Statutory Sick Pay – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Author: Work and Pensions Committee

Related inquiry: Statutory Sick Pay

Date Published: 28 March 2024

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Summary

The UK is experiencing relatively high rates of sickness absence and ill health, including high rates of mental health problems among young people, and there is growing concern about levels of ill health-related economic inactivity. Whilst this has prompted much debate about what the Government can do to reduce rates of ill health in the workplace, an issue that has received less attention is access to sick pay. The majority of workers benefit from occupational sick pay (OSP) provided voluntarily by employers, but a significant minority rely only on Statutory Sick Pay (SSP), which is less generous than OSP, and some are not entitled even to SSP. The cost of paying SSP is borne entirely by employers, but to qualify a worker must be classed as an employee and earn above the lower earnings limit (LEL). Even then, SSP is not paid for the first three days of sickness absence.

Successive Governments have consulted on the need to reform SSP, in response to criticisms that the rate is too low and too many people are excluded, either because they do not earn enough, or because their period of sickness absence lasts fewer than four days. In 2019, the then Government proposed removing the LEL and making SSP more flexible to enable employees to receive a combination of SSP and their usual wages and so facilitate phased returns to work. In 2021, the next Government decided not to make any changes, on the grounds that the Covid-19 pandemic was the wrong time to introduce reforms that would have placed immediate additional costs on businesses, many of which were already struggling to survive. We launched our inquiry in November 2023 to explore whether the time had arrived to reconsider and make reforms that many organisations were calling for.

We conclude that SSP does not provide adequate support for those who most need protecting from financial hardship during periods of sickness absence. In particular, we raise concerns about the SSP rate and the LEL. We find that the former is too low and suggest that a modest increase to the SSP rate in line with Statutory Maternity Pay would strike a reasonable balance between providing additional financial support to sick workers and not placing excessive extra costs on businesses. We also conclude that all employees, not just those earning above the LEL, should be entitled to SSP.

Despite having heard concerns about the impact of the three-day waiting period, we believe that removing the waiting days would have the most unpredictable consequences of all the proposed reforms, since it could result in significant behavioural change by employees. In particular, there is no way of knowing whether removing the waiting days would increase or decrease sickness absence rates. We consequently recommend that the Government retain the waiting days.

We understand why the Government decided that the Covid-19 pandemic was the wrong time to introduce changes to SSP, as they would obviously have placed immediate additional costs on employers. We conclude, however, that this argument is now less valid. Given how many employers permit phased returns where they can, as part of their own occupational sick pay arrangements, we can only assume they find them a useful tool in supporting employees back to work. The evidence is clear that phased returns increase the chances of people making a full return to work. We recommend that the Government amend legislation to enable SSP to be paid in combination with usual wages. This could also allow people with fluctuating health conditions to reduce their hours periodically in order to manage their conditions better, where this is in the interests of both them and their employer.

A central part of many of the arguments in favour of reforming SSP is that, despite the direct additional costs to employers, it would ultimately result in a net benefit to business, as it would result in lower levels of sickness absence and presenteeism and incentivise employers to manage sickness in the workplace better. We find that the overall impact on business of reforming SSP is difficult to predict but that, even if it did not result in the kind of net benefits some have predicted, larger businesses would be able to absorb the costs of the modest reforms we have recommended. For smaller businesses, however, a rebate of SSP costs would have to be an essential component of any set of reforms, and could itself help to reduce rates of sickness absence if it was made conditional on businesses demonstrating better sickness absence management. Accordingly, we urge the Government to consult small and medium-sized businesses on the design of a small business rebate for SSP to be introduced alongside our other proposed reforms.

Far too many people lack a financial safety net during periods of ill health as a result of being self-employed. We recognise that self-employed people cannot be made eligible for SSP, but we strongly believe that the Government must do more to ensure they are no worse off financially during periods of sickness than employees on SSP. We therefore conclude that the Government should establish a contributory sick pay scheme for self-employed people to provide them with the same level of income protection as would be available under SSP.