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Headache for bosses

12th May 1994, Page 49
12th May 1994
Page 49
Page 49, 12th May 1994 — Headache for bosses
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Truck operators could be hit hard by new legislation which will force companies to pick up the full cost of employee sick pay.

New controversial legislation governing the payment of sickness benefit to absent employees introduced in April 1994 ooks set to increase the financial pressures faced by companies.

The new rules on statutory sick pay, passed in February, mean most employers will now he responsible for the full costs of employee sick pay, whereas before the Government picked up the bill for BO% of payments.

The Government hopes the changes will give employers a greater incentive to staunch the flow of British workers taking sick leave. At present, Britain has the second highest rate of sick leave in the European Union.

Contributions

Following the legislation, employers who pay out more than £20,000 a year in National Insurance Contributions will receive no Government assistance in the provision of sick pay. This extra financial burden will be eased by reductions in the rates of NICs, which will also offset future costs imposed by statutory maternity pay, according to the Government.

Employers with smaller workforces, who pay less than £20,000 a year in NICs, will receive no sick pay compensation for the first four weeks an employee is off sick, during which time the business will have to provide full sick pay. After four weeks the Government will step in to pay full sickness benefit.

This is, at best, mixed news for small businesses. Previously the Government provided assistance for companies which paid less than 116,000 a year in NICs, which means that more businesses now qualify for state aid. However, before the new legislation, employers were responsible for 20% of the statutory sick pay costs for the first six weeks of absence, whereas now they have to provide 100% for the first four weeks.

Peter Lilley, Secretary of State for Social Security, defends the changes by pointing out that the NIC reduc. tions will more than compensate companies. The main rate of employ. ers' NICs was reduced by 0.2% from April, while the lower rates of employers' contributions will be reduced by 1%. These changes are intended to save £830 million in 1994-95, rising to £1 billion by 199697.

During the second reading of the bill LiIley stressed the overall financial benefits of the changes for small businesses: "Small employers usually have lower rates of sickness and absenteeism than larger companies, so they will be net beneficiaries from the change. There may be odd weeks when they suffer because a large number of staff are off sick, but they will be gaining throughout the rest of the year."

The Federation of Small Businesses, which opposed the legislation from the outset, is critical of the new sick pay requirements. Stephen Alambritis, parliamentary officer for the 50,000-strong federation, says: "Making small businesses solely responsible for statutory sick pay for the first four weeks will cause trouble to employers with cash flow problems. If a small company suffers from several lengthy staff absences at the same time due to sickness, the effect could prove devastating."

Alambritis argues that the impact of the new responsibilities on small employers would result in less labour intensive companies, with employers hiring more of their relatives and spouses to cut statutory corners.

The Federation of Small Businesses believes that while the changes might prove beneficial to large companies, employers with a small workforce will be hard hit. "A large company can absorb the costs of a number of its employees being absent through sickness, but for a small employer, even having two or three people off work can mean that 50% of the workforce is out of action, and these people have to be paid for," says Alambritis.

The federation also dismisses the Government's argument that the changes will provide an incentive for small companies to cut absenteeism.

While large businesses may benefit from such a spur, the relationship between employers and employees is very different in small businesses.

The Confederation of British Industry gave its tacit support to the changes after the Government announced the reductions in NICs. However, the CBI fears that small businesses could struggle with the new requirements. Susan Anderson, head of the CBI's benefits department, supports any future legislative change which would take into account the costs and impact of sick leave on small businesses, rather than just the length of time an employee is absent.

Cash flow

The TUC is concerned that the financial burden on employers, particularly those with short-term cash flow problems, will lead to job losses or avoidance of sick leave payments. A TUC spokesman says: "Established occupational sick pay schemes are threatened, and workers in the lowest paid jobs could lose out on support during sickness altogether. Individual businesses and individual workers should not have to pay for unforeseen illness."

The CBI has expressed concern that the legislation is part of a "disturbing trend" towards shifting social costs on to employers which would "impose costs on the employers which would be partly hidden and would damage competitiveness."

Employers may try to reduce their sick pay bills by avoiding payments or, as the National Association of Citizens Advice Bureaux suggests, by refraining from "recruiting people who are more likely to require time off work due to illness."

One of the failings of the previous system was the large number of errors in payments and claims from employers. Anderson suggests that the Statutory Sick Pay system is complicated and that companies should be allowed to opt out if they can offer an alternative sick pay scheme.

H by Tim Lawrence


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