Residential care homes - a spotlight on employment and staffing issues

29 January 2020

The residential care sector continues to present both opportunities and challenges for lenders. We discuss common issues we face in the sector over a series of three articles.

In this blog, we focus on staffing and employment issues in addition to the staff cost impact of the increase in minimum and national living wage highlighted in our previous blog post.

Staff shortages

Nursing shortages have been a feature in the sector for some time, driven, at least in part, by the Government’s decision to scrap bursaries for nursing students in favour of student loans. The Royal College of Nursing has indicated that nursing degree applications are down 30 per cent since the bursaries were axed in 2017.

Brexit is a recurring theme in many sectors, but with approximately 5 per cent (c.80,000) of the social care workforce hailing from the European Economic Area (EEA), these workers have a critical role in the care sector. The ongoing uncertainty with regards to the nature of the UK’s withdrawal from the EU is likely to impact existing workers’ decision to stay in the UK and the decision of EEA nationals considering moving to the UK in the future. This could have significant implications for the sector.

Sleep-in costs

During 2016 an employment tribunal ruled that overnight care workers were entitled to be paid at least the minimum wage rather than a flat fee as typically paid in the sector. This was subsequently upheld in an employment appeal tribunal in 2017. The employment tribunal decision was appealed by the charity Mencap which feared the financial implications of having to back pay workers for sleep-in shifts. In July 2018, the Court of Appeal overturned the decision.

In February 2019 the Supreme Court granted permission for Unison to appeal a Court of Appeal decision, with a date in February 2020 set for the hearing.

This latest appeal creates further uncertainty for operators. There is also the threat of both further increases in ongoing employment costs as well as a potentially sizeable back pay bill which will need funding should the appeal be successful.

Contractors and IR35

There have been several high-profile cases that have resulted in contractors being defined as employees and they’re entitled to great benefits and protection. This could increase employment costs for operators.

Whilst in our experience contractors are not always a feature of the sector (most staff are either contracted or agency staff), operators should ensure suitable contracts are agreed at the outset of the working arrangements. They must also reflect actual working practices within the business and be aware of additional liabilities that may arise as a result of the roll-out of IR35 to the private sector.

For more information, please contact one of our restructuring advisory experts.