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State of the Nation

Do You Know About April’s Sick Pay Rule Changes?

By March 12, 2014 No Comments
Do You Know About April’s Sick Pay Rule Changes?

Patient in hospitalA member of staff calls in to say that they’re ill. A few days later, they’re signed off work by the doctor. It’s a frustrating scenario that business owners often have to handle, juggling who will cover the absent person’s work, while also paying them until they return to the workplace.

One consolation is that bosses aren’t left out of pocket under current rules on Statutory Sick Pay, which allow SMEs to reclaim the costs of long-term illness. But many businesses may not be aware that all of that is set to change from April, and some small companies could find themselves very exposed, with some even in danger of closure from the extra costs incurred, experts warn.

The current rules covering employee sickness state:

  • After a worker has been off sick for a period of four consecutive days, by law they could be eligible for Statutory Sick Pay (SSP) if their normal wage is not being paid.
  • Business owners are responsible for paying this official sum of £86.70 a week for up to 28 weeks. Bosses can work out if they have to pay SSP to an employee and how much, using a calculator on HMRC’s website.
  • SMEs can claim SSP back under the Percentage Threshold Scheme (PTS). This allows firms to recoup sickness costs once the payment exceeds 13 per cent of the National Insurance bill for the entire period that the person is absent.

But from April 6 this changes, as the Government introduces reforms abolishing the PTS, a scheme that was designed specifically to protect small companies from obligatory sickness-related costs. Add to this the fact that the rate of SSP is set to increase from April – up to £87.55 – and many smaller employers could find a big hole in their accounts. A member of staff who was off for the full 28 weeks would see a company shelling out more than £2,450 with no recompense under the new system.

The powers that be have done little to advertise the changes, which could have an enormous impact on those running smaller firms. The official line is that the move is in order to motivate business owners to get their staff off their sick bed and back into work. A recent report into managing Britain’s sickness absence by Dame Carol Black and David Frost, the former Director General of the British Chambers of Commerce, suggested that the present system “gives the employer no incentive to reduce absence” because it compensates them for sickness costs.

Of course, most small business owners would scoff at this claim. Anyone running a small enterprise knows the hit an operation can take from the absence of a key figure, not just in terms of money, but also in loss of expertise, contacts, and business continuity, and they’ll do all that they can to encourage their people back into work. Interestingly, Britain’s smaller firms have vastly lower levels of sickness absence than their medium-sized and large peers, just 2.4 days a year per employee on average, compared with the 7.7 day national average, according to the Federation of Small Businesses (FSB). It would seem that when there are fewer people to rely on in a business, most of those individuals recognise the importance of their role, and will do all that they can to keep the commercial wheels turning.

But the genuine expense of all of this can’t be ignored. The FSB estimates that sickness absence costs small firms an average of £1,500 a year, but a good proportion of smaller employers spend more than £5,000. Without the ability to reclaim costs, many firms face potential ruin if they have several employees off sick at the same time. As David Heaton, an employment tax partner for accountant Baker Tilly recently put it: “For some of the smallest (companies) this will be catastrophic and may lead to closure.”

At present, the Department for Work and Pensions (DWP) and HMRC have given no guidance to small firms on how to manage the new changes. A fleeting reference to the abolition of PTS buried in a recent bulletin sent by the Revenue to employers did state that they’ll have until the end of the 2015/16 tax year to recover SSP paid before the end of the present tax year in April. And, on the positive side, part of the changes will include the abolition of statutory sick pay record keeping obligations, meaning that employers will be able to keep records in a way which better suits their organisation and free themselves of some unwanted red tape.

The Government is ploughing the £50 million that it expects to save from the changes into a Health and Work Service that will offer employees who have been off work for more than four weeks occupational health assessments and advice for employee and employer about managing the person back into work. The Organisation for Cooperation and Economic Development recently pointed out that just one in ten SMEs currently uses occupational health services, compared with 80 per cent of bigger firms. So, perhaps one could argue that many small companies could benefit from this outside expertise, which will soon be available to them through the new scheme scheduled to launch later this year.

Whether this different approach works for businesses and individuals when it’s introduced will have to be seen. But in the meantime, the roughly 100,000 smaller employers that claim money back through the existing system every year face a nasty shock in a month’s time. They’d best hope for a healthy workforce.
Image courtesy of Sura Nualpradid / FreeDigitalPhotos.net

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