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Sick pay reform could close small businesses

Written by Dara Jegede on Friday, 28 February 2014. Posted in Finance

Abolition of percentage threshold scheme could have detrimental effect on SMEs, warns Baker Tilly

Sick pay reform could close small businesses

Spring 2014 will usher in a number of new employment regulations including increases in statutory maternity and paternity pay; more stringent financial penalties for employers who breach employment rights and an extension of the right to request flexible working to all employees.

Whilst these measures are welcome changes to current HR regulation, Baker Tilly, the accountancy firm has warned that reforms to the statutory sick pay (SSP) system could result in the closure of some small businesses.

Workers are currently paid £86.70 per week in SSP and on top of this the employer has to pay a replacement worker to cover the employee’s absence. Once the SSP exceeds 13% of the total national insurance bill for the period, employers can recover it under the Percentage Threshold Scheme (PTS), which was implemented as a disaster relief scheme for small employers who cannot afford to bear the SSP cost when too many workers are off sick.

However, as from April 6, employers will have to bear the costs of the replacement worker’s wages as well as the SSP and with no right of recovery as the PTS is being abolished.

“If one employee is absent for a long period, the bill will be a maximum of £2,450 for 28 weeks or more of absence," said David Heaton, partner at Baker Tilly Tax. “This is a huge burden for a small business to bear and I fear this will make some businesses uneconomic."

Hopefully it won’t be all loss and no gain for SMEs as the government has hinted at plans to introduce the Health and Work Service, offering free occupational health assistance to employees, employers and GPs, to be funded through the abolition of the PTS. Services will also include an independent assessment of employees who have been off sick for four weeks and support for employers to better manage sickness absence among their workforce.

There's definitely a balance to be struck. On the one hand, we don't want start-ups to be hit with financial burdens, but equally, employees need some decent protection when struck down with illness. We only hope that the right solution is reached. 

About the Author

Dara Jegede

Dara Jegede

Jegede recently left the London School of Journalism having previously embarked on a soul-searching stint in the city of love. That's Paris, by the way.

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