Employers of sleep-in employees penalised

Elderly woman with her carer
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Employees who are permitted to sleep while working must be paid the national minimum wage (NMW) for all working hours, including time on “sleep-in” shifts.

Social care workers may undertake sleep-in shifts while carrying out their duties. Social care providers had understood from the NMW guidance pre-2015 that a flat rate could be paid for sleep-ins, as the employee was not working.

A re-interpretation of the NMW regulations has led HMRC compliance teams to revisit the social care sector, and require that all sleep-in hours are paid at NMW rates as the individual cannot leave the premises and as such is ‘working’.

Pay arrears

Many care providers moved to remunerate sleep-ins at the NMW rates from April 2017, and received local authority/personal funding to accommodate this.

However, six years of NMW arrears for sleep-ins were not funded by local authorities at the NMW rates, and the care providers now have to pay these amounts to their employees, and cannot recover the costs.

The charity Mencap is one of the large care providers who have mounted a legal challenge to the funding of arrears. Their pay arrears bill alone is £20m, with the care sector due to pay £400m in total – an amount which is expected to lead to many organisations becoming insolvent.

The Mencap appeal against the decision that arrears must be funded by them was heard at the Court of Appeal in March 2018, but the decision has not yet been published. Despite this uncertainty about the legality of the pay arrears, HMRC has started to write to employers about the implementation of their Social Care Compliance Scheme (SCCS).


On 1 November 2017, HMRC launched the SCCS whereby employers who had not paid for sleep-in shifts at the appropriate NMW hourly rate could opt-in to the scheme and limit non-payment penalties plus avoid naming and shaming.

Those who don’t join the SCCS will face penalties for any non-payment periods from 26 July 2017 and will be named and shamed if those penalties exceed £100.  HMRC‘s policy on NMW compliance covers the SCCS at section 3.10.

The SCCS covers all social care employers from individuals employing their own carer to large social care businesses.  It is understood around 650 employers have joined the scheme, which gives them a year to work with HMRC to identify any pay arrears, then agree to make the payments within a three-month period once agreement is reached on the arrears due.

However, all pay arrears must be paid by 31 March 2019 regardless of when an employer joins the SCCS. The contact from HMRC will explain to employers who have registered for the SCCS how the arrears are to be reported for tax and NI purposes, and crucially the impact on pension contributions.

Different tax and NI treatment

The pay arrears are treated differently for income tax and NIC:

  • For tax the liability on a payment of arrears arises in the tax year that the employee was originally entitled to be paid.

  • For NICs the liability will depend entirely upon the period when earnings are paid rather than earned.

Alternative PAYE Arrangement

To simplify the tax calculations and reporting of the tax on pay arrears HMRC has established an Alternative PAYE Arrangement (APA).

The APA for SCCS participants, allows employers to calculate tax at 20% on the arrears, for 2017/18 and any earlier years. This is done without reference to the employee’s allowances or tax code for the years concerned. The employer should report this on a spreadsheet, rather than accurately reporting (or attempting to report!) the arrears via an earlier year update (EYU) under RTI.

Given the unpredictability of the EYU process and coupled with the fact that many payroll software products don’t support it so has to be accessed via Basic PAYE tools, it makes absolute sense for SCCS participants to use the APA.

Employers who choose not to use the APA should understand that the submission of any EYU will lead to the charging of interest on the underpayment of PAYE.

How to pay the tax

HMRC will issue employers who participate in the SCCS with a specific reference number for payment purposes. That number should be attached to the payment of the PAYE on pay arrears made to HMRC, so the amount can be matched to the appropriate spreadsheet submitted by the employer.

NI complications

Adjustments to NIC’able pay (but not taxable pay) and the ensuing employer and employee NI contributions must be reported on a full payment submission (FPS) at the point that the arrears are paid.

As this is pay subject to employer’s NI, it also attracts the apprenticeship levy, which must be reported on Employer Payment Summary (EPS) in the same month. Student loan deductions will also be triggered.

Ex-employees who are being set up on the payroll system simply for the purpose of reporting NIC’able pay should be allocated the NI table letter that is appropriate to their current personal circumstances. Those individuals should be allocated tax code NT even though this is regarded as a payment after leaving that would normally trigger tax code 0T/1.

Pension problems

The information pack issued by HMRC includes a template letter explaining to employees about the payment of pay arrears and guidance from the Pension Regulator.

This is the first time that a large pay arrears exercise has taken place since auto-enrolment started to be introduced from 2012.  This requires employers to consider if the employee would have been an eligible jobholder if the NMW arrears had been paid at the appropriate time.

For those employees who were pension scheme members anyway, what adjustments to the employer and employee pension contributions might need to be made for every pay period for the last six years!  For individual care and support employers this could even mean establishing a pension scheme for the first time.

Complex solution

It’s fair to say that the auto-enrolment implications of these NMW arrears are incredibly complex. This is particularly the case as the arrears are payable to ex-employees and to current employees who are no longer pension scheme members.

The Pensions Regulator has made one concession, that pension contributions on any sleep-in arrears can be paid at the rates in place at the time the monies should have been paid, not at the current contribution rates. There won’t be pension tax relief available for contributions for ex-employees, unless they happen to be with the same pension provider at their new employer, as they were at when working for the employer who is paying them the sleep-in pay arrears.

About Kate Upcraft

Kate is a technical writer, editor and lecturer on all aspects of employing people - primarily payroll and HR matters.


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By mrme89
03rd May 2018 19:43

It isn’t really sleep. They wake up at every sound to ensure that their ‘service user’ is ok. They wake up every time their ‘service user’ needs any sort of help.

These workers may get a bit of sleep, but it is not comparable to a full nights sleep in their own bed.

Thanks (2)
04th May 2018 08:05

The law maybe right but what will they do for the poor souls who are left with no carers because their employers have gone bust? As usual the only winners seem to be those involved in the legal system and I expect this to be bounced back and forwards in appeal courts to maximise the amount this industry can leach off a system that's meant to protect the vulnerable. Sickening.

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to rememberscarborough
04th May 2018 09:32

Maybe I'm in a minority, but I've worked on quite a few care providers (nursing homes, home care, agencies), and I've yet to see one that isn't making a very tidy profit, whilst most of their workers toil on NMW.

I'm sure they can afford to pay their employees the meager amount that is the NMW for ALL the work they do. It shouldn't eat into their profits too much.

Thanks (2)
to KevinMcC
09th May 2018 17:40

I actually own a care home. We are not all profiteering bastards. Profits goes back to the residents needs. I have not seen a small care home earning good money. At the moment time is very hard in the care industry. We all want to pay workers what they deserve, but services users families are not willing to pay and the council are in a hard up to pay the right amount of fees to cover all expenses. You do not know how much we spend on compliance but someone has to be there to care for the elderly suffering various illnesses. You do not know what it is like to run a care home. I am also an accountant, who do not desere high fees that clients pays, but client pay large accountancy fees but they will not pay care home fees for thier elderly parents. They moan.

Thanks (2)
07th May 2018 08:17

They are been asked up pay up for pretty lousy behaviour towards employees.

No sympathy they knew what there were doing. If they go out of business then someone else will take over.

Obviously they we're not that caring in first place to treat their staff that way. So you could argue they are not fit to care for the elderly.

Thanks (0)
09th May 2018 09:58

The solution, as usual, has become incredibly needlessly complex with every interested party sticking their oar in and muddying the waters.

It could have been very simply dealt with.

Thanks (0)
09th May 2018 11:06

I completely agree this time should be paid as NMW going forward but to backdate this??

There are many charities out there providing welfare and social services funded either through government grants and contracts or donations that will be hit by this.

A respite centre for disabled children that was run by a charity I use to work for will have this exact issue as they use to have some staff awake checking in, but other staff who slept in and were there in case they were needed. When the staff were on a sleeping shift they did not get NMW.

I also believe many of these staff were low paid workers so would of likely been receiving other benefits such as working and child tax credits. How is a backdated payment like this going to affect them? I can see some employees suddenly having to pay back all their child tax credits because a backdated payment for no where near as much, but now putting them over the amount they could earn.

If better guidance could not be issued in the first place to allow multiple organisations to be able to do this correctly in the first place, then this should not be backdated in such away.

Thanks (5)
09th May 2018 11:21

" has made one concession, that pension contributions on any sleep-in arrears can be paid at the rates in place at the time the monies should have been paid, not at the current contribution rates."

I don't see why that is regarded as a concession, that is what they were entitled to.

Thanks (2)
09th May 2018 13:41

It's a travesty that charities and those that employ their own carers direct are not exempt from this about turn in policy. In fact a far fairer approach would be to say from the date of the ruling the new interpretation will apply, rather than backdating. As usual, it is the private sector that picks up the bill, without ability to recover from local authorities and government.

In my opinion, local authorities should be forced to be the employer and shouldn't pass the buck to agencies. My understanding is that carers get no pay between jobs i.e. when driving from 'employment' with one person on their rota to 'employment' with the next person on their rota and I'm not even sure they get mileage to cover their car costs. It's a disgrace, carers should get a decent hourly rate for the work that even relatives don't want to do.

Thanks (4)
to BryanS1958
10th May 2018 13:09

Mileage and hours for travel depends on the service provider. The charity I worked for paid the staff for travel time and mileage.

We use to plan accordingly to ensure the routes were as efficient as possible for them/us, but we did pay them for it.

The hours for travel may already be included as working time for NMW, might of ben for some time thinking about it.

Thanks (0)
By keithas
to BryanS1958
11th May 2018 01:34

In fact, it is now unlawful for agencies not to pay for travel time. This is not to say that they all adhere to this, and workers on zero hours contracts are afraid to challenge this as they fear losing work.
As a service user, we use an agency that did implement payment for travel time when the ruling came into force. However, they then restricted the travel time between each job to five minutes. When you consider that it is they who allocate jobs and often one job is many miles from the next and there is known traffic congestion between them, this time allowance is simply ludicrous.
For us it means care workers sometimes arrive up to half an hour late and, as Health and Safety require us to have two workers, this is just unworkable.
The whole care system is broken and fiddling around with pay for sleep-ins and travel, while commendable in itself, is like requiring safety standards for the deckchairs on the Titanic.

Thanks (2)
09th May 2018 17:47

None of you has no idea what it is like in the care sector. Try it you may learn. Sitting as an accountant charging large fees and ticking boxes will not give you an idea what it is like to run a care home. Just ry it. You will not pass the first hurdle of registration.
Non of you has the right to cast any comment on this. You have no idea. You are just an accountant like me. We all like to pay more to our hardworking staff. I do not get paid at all. Its hard down here and nobody give a damb.

Thanks (3)
By tedbuck
23rd May 2018 12:38

Many years ago my mother ran a Nursing home for the elderly and infirm, dealing with patients who were suffering from dementia, parkinsons, motor neurone disease and generally all age-related complaints.

Her staff were SRNs and SAENs with a couple of orderlies.

The system worked well and relatives were generally pleased with the care given to their parents even when short term patients came in bedridden and left ambulant and back in control of their lives.

The secret to all this - well trained staff who had been through proper training on the 'shop floor' and who cared for the patients and lack of regulation that enabled the staff to concentrate on care rather than paperwork. Few inspections by H&S and a staff to patient ratio based on sense rather than regulation.

Staff were paid the going rate for their qualifications but were prepared to muck in if something needed doing.

Altogether a straightforward process which worked and provided a profit. It's not difficult to see where the difference to todays situation lies.

Actually, thinking about it, hasn't exactly the same thing happened in our profession. Simple Company Accounts used to be 5 pages or thereabouts and were comprehensible by Joe Public now they are 15 pages plus of unintelligible rubbish which no layman understands but which complies with some FRS dreamt up by a regulatocrat in some ivory tower.

Whom the Gods would destroy...................

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