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Small employers are losing out on employment allowances

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The employment allowance started in April, and over a million employers are already benefitting from not having to pay as much in employer national insurance on the wages they pay, with almost half a million paying none. This assumes they are a business that can claim and that their payroll software is making the right claim. 

But some of the smallest employers are losing out – they pay little in employer NICs anyway, and now they are bearing the cost of irrecoverable statutory sick pay as well as paying for a replacement worker, or flogging themselves physically and mentally to cover for the absentee(s).

Overall the employment allowance gives much, much more back to employers than has been taken away by the abolition of statutory sick pay recovery for micro-businesses. 

That doesn’t detract from the fact that some such ‘micros’ are already feeling serious strain. A proprietor sent a desperate email last week to ask for help: she’d hired an apprentice who, unknown to her, had severe mental health problems, and was now off sick more than she was at work. 

The proprietor couldn’t fire her, for fear of a disability discrimination claim that could have been very expensive, but neither could she afford to pay the statutory sick pay and hire a temporary replacement, so she was trying to do the work of two during the day and handling all the non-customer-facing work in the evenings, as well as paying the unproductive absentee.

The sops for small employers who have had their statutory sick pay funding withdrawn are:

  1. Less record-keeping for statutory sick pay recovery – except it’s still needed to prove the correct entitlements have been paid;
  2. Employment allowance – except it’s worthless if no employer National Insurance contributions are due anyway; and
  3. A new Health & Work Service to provide occupational health advice and assessments – except (a) the Health & Work Service doesn’t actually exist yet and is unlikely to be fully ready before April 2015, and (b) no amount of occupational health advice will cure a worker with mental health problems or a chronic, incurable condition.

Ministers, and the expert advisers who recommended the abolition of statutory sick pay recovery under the so-called Percentage Threshold Scheme, clearly had no idea of the impact of the change they recommended. 

Big picture policy-making is dangerous without a granular understanding of the impact of the detailed changes. 

How many small businesses will fold, and how many small businesspeople will lose their health and their livelihood for the sake of saving £50m on the Percentage Threshold Scheme?

David Heaton is a tax partner at national accountancy firm Baker Tilly.

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