Tuesday, 8 March 2016

Could Small Business catch a Cold from Changes to Sickness Benefit?

Could Small Business catch a Cold from Changes to Sickness Benefit?

“Speaking during the quarterly public hearing of the Health and Social Security Scrutiny Panel, Deputy Pinel said that Jersey employers could also soon be asked to fund short-term sick pay, which is currently paid by the Social Security Department through the Short Term Incapacity Allowance, and the Deputy said that the move could ‘improve absence management’ among businesses” (JEP)

So what does that mean, in practice? In this blog, I’ll try to explain how the model she is proposing would work, and what dangers to small businesses there might be.

Currently there is no legal requirement in Jersey for employers to pay sick pay in addition to that received by the employee from the Social Security Department.

The situation is the same in Ireland, although the names differ:

“You may apply for Illness Benefit if you have enough social insurance contributions. If you do not have enough social insurance contributions, you should contact the Department of Social Protection's representative (formerly the Community Welfare Officer) at your local health centre who will assess your situation.”

“Whether your employer pays you or not while you are out sick from work, you should claim Illness Benefit from the first day of your illness. If you get sick pay from work, you should ask your employer what administrative arrangements are in place while you are claiming Illness Benefit.”

“If you are entitled to sick pay, your employer will probably require you to sign over any Illness Benefit payment from the Department of Social Protection to your employer for as long as the sick pay continues.”

Guernsey is very similar, although unlike Ireland and Jersey, you need to be off work for at least four days:

“Sickness Benefit is a weekly benefit which is paid if you are incapable of work due to illness (including mental illness) or disablement. Invalidity Benefit is a weekly benefit which is paid at a higher rate than Sickness Benefit.”

“In order to receive Sickness Benefit, your claim must last at least 4 days and you must satisfy certain contribution conditions.”

The Jersey system was set out by Philip Le Feuvre. Le Feuvre’s first report, brought in 1946, proposed a single universal compulsory scheme. The first priority was to be Old Age Pensions, followed by a stamp to cover sickness benefit, support for dependents and children.

In fact, before moving to paper returns, there were actual stamps on card used. Notice how part of the payment was to cover pensions, and part to cover sickness benefit. That was the basis on which the Social Security System was erected, in much the same way that Lloyd-George had introduced a scheme in the UK. And Social Security administers and processes sickness claims.

But in the UK matters are very different, and the burden of administering the sickness pay falls on the employer. This came about with the Social Security and Housing Benefits Act 1982, enacted by Margaret Thatcher’s government, and the same legislation was subsequently wrapped up into the Social Security Contributions and Benefits Act 1992.

In the UK model, Statutory Sick Pay is paid when the employee is sick for at least 4 days in a row (including non-working days). It is paid by the employer and partially reclaimed from the State.

The employee starts paying SSP from the fourth ‘qualifying day’ (day an employee is normally required to work). The first 3 qualifying days are called ‘waiting days’. A day is not counted as a sick day if an employee has worked for a minute or more before they go home sick.

It was designed to put the administrative burden of sickness benefit on the employer who pays it out, but who can at present reclaim some or all payments from the State (according to Deborah Lockton’s Q&A Employment Law 2013-2014).

Chris Turner, in his book “Unlocking Employment Law”, notes how the system worked until 2015:

“The employer is bound to pay SSP to the employee for the first 28 weeks of a sickness absence. Originally the employer could recover all of the payments made to the employee by deducting it from its National Insurance payments and there was relief also for small businesses. Now a threshold is used and the employer can recover SSP paid in a tax month where it exceeds 13 per cent of its National Insurance liability for that month.”

It should be noted that the mechanisms and procedures for running this would be available in Jersey because this has been the status quo in the UK since 1982, albeit with significant changes in 2015. In other words, a straight steal.

Clearly this model would save Social Security money for administering the system, but it would put an extra burden on businesses, and most probably small business because of the time lag in reclaiming.

Small businesses were helped by a compensation scheme - the 13 per cent scheme noted above - which was withdrawn in 2015. As the Telegraph noted:

“Small firms have now lost the right to reclaim a their statutory sick pay (SSP) costs; this is the minimum amount that must be paid to sick staff by every employer, regardless of size, for a period of up to 28 weeks.”

“SP can be a huge burden on a small business’ cashflow. In 1995, the Government introduced a safety net, the Percentage Threshold Scheme (PTS), to allow struggling companies to recover the money once the bill exceeded 13pc of its total national insurance bill for the period.”

“This disaster relief was a lifeline for many small employers who suddenly found themselves paying SSP for a number of workers. SSP now stands at £87.55 per week.”

“From April 6 this year [2015], the PTS was abolished, and replaced with Fit for Work, an occupational health advisory service, which aims to provide advice for managing absence and helps to manage sick employees’ return to work. It provides no financial support.”

“Lesley Fidler, director at accountancy firm Baker Tilly, has met several small business owners that have suffered as a result of the lost SSP compensation.”

“Quite honestly, no amount of learning how to manage absence can help a small business when workers go off on long-term sick with cancer or other illnesses,” she said. “They’re assuming a cost they didn’t have to before, which is huge. These staff aren’t malingerers, they have real, long-term health problems. What use is occupational health advice when you’re losing money?”

It is important to note this in the context of Susie Pinel’s remarks that shifting the administrative burden to employees would “improve absence management”.

The UK relief for small business was scrapped in 2015 because the government felt the rebate did not provide an incentive for employers to get sick employees back to work.

Small business in the UK are paying the cost because by and large employees off sick are not malingering. Absence monitoring systems like the Bradford Factor, unless their very real statistical limitations are properly understood, are another blunt instrument.

I don’t see why we might not go part of the way down the UK route, but the 2015 changes have shown that it can be a slippery slope for small business, and I’m not sure there would be enough safeguards here to prevent that happening as well.

But looking at the current system, and having been off work recently, I have to complete a form signed by the doctor, with a lot of the same details every time, sign it, post it off to social security to be processed. For my rates form, all the information was on the screen, and all I had to do was check it, and electronically sign it. The Parishes are moving ahead with Digital Jersey, but the States lumber behind like a Brontosaurus.

Should we really be fussing around with pieces of paper when electronic systems could remove some of the burden, both at my end, and at the other end of the line?

Do you know what happens in Estonia? Here's the future, and probably around 10 years away in Jersey standards:

Electronic submission of documents.

Since 2014 we are using a E-TVL (electronic sickness benefit document). If the employer does supply the data of the employee electronically, the employee does not need to get a paper document form the doctor. If the period of incapacity ends, the doctor formalizes the electronic document in the computer and submits it to EHIF database. When employer submits the document with state portal eesti.ee, the employee receives the benefit in a few days after the employer submitted the data.

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