Statutory Sick Pay

Statutory Sick Pay does not currently provide adequate protection for those who most need protecting from financial hardship during periods of sickness absence. It consequently fails to perform its primary function of providing a basic level of income protection.

The rate of Statutory Sick Pay is too low. Of all the proposals for increasing the SSP rate, we think a rate in line with the flat rate of Statutory Maternity Pay would strike the best balance. It would increase the rate to £172.48 per week (using the 2023–24 rate), or 90% of earnings, whichever was lower. This would be considerably more than the 2023–24 SSP rate of £109.40 but not so much as to place unreasonable additional costs on most employers. The 90% replacement rate for those earning below the flat rate of SMP would ensure, as the current SSP system does, that no one’s SSP payments could exceed their usual earnings. By the start of financial year 2025–26, the Government should increase the rate at which Statutory Sick Pay is paid in line with the flat rate of Statutory Maternity Pay.

All employees should be eligible for Statutory Sick Pay, not just those earning above the lower earnings limit (LEL). We accept that, as the Government says, those earning below the LEL may be entitled to Universal Credit, but there remains a compelling case for removing it. It would enable people who have multiple jobs, each earning below the LEL, to receive SSP, and it would support those not claiming benefits. It would also help to maintain the link between employers and employees. Since employees with more than one job, each earning above the LEL, already qualify for SSP more than once, we are not persuaded that removing the LEL would result in too much complexity. The Government should remove the lower earnings limit for Statutory Sick Pay ahead of financial year 2025–26.

Of all the reforms proposed to Statutory Sick Pay, removing the three-day waiting period would, we believe, have the most unpredictable consequences, since it could result in significant behavioural change by employees. It is uncertain whether removing the three-day waiting period would result in the increases in productivity across the economy that some predict, especially given the potential for levels of absenteeism to increase. The Government should maintain the three-day waiting period while keeping it under periodic review.

We understand why the Government decided that the Covid-19 pandemic was the wrong time to introduce changes to Statutory Sick Pay, as these would have placed immediate additional costs on employers. This argument, which we believe is now less valid than during the pandemic, does not apply to enabling employees to receive a combination of SSP and usual wages in order to facilitate phased returns to work. Given how many employers permit phased returns where they can, as part of their own occupational sick pay arrangements, we can only assume, as the Minister said, that they find phased returns a useful tool in supporting employees back to work. Such flexibility, if not limited only to employees returning from periods of sickness absence, could also help people with fluctuating conditions to manage their Statutory Sick Pay 35 conditions better by reducing their hours periodically, as required, where this is in the interests of both them and their employer. The Government should amend legislation to permit Statutory Sick Pay to be paid in conjunction with usual wages ahead of financial year 2025–26.

The overall impact on business of reforming Statutory Sick Pay is hard to predict, but even if it did not result in the kind of net benefits some have predicted, we believe that 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 be an essential component of any set of reforms. If made conditional, such a rebate could also encourage businesses to manage sickness absences better. A conditional rebate would also align neatly with the Government’s recent commitments to improving access to occupational health services for employees of small businesses, and could be introduced alongside those other changes. The Government should consult small and medium-sized businesses on the design of a small business rebate for Statutory Sick Pay, including the eligibility criteria and any conditions that could apply, and introduce the rebate along with the other reforms we have recommended ahead of financial year 2025–26. (Paragraph 55) Other matters

According to statistics, the enforcement of Statutory Sick Pay through HMRC appears to be reasonably effective. However, there is evidence which suggests that some workers are either too afraid to ask for SSP or not aware of their entitlement, indicating that the enforcement statistics do not tell the whole story. We are disappointed that the Minister could not provide us with details of the Government’s awareness-raising work. The Government should set out what it is doing, and what else it plans to do, to raise awareness of entitlement to Statutory Sick Pay among employers and employees, and explain how it plans to measure its progress in this area.

Far too many people lack a financial safety net during periods of ill health as a result of being self-employed. In this respect, if no other, Statutory Sick Pay does not reflect modern working practices, given the increasing number of people classed as self- employed. Their exclusion is all the more egregious as many of them will be working in some of the lowest-paid and least secure parts of the economy. 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. Our preference is for the Government to establish a contributory sick pay scheme for self-employed people. 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.

Group income protection (GIP), though not an alternative to Statutory Sick Pay, can help small businesses to manage the cost of long-term sickness absence and increase the chances of employees making a full return to work. We welcome the Government’s plans to work with employers to raise awareness of the benefits of GIP. We still have concerns, however, about the double taxation applied to some GIP 36 Statutory Sick Pay policies. The Government should set out in response to this report exactly what it has done, and plans to do, to promote group income protection among smaller businesses, including any proposals to incentivise take-up. It should also set out what plans it has to rectify the anomaly of salary sacrifice arrangements being subject to double taxation.

The statutory framework for Statutory Sick Pay is causing particular problems for recruitment companies in respect of the payment of agency workers. It is not sufficiently clear when a day is a qualifying day for agency workers or how a recruitment company might properly end their liability for paying SSP in respect of such workers. The Government should review the operation of Statutory Sick Pay in respect of agency workers and if necessary set out proposals for amending secondary legislation to provide the necessary clarity to those employing them. (Paragraph 76) Statutory Sick Pay 37