Sleep-in pay crisis: should you join HMRC’s new Social Care Compliance Scheme?

This is the Government's second intervention in the sleep-in crisis. In July 2017 it waived HMRC penalties (200% of the amount owed to workers, up to a maximum of £20,000 per worker) for non-compliance with the National Minimum Wage prior to 26 July 2017.

Why has the SCCS been introduced?

The Scheme has been introduced as means of encouraging providers to refund workers for any underpayments relating to sleep-in shifts.

A lack of clarity in the law, misleading HMRC guidance, and insufficient funding from local authorities has resulted in an industry wide practice of paying low flat fees for sleep-in shifts on the basis that they are not 'working time' for National Minimum Wage purposes.

However, in a recent ruling against Mencap the Employment Appeal Tribunal confirmed that sleep-in shifts are subject to the National Minimum Wage. As a result it has been estimated that there is £400 million of liability in the sector.

SCCS - what do you need to know?

• Joining the SCCS is voluntary.
• You can opt-in any time before 31 December 2018.
• You must return a declaration of non-compliance to HMRC within 12 months, or by 31 December (whichever is sooner).
• You will have a further 3 months, or until 31 March 2019 (whichever is sooner), to repay staff.
• You will also have to pay income tax and National Insurance contributions on the unpaid wages.
• HMRC's normal enforcement procedures (200% penalties and 'naming and shaming') will not apply if you opt-in.

We expect self assessment to be over a six-year period, but the guidance does not confirm this or clearly state when that period starts or ends. HMRC has admitted that its guidance prior to February 2015 was misleading (it said that time asleep didn't count for NMW purposes), so you may want to challenge any requirement to refund workers prior to that time.

Should you opt-in?

It is crucial that your decision on whether to opt-in to the Scheme is made as part of a broader strategy on how you intend to assess and manage your sleep-in liability.

There are a number of factors which may influence your decision, but expert legal advice should be sought to ensure you make the right decision for your business:

• whether you are non-compliant (the rules are complex so obtain advice)
• whether HMRC already know about your non-compliance
• the possibility of future financial support from the Government, although this may be unlikely
• the extent of your liability and whether you have sufficient reserves to pay it
• the fact that there is considerable uncertainty over how the Scheme will work and how underpayments will be calculated
• whether you would prefer repaying workers in a managed and planned way under the Scheme
• whether you are willing to take a punt that you won't be inspected by HMRC, with the risk of HMRC enforcement action if you are
• whether you are planning to sell your 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, which is due to be heard in March 2018.

Many of our clients are waiting for more clarity about the Scheme, and in particular how liability will be calculated, 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.

What is the solution?

The SCCS is not the solution to the sleep-in pay crisis. To avoid the risk of mass insolvencies and to maintain the viability of the sector the following urgent action is required:

• Financial support from central or local government to fund back pay liabilities. We are aware that some local authorities have set aside funds – has yours?
• Amend National Minimum Wage legislation so that sleep-in shifts are treated as 'unmeasured time' and only the time spent awake and working is subject to the National Minimum Wage (as with live-in care).
• Local authorities must increase sleep-in rates or face Judicial review actions. Our research with the Care Association Alliance (an association of over 30 regional care associations) has identified that some authorities continue to pay as little as £30 per sleep-in shift, in breach of the Care Act.

We can help

We are able to advise on your strategy for compliance with the National Minimum Wage; managing historic non-compliance; whether you should join the SCCS; and on the potential for Judicial Review action.