Sick Pay Shake-Up: What Business Owners Should Know

In a major move, the UK Government has announced that more than a million low-paid workers will soon receive 80% of their salary as sick pay from the first day of illness. This change is a significant shift from the current system, where workers must be unwell for at least three days and earn a minimum of £123 per week to qualify for statutory sick pay.

Change is on the Way

Work and Pensions Secretary Liz Kendall described the reform as a crucial step in ensuring that "no one should ever have to choose between their health and earning a living." The British Chambers of Commerce (BCC) has acknowledged the fairness of the 80% sick pay rate but has raised concerns about a potential rise in absenteeism, which could put strain on small businesses.

The Government estimates that around 1.3 million people on low wages will benefit from this reform, receiving either 80% of their average weekly earnings or the current statutory sick pay rate of £116.75 per week - whichever is lower. Despite this progress, trade unions are still pushing for a higher rate, asking for sick pay to be no less than 95% for the lowest-paid workers.

This change comes as part of broader updates to the Employment Rights Bill, which also includes improvements to parental leave and flexible working rights. However, business advocates have expressed concerns about the financial impact of these measures, combined with rising minimum wages and increased National Insurance contributions.

How Will This Affect Small Businesses?

If you're a small business owner in the UK, this change to statutory sick pay (SSP) could directly impact your operations. Here’s what you need to know and how you can prepare:

1. Cash Flow Considerations

With sick pay kicking in from day one, companies must budget for potential increases in short-term staff absences. Unlike larger corporations, small businesses often lack the financial cushion to absorb unexpected costs, so reviewing your cash flow and contingency plan is essential.

To mitigate any negative impact on your cash flow, ensure you have clear payment terms, invoice customers promptly and use automated reminders to chase up late payments. Invoice finance can also help here.

2. Managing Staff Absences

The primary concern raised by business groups is that this change might lead to increased absenteeism, making it harder to find shift cover at short notice. To mitigate this:

1. Have a clear absence policy in place.

2. Consider using temporary workers to cover essential roles.

3. Encourage staff to notify you about illness as soon as possible.

3. Reviewing Your Payroll Processes

Ensure your payroll system is updated to reflect the new sick pay rules. You may need to adjust how you calculate payments, especially for workers earning an amount that fluctuates or hovers close to the statutory threshold. If you use accounting software or an external accountant, ensure they implement the necessary changes.

4. Understanding the Bill

This sick pay reform is just one part of broader employment law changes, including expanded rights to flexible working and unpaid parental leave. While these changes are designed to improve workers' rights, they could increase the admin burden for small business owners. Stay informed by reviewing Government guidance.

5. Seeking Support

If you're concerned about the financial impact of these changes, consider joining an association like the Federation of Small Businesses (FSB) or the British Chambers of Commerce (BCC). These groups lobby the Government on behalf of small business owners across the country, ensuring your concerns are heard loud and clear in the Commons.

Key Takeaways

While the new sick pay rules will provide overdue financial stability for low-paid workers, they will present challenges for small businesses already struggling with rising costs. The key to managing these changes effectively is preparation. Review your budget, update your policies and processes, and seek support if necessary.

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