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The Independent Children's Homes Association (ICHA) survey of around 100 providers found that liabilities surrounding sleep-in pay will potentially drive 10 into insolvency.
The issue stems from an employment appeal tribunal ruling last May that care workers required to sleep in at a service user's home are entitled to be paid the national minimum wage for all hours worked, including the hours spent asleep.
One provider said that they plan to close or sell up as a direct result of the issue.
The findings are revealed in the ICHA's fourth State of the Market survey report, which is based on responses gathered last month.
"Ten providers believe the historical liability generated by retrospective application of the legislation has the potential to drive them out of business altogether, and one provider reports a plan to exit the sector because of the issue," states the ICHA survey report.
Of those surveyed, 35 said they are confident they face no sleep-in pay liability.
But the ICHA report adds: "The issue is complex, and there is potential that providers who have assessed their position may have misinterpreted the published rules. Some replies to the survey questions communicate a misunderstanding of the issue and of the calculations involved."
The ICHA is also concerned that the sleep-in issue is forcing some providers to change their working practices. Responses revealed that these include restricting the number of sleeping-in shifts each member of staff can work.
Respondents told the ICHA that such changes were already harming staff morale and affecting staff retention.
"Changes reported include an increased move towards waking night staff or a restriction on the number of sleeping-in shifts each care worker can take on," states the ICHA survey report.
"These operational level changes have the potential to fundamentally change the practice and ethos of homes, making them less homely, and more institutional."
It adds: "Pressures are also likely to grow as a result of imposing more rigid rules on staff that may previously have worked flexibly. There are early reports of a negative impact on staff morale and retention issues resulting from this issue."
In November, the government launched a compliance scheme for social care providers to ensure they meet their liability to care workers working sleep in shifts. However, providers responding to the latest survey are critical of the way the issue has been handled by the government.
"Owners and managers expressed exasperation at the government's handling of the issues," states the latest survey report.
"Clearly much valuable time and energy of owners and managers of providers has been diverted and lost on the issue, and outcomes are still uncertain, adding to anxiety in the sector."
A separate ICHA survey published last October revealed that the bill providers face for meeting their sleep-in liability ranges from £40,000 to £2m, which includes any taxes on pay.
Providers also revealed that the ongoing cost of paying staff the national minimum wage during sleep-in time ranges from £11,000 to more than £1.4m a year per home.
Earlier this week the chair of the Residential Care Leadership Board Sir Alan Wood said that for the time being reforms of the sector will focus on piloting Staying Close arrangements, for young people to remain supported up to the age of 25, and improving placement commissioning.
By Joe Lepper
13 March 2018