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Will new government initiative reduce sickness absence costs?

It is welcome news that the government will be introducing a £500 tax break to help businesses manage absence and support staff in returning to work. 

However, with government funding at a premium, it is clear that the state cannot tackle the issue of sickness absence alone; private solutions, such as wellbeing programmes or income protection, must be an integral part of any effective absence management strategy. 

As the Government considers how to implement tax relief, it is vital that support is targeted to complement private provision so that it has maximum impact.

Firstly, by way of context, it is worth considering what the direct and indirect costs of absence are. Imagine what would happen in your business if a senior manager suffered an accident or illness that kept them off work. 

Some 64 per cent of firms pay some form of occupational sick pay would you be able to absorb the cost of that employee’s salary, plus that of a short-term replacement” Then factor in the recruitment costs of finding that replacement and the loss of productivity as they come up to speed and their team adapts to new leadership.

Those are just the direct costs. The absent employee will most likely have valuable skills, knowledge and relationships, which risk being lost to the business. Then there is the administration of making sure that all the correct regulations and company policies are adhered to, including rehabilitation support to help them back into work. The example makes it clear how sickness absence has the potential to cause major business disruption.

On top of that, there are a number of other factors which together mean SMEs are disproportionately affected by staff absence. Most obviously, smaller businesses do not have the scale to absorb large volatile costs, or the experience of an HR team to manage issues that arise. Less obviously, but perhaps more fundamental, is the fact that many new businesses may not have planned for such an eventuality.

A recent report carried out by 2013 has found that 57 per cent of SMEs do not have any form of financial protection to safeguard the business against the risks associated with losing the owner, despite the fact that 42 per cent of SME workers agreed their business would ultimately cease trading if the worst were to happen.

In that context, it is clearly an important and positive step that the government is to offer tax support to help absent staff return to the workplace. However, it is also true that the proposed allowance of £500 per employee is not a large amount, meaning that the implementation of the proposal needs to be carefully considered if it is to have maximum benefit.

HR-savvy businesses already invest in employee benefits, such as wellbeing initiatives or Income Protection. These programmes can reduce the likelihood of staff going absent in the first place, by encouraging healthy lifestyles and early intervention if problems arise. Long-term financial protection also gives security to both the employee and their employer, ensuring that neither will face volatile costs or financial shocks. 

An integrated employee benefits package can therefore acts a powerful motivating force for staff, driving productivity. Equally, the security and support offered by a comprehensive employee benefits package can be very attractive for new joiners, meaning a considered employee benefits package will support any effective recruitment strategy.

This is particularly relevant now thanks to the impact of pensions auto-enrolment. The pensions auto-enrolment staging date is the perfect opportunity for businesses to undertake a holistic review of their entire employee benefits packages, ensuring that it is aligned with their business objectives. On the flipside, after auto-enrolment a pension will no longer serve to differentiate between employers when recruiting new staff.

To have maximum impact, the government’s planned tax relief should act to complement those forward-thinking firms who already invest in their staff’s health and wellbeing. 

While the recent consultation is a clear sign that government understands the issues, at Unum we believe that only an integrated, coherent and long-term approach, in which tax advantages complement and encourage existing health and protection investments, will prove an effective solution for businesses looking to reduce the impact of sickness absence and support SMEs in driving the growth of the UK economy.

John Letizia is the Head of Public Affairs at Unum UK

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