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SMEs would hire more if Government took sick pay risk

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A new plan for the government to take more of the risk when a small firm hires someone who has been on long-term sickness could save the taxpayer money and help cut unemployment, according to a new report from the think tank IPPR, published today (Fri).

New rules, which came into force at the start of this month, will increase costs on small businesses if a proportion of their staff go off sick. The new report says the system should be restored so that the government cover over 90 percent of statutory sick pay (SSP) costs incurred by small firms for those moving off Employment Support Allowance (ESA). By taking liability for those that face substantial barriers to work, the report suggests that the costs of taking on workers with disabilities and long-term health conditions will be substantially reduced, as well as the perceived risk of hiring individuals from ESA. Recent changes mean the end of SSP recovery via the percentage threshold scheme, which the report suggests is likely to increase the risk of hiring employees with health conditions and/or work-limiting disabilities. This will be particularly acute in smaller firms. The report recommends that SSP recovery should be restored so that it is targeted at those who face the greatest health-related barriers to work.

The report also recommends a new Danish-style insurance scheme to allow small businesses to club together and share the cost of occupational maternity pay. The Danish scheme works by increasing the level of maternity benefits received by employees, but pooling the additional financial risk between all businesses. A recent study commissioned by the DWP found that only 11 percent of employees in small firms received occupational maternity pay compared to 21 percent in medium firms and 47 percent in large businesses.

 The report shows that in recent years SMEs and self-employment accounted for over 80 percent of jobs growth, have played a disproportionate role in supporting individuals from worklessness into employment and have a greater share of disabled, younger and older workers and those with low levels of educational attainment. But the report shows the government does little to incentivise or offer support to small firms in hiring individuals claiming ESA or to move to occupational benefits.

Spencer Thompson, Economic Analyst at IPPR, said: “If Britain is to get to the vision of full employment recently set out by Chancellor George Osborne, the government needs to do more to help small firms hire people who are suffering from ‘structural’ unemployment and economic inactivity. While a return to growth might help Britain tackle ‘cyclical’ unemployment, people with structural barriers to work are more likely to be hired by small firms if the government covers more of the risk of further short spells of sickness. “Small and medium-sized enterprises have provided a disproportionate source of employment for those that face disadvantage in the labour market. We know that small firms are often unable to afford the extra costs of occupational benefits, but if they were able to club together to share the risk, as they do in Denmark, small firms could better attract talented employees.”

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