorted to taking the bold step of paying sleep-in shifts above the NMW for every hour, meaning that their margins per hour for such shifts equate to a few pence, again bringing into question the sustainability of the sector as a whole.

Lloyd Clarke is an Associate Solicitor at Attwells Solicitors LLP. Email: Twitter: @Attwells

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