New sick pay rules catastrophic for small businesses

New sick pay rules catastrophic for small businesses say specialis small business accountants Harris & Co. The severe warning has come from Baker Tilly, which says that planned reforms to the statutory sick pay (SSP) regime could sound the death knell for the UK’s smallest companies as they will no longer be able to recover the crippling costs of staff battling long-term illness.

The firm says the abolition of the Percentage Threshold Scheme (PTS) – which enables the employer to recover the SSP paid to employees if payments exceed 13% of the total National Insurance bill for the period – as of 6 April, will have a disproportionate impact on micro businesses which have only a handful of employees.

The abolition of PTS follows a review carried out by Dame Carol Black and David looking at how to reduce sickness absence. Their 2013 report said the scheme ‘reduces incentives to manage absence’.

Senior tax figure and partner at Baker Tilly, David Heaton, said: ‘From April, statutory sick pay will be £87.55 per week, so 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. This is a huge burden for a small business to bear and I fear this will make some businesses uneconomic.’

Heaton cited a recent example of a case concerning a childrens’ nursery with two employees, one of whom is off work and being paid SSP as a result of chemotherapy treatment for cancer. Heaton says the nursery now faces bearing the full cost of paying SSP for the requisite period, as well as covering the cost of hiring an additional member of staff.

Figures from HMRC figures show that about 100,000 employers claim reimbursement through the PTS and the average payment is £500 per annum, per employer.

The total cost of the scheme is estimated to be £50m a year, and HMRC estimates the additional administrative burden costs employers between £2.5m and £5m a year.

In response, the government has said it will recycle the £50m PTS funding into a new Health & Work Service (HWS) to which any worker off on sick leave for more than four weeks must be referred. The HWS will provide occupational health assessment and advice, which HMRC says will be of benefit to employers who currently have no or only limited in-house occupational health services.

While the government has indicated the new service will start in ‘late 2014’, it is to be provided by external contractors and the invitation to tender and specification have only just been published this week.

However Heaton points out that while the HWS will be able to offer physiotherapy to someone who is off work with a shoulder injury, its resources and support for someone with a long-term illness are limited.

‘HWS is of no use to a small company where someone is off because of a serious illness rather than a musculoskeletal problem because there is no intervention that will get them back to work. In future micro businesses could find themselves having to cover the cost of SSP for someone with a serious illness, plus the costs of finding a replacement, and that is potentially catastrophic.’