On 1 November, the Department for Business, Energy and Industrial Strategy (DBEIS) announced a new scheme for employers in the social care sector who may be facing bills for underpayments of the National Minimum Wage (NMW) to workers carrying out sleep-in shifts stretching back over a six year period.
DBEIS say the new Social Care Compliance Scheme (SCCS) is “designed to help ensure workers are paid what they are owed, while also maintaining important services for people who access social care”. So what should social care employers be doing now?
In May 2017, the Employment Appeal Tribunal decided that a care worker employed by the charity MENCAP was working for NMW purposes throughout her sleep-in shift, even when she was asleep. Mencap is appealing and the case is expected to be heard by the Court of Appeal in March 2018.
In the wake of this and other recent cases, many charities have reviewed what they pay to sleep-in staff. For NMW purposes, employers should calculate the average hourly pay received over the relevant pay reference period (e.g. one month for an employee that’s paid monthly).
In our experience, a number of charities find that the average hourly pay that staff have received, for example taking into account rates paid for day shifts, does meet NMW requirements (currently £7.50 for adults aged 25 and over). Where their average hourly pay falls below NMW, many employers have already made changes to ensure that relevant staff will now receive an average of at least the NMW for all the hours they work, including sleep-in shifts.
HMRC enforcement and the new SCCS
The NMW is enforced by HMRC and, where underpayments are uncovered, HMRC can issue a notice of underpayment requiring the employer to repay the arrears of pay to the employee plus a financial penalty to the Secretary of State of 200% of the underpayment (subject to a cap of £20,000 per worker).
HMRC’s NMW enforcement guidance had previously suggested that paying a flat rate for sleep-in shifts (typically around £30) would be acceptable. However, the guidance changed in March 2016 and HMRC started taking enforcement action against some social care providers for failing to include sleep-in shifts in NMW calculations going back over a six year period.
Many social care providers raised serious concerns about the potential impact that this enforcement action might have – liability for back-pay in the care sector alone is estimated to be around £400 million. In response, DBEIS announced a temporary suspension of HMRC enforcement activity in respect of sleep-in shifts in July this year while it consulted with care providers to produce a new scheme that would offer sufficient protection for employers and workers. The suspension was lifted on 1 November 2017 when DBEIS unveiled the SCCS.
The SCCS - what do you need to know?
- The SCCS is a voluntary scheme open to social care employers, although HMRC says it will be writing to employers who currently have a complaint against them to encourage them to sign up
- It is an interim enforcement scheme and the deadline for joining is 31 December 2018
- Employers who join the SCCS will be required to calculate the amount paid to workers – HMRC says it will help employers with this process
- Participating employers will then be required to return a declaration form to HMRC within 12 months (or by 31 December 2018, whichever is sooner) and will be given a further 3 months (or by 31 March 2019, whichever is sooner) to pay workers for any underpayments
If an employer is accepted onto the scheme and declares any underpayment, they will not have to pay the financial penalty (200% of the total underpayment, up to a maximum of £20,000 per worker) and HMRC will not use its powers to publicly name the organisation.
Organisations that choose not to sign up will be subject to HMRC’s normal enforcement approach to NMW. However, following the changes to HMRC enforcement in the social care sector announced in July, any penalties resulting from sleep-in shifts that took place before 26 July 2017 will already be waived so this will only represent a real benefit to charities that have been non-compliant with NMW requirements from July 2017 onwards.
What do you need to consider?
Charities in the social care sector who engage workers on sleep-in shifts will need to think carefully about whether to participate in the SCCS. The decision will need to be taken after considering the particular arrangements and practices in place in each organisation, however, we suggest that trustees consider:
- would HMRC class the charity’s staff as working throughout sleep-in shifts? – the SCCS website suggests that if a worker is required to be present on the premises overnight and their contract doesn’t specify the time they have to work and any period they’re allowed to sleep, HMRC is likely to class them as working throughout. However, charities must bear in mind that the question of when someone is working for NMW purposes is still a grey area and the legal position could change following the Mencap appeal, which is scheduled to be heard in March 2018;
- does the charity already pay NMW to workers carrying out sleep-in shifts? – as outlined above, charities need to calculate the average rate paid to staff for all shifts undertaken in a relevant pay period. Charities that carry out this calculation may find that they are already complying with NMW requirement in respect of some or all of their staff.
- if there is a risk that staff have been underpaid, what period will HMRC take into consideration? – information published by HMRC to date does not confirm the back-pay period that will be taken into account when assessing liability under the SCCS. Under its normal enforcement powers, HMRC can look back over a six-year period but we hear anecdotally that shorter periods have been agreed with HMRC in the past on a case by case basis. It is unclear whether HMRC would be prepared to exercise any such discretion in respect of employers who sign up to the SCCS.
- when to sign-up? – it is also unclear whether all SCCS participants will be required to calculate their arrears from a set date or whether the calculation will be based on the date of sign up to the SCCS. In the latter scenario, there may be a benefit to delaying sign-up until the December 2018 deadline for charities that have already made changes to their pay arrangements. For example, a charity that had once been non-compliant but which made changes to its sleep-in pay in January 2016 will find that its potential arrears will reduce with each passing pay period.
Organisations in the social care sector will need to think carefully about whether voluntary participation in the SCCS is likely to offer any benefit to the organisation. If the decision is taken not to sign up, charities that have identified a potential back-pay liability should consider setting aside funds in reserve, where possible, to cover potential enforcement action.