Sick Pay Proposal – employers to pay first 4 weeks sick pay

The introduction of statutory sick pay has been proposed by the Minister for Social Protection, which could see employers paying for the first 4 weeks of sick pay for all employees.

The aim of this sick pay proposal is to reduce the cost of funding Illness Benefit (sick pay), which is currently paid by the Department of Social Protection to eligible employees while they are on sick leave. The justification of the proposal is that it would bring Ireland in line with other jurisdictions in Europe, but appears to have taken no consideration of the cost of doing business in Ireland compared to other European jurisdictions.

The figures used to compare Ireland’s sick pay arrangements with our international competitors do not take into account the already very high cost of employing people in Ireland. When compensation per employee plus employer’s PRSI are considered, Ireland is the 5th most expensive among the EU 27 and was 20% more expensive than our main trading partners in the Euro area in 2010.

The proposed statutory rate of €188 per employee per week is almost double the £81.60 (€96.30) paid in the UK, where a rebate scheme exists for employers.

Even more damaging is the fact that Ireland’s employer’s PRSI rate of 10.75% does not have a cap and the rate applies to all income. In the UK employer social security is charged at 12.8% but the first €7,000 of income is exempt, so the cost to the employer is lower for those on average and below average incomes than in Ireland.

Any move to increase our labour costs will cause serious damage to the competitiveness we have regained in recent years, will make it difficult for Ireland to compete, especially with our neighbours in the UK, and will make Ireland less attractive for foreign direct investment.

Minister Burton also suggested that this proposed change to sick pay would incentivise Irish employers to reduce absenteeism, however, she does not take into account the already high cost of employing people in Ireland and the way private sector employers have tackled absenteeism.

A report published by IBEC last year Employee Absenteeism: A guide to managing absence found that absenteeism rates in the private sector had reduced from an average of 7.8 days (3.38%) in 2004 to just 5.98 days (2.58%) in 2010. This is compared to absenteeism rates of 11.3 days (4.9%) per employee in the civil service, which costs the State between €400m-€500m per year.

The proposed statutory sick pay will not incentivise companies to further reduce levels; it will simply result in many employers cutting back on sick pay schemes, resulting in fewer benefits for employees.

While significant cuts in the social welfare budget are required, the choice facing the Government is to increase PRSI rates, reduce benefits, and/or introduce statutory sick pay. Should this sick pay proposal proceed, it will place an enormous financial burden on smaller employers who currently do not operate a sick pay scheme.   Employers must provide cover for those on sick leave, which may also require training, etc. This forced transfer of costs, when businesses are already under increasing financial pressure, could be the detrimental for many.

Business owners up and down the country who are creating jobs, or planning to create jobs, are very concerned by this sick pay proposal, as stated by ISME in a recent letter detailing their strong opposition to this proposal.

It is not being argued that employees should not get sick pay. Rather, that the sick pay should be the responsibility of the Department of Social Protection and not the employers.