Side effects of government’s sickness pay U-turn starting to show » SMEInsider

Side effects of government’s sickness pay U-turn starting to show

Statutory Sick Pay (SSP) of up to £87.55 per week is a basic right enjoyed by British employees, but the government’s decision last year to shift responsibility to employers is crippling some businesses.

Sick Pay can be claimed by workers with valid health problems for periods of up to 28 weeks, which poses obvious problems for small and micro businesses. These can be threatened by any drop in productivity, let alone paying an absent worker for over half a year.

To shield small businesses from disaster while protecting the rights of workers, the previous government introduced a rule in 1995 that allowed companies to claim back SSP costs once they exceeded 13% of total National Insurance payments for the period. In effect, this ensured that smaller businesses (for which even one long-term sick employee would mean a serious gap in the workforce) benefitted from the support, while larger companies better able to absorb the costs were unlikely to be eligible.

However, in April last year, the Percentage Threshold Scheme (PTS) was scrapped, leaving small businesses in the lurch.

It’s been a financial disaster for me,” said Pauline Reynolds, who ran a carpet cleaning company, in an interview with the Telegraph. Reynolds had taken on a sole member of staff to help her grow the operation, which she says was turning over just £24,000 per year, but just four months later he went on long term sick leave and she now faces closing the company.

We haven’t had any business coming in since he went off sick. I couldn’t fire him, because he is likely to be disabled and could take me to a tribunal,” she said. “It’s put me out of business. I couldn’t take on someone else because I can’t afford to pay two people, and I have to keep [the] job open by law.”

With changes to SSP posing such onerous requirements for employers, it remains to be seen whether the new rules will discourage small businesses from taking on staff. However, the rapid growth in zero hours contracts, and sharp increases in the number of people registered as self-employed or working on temporary contracts, certainly suggests that small businesses are nervous about committing themselves to the potentially disastrous obligations that come with hiring a new team member.

What’s more, for employees that really do become sick to work, there are few other options than to continue on with a scenario that they know could put their colleagues out of work. Since it’s illegal to fire someone for taking time off sick, and it can be extraordinarily difficult to secure welfare support if you quit your job voluntarily, both small business owners and their employees could quickly find themselves in a catch-22 situation that ends badly for all involved.

The government has pledged to do far more to support SMEs in 2015. They should start by reversing a decision that discourages employment, ruins small businesses and, ultimately, stagnates economic growth.