Press Story

A new plan for the government to take more of the risk when a small firm hires someone who has been on long-term sickness could save the taxpayer money and help cut unemployment, according to a new report from the think tank IPPR, published today (Fri).

New rules, which came into force at the start of this month, will increase costs on small businesses if a proportion of their staff go off sick. The new report says the system should be restored so that the government cover over 90 per cent of statutory sick pay (SSP) costs incurred by small firms for those moving off Employment Support Allowance (ESA). By taking liability for those that face substantial barriers to work, the report suggests that the costs of taking on workers with disabilities and long-term health conditions will be substantially reduced, as well as the perceived risk of hiring individuals from ESA.

Recent changes mean the end of SSP recovery via the percentage threshold scheme, which the report suggests is likely to increase the risk of hiring employees with health conditions and/or work-limiting disabilities. This will be particularly acute in smaller firms. The report recommends that SSP recovery should be restored so that it is targeted at those who face the greatest health-related barriers to work.

The report also recommends a new Danish-style insurance scheme to allow small businesses to club together and share the cost of occupational maternity pay. The Danish scheme works by increasing the level of maternity benefits received by employees, but pooling the additional financial risk between all businesses. A recent study commissioned by the DWP found that only 11 per cent of employees in small firms received occupational maternity pay compared to 21 per cent in medium firms and 47 per cent in large businesses.

The report shows that in recent years SMEs and self-employment accounted for over 80 per cent of jobs growth, have played a disproportionate role in supporting individuals from worklessness into employment and have a greater share of disabled, younger and older workers and those with low levels of educational attainment. But the report shows the government does little to incentivise or offer support to small firms in hiring individuals claiming ESA or to move to occupational benefits.

Spencer Thompson, Economic Analyst at IPPR, said:

"If Britain is to get to the vision of full employment recently set out by Chancellor George Osborne, the government needs to do more to help small firms hire people who are suffering from 'structural' unemployment and economic inactivity. While a return to growth might help Britain tackle 'cyclical' unemployment, people with structural barriers to work are more likely to be hired by small firms if the government covers more of the risk of further short spells of sickness.

"Small and medium-sized enterprises have provided a disproportionate source of employment for those that face disadvantage in the labour market. We know that small firms are often unable to afford the extra costs of occupational benefits, but if they were able to club together to share the risk, as they do in Denmark, small firms could better attract talented employees."

The report recommendations also include:

SSP recovery to ESA claimants limited to their first year of employment
SSP recovery be restricted to smaller firms with an annual NICs liability of less than £45,000 to ensure that support is targeted at those firms facing the greatest risk when hiring from this pool of workers
rate of recovery set at 92 per cent rather than the 103 per cent equivalent of SMP recovery in small firms as it is important to retain the employer's financial stake as an incentive to support the employee back into work.

The report estimates that the total fiscal liability under this system of SSP recovery of around £23m per year, compared to estimates of the cost of the abolished SSP recovery scheme, £49m.

Notes to Editors

IPPR's new report Small firms, giant leaps: small businesses and the path to full employment is available from http://www.ippr.org/publication/55/12135/small-firms-giant-leaps-small-businesses-and-the-road-to-full-employment

Until the start of this month, small businesses facing a relatively large statutory sick pay liability in a given month (greater than 13 per cent of their NICs liabilities) have been able to get the difference reimbursed from HMRC. But businesses will no longer be able to recover any of their statutory sick pay payments in this way. This was replaced by a new Health and Work Service, offering return to work support and tax relief on workplace adjustments, but the report states that this move is unlikely to offset the costs firms face for sick pay, and may lead to reduced hiring of those in these severely disadvantaged labour market groups.

Employees are eligible for a variety of statutory benefits and rights, paid for by their employer. In particular, statutory Sick, Maternity and Paternity Pay all require employers to continue paying their employees during periods of absence from work. Statutory Sick Pay (SSP) is payable from the fourth day of illness for those earning more than £109 a week (the lower earnings limit for National Insurance), and can be claimed for up to 28 weeks.

Between 2008 and 2011, 88 per cent of individuals moving from unemployment into employment, and 95 per cent of individuals moving from inactivity into employment found work in either an SME or self-employment.

Contacts

Sofie Jenkinson, 07981023031, s.jenkinson@ippr.org

Richard Darlington, 07525 481 602, r.darlington@ippr.org