Page 1 of 4
Statutory Sickness Support
A new sick pay system that supports
employees and employers
May 2022
THE REPORT
Page 2 of 45
ABOUT THIS REPORT
This WPI Economics report, commissioned by Unum, contributes to the growing literature that highlights
About Unum
Unum is a leading employee benets provider oering
nancial protection through the workplace including
Group Income Protection, Life Insurance, Critical Illness,
and Corporate Dental cover.
We are committed to workplace wellbeing for both
employees and employers. We have a wide range of
tools designed to help businesses of all sizes create
or enhance their employee wellbeing strategies,
including our award-winning Help@hand app which
oers employees fast, direct access to quality health
and wellbeing support services, including remote GPs,
mental health support and physiotherapy.
Our Income Protection customers also have access to
medical and vocational rehabilitation expertise designed
to help people stay in work and return to work following
illness and injury. Our Employee Assistance Programme
provided by LifeWorks, includes help and advice on a
range of work/life issues.
Our Critical Illness customers can access our Cancer Support
Service, provided by Reframe, providing personalised
support for employees with a cancer diagnosis.
Unum is a values-driven, purpose-led organisation, with
an operating model centred on doing good for society
and being there for people when they need us most.
Being a socially responsible business is at the heart of
our ‘We are Unum’ values and where we aim to excel.
We’re focussed on providing positive and eective
contributions to the communities in which we live
and work, and see helping our communities as a
natural extension of the commitment we make to
our customers every day.
Our mission is to be the most inclusive, diverse and
welcoming company in our market – creating a place
where people aspire to work, and where everyone is
able to contribute their best and succeed, whatever
their identity or background.
We are signatories of the HM Treasury Women in
Finance Charter, Business in the Community Race at
Work Charter and the Armed Forces Covenant, where
we hold the Silver Employer Recognition Scheme Award.
We are also a Disability Condent Leader, Stonewall
Diversity Champion, and have been awarded the Gold
Payroll Giving Quality Mark for our charitable initiatives.
At the end of 2021, Unum protected 1.6 million people
in the UK and paid claims of £366 million - representing
£7 million a week in benets to our customers -
providing security and peace of mind to individuals
and their families.
Page 3 of 45
ABOUT THIS REPORT
Our parent company, Unum Group provides a broad
portfolio of nancial protection benets and services in
the workplace through its Unum US, Unum UK, Unum
Poland, and Colonial Life businesses. In 2021, Unum
Group reported revenues of US$12 billion and paid
US$8.2 billion in benets.
For more information, please visit www.unum.co.uk.
Unum Limited is authorised by the Prudential Regulation
Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority.
Unum Dental is a trading name of Unum Limited.
Registered in England 983768.
About WPI Economics
WPI Economics is a consultancy that provides economics
that people understand, policy consulting and data
insight. We work with a range of organisations —
FTSE100 companies, SMEs, charities, and central
and local government — to help them inuence and
deliver better outcomes through improved public
policy design and delivery. Our focus is on important
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levelling up and poverty, productivity, and mental
health. We are driven by a desire to make a dierence,
both through the work we undertake and by taking
our responsibilities as a business seriously. We are an
accredited Living Wage employer.
About the authors
Matthew Oakley
Director, WPI Economics
Matthew founded WPI Economics in 2015. He
is a respected economist and policy analyst, having spent
well over a decade working in and around policy making in
Westminster. He has previously been Chief Economist at
Which?, and Head of Economics and Social Policy at Policy
Exchange. He began his career as an Economic Advisor at
the Treasury. He holds an MSc in Economics from UCL.
Joe Ahern
Head of Policy Consulting, WPI Economics
Joe is an experienced policy professional, and
leads WPI’s policy work across a range of areas including
nancial services and climate adaptation. Before joining
WPI Economics, he spent ve years working in a range of
roles at the Association of British Insurers. Prior to the
ABI, Joe worked in the communications team at the New
Schools Network and before that, in the oce of Andrew
Jones MP. He holds a degree in in Politics and Sociology
from the University of Sheeld.
Simon Hodgson
Head of Public Policy, Unum
Simon leads Unum’s public policy
engagement and works to raise awareness of the
role of employee benets. He joined Unum from the
Government’s joint Work and Health Unit where he led
development of its strategy on workplace health.
Page 4 of 45
CONTENTS
5
6
9
10
15
OUR FIVE SUCCESS CRITERIA 22
25
39
44
Page 5 of 46
are the engine our country relies on to propel
Right now, we’re failing to take good care of our people,
and it’s holding our country back. Far too many people
are falling out of work for health reasons, impacting
not just our nation’s economy, but individuals and their
families too.
The UK has a problem with sickness absence. Over
140 million working days were lost to it in 2018.
1
Ill
health stopping us working is estimated to cost our
economy up to £130 billion a year
2
— that’s three
times the defence budget.
3
Sickness absence is an
enormous drag on our economy — tackling it should
be a top priority.
That doesn’t mean eliminating it altogether — all of
us will need to have time o work now and again to
look after our health. What it does mean is ensuring
that we’re taking great care of our people while they’re
o sick, and, most importantly, maximising their
chances of getting back to the job they love.
At the root of the problem is Statutory Sick Pay. It’s a
system that turns 40 years old this year,
4
and it’s really
showing its age. As the world of work has changed, sick
pay has failed to keep up. The current system oers
no protection at all for the lowest-paid, and misses
the opportunity to promote early intervention and
empower employers to deliver the right support.
Sick pay in the UK has hit its mid-life crisis — it’s time for
a change.
This report sets out our approach to that challenge: to
move from a system focused purely on payments, to
one that’s designed to deliver proactive and eective
support. So that’s what we called it: Statutory Sickness
Support.
A simple package of reforms can transform our
country’s whole approach to work and health. Sick pay
that’s t for the 2030s, not the 1980s, that takes account
of exible working, lets you come back to work part
time, and gives every employee better protection than
today. And an exciting package of support so that small
businesses across the UK can level up the health and
wellbeing of their workforce.
Overhauling sick pay will protect our people, boost our
businesses, and energise our economy. This report sets
out how.
Mark Till
CEO, Unum International
1
ONS, Sickness absence in the UK labour market (2019)
2
Department for Work and Pensions & Department of
Health, Work, Health and Disability Green Paper Data Pack
(2016), p. 15
3
House of Commons, UK Defence Expenditure (Commons
Briefing Paper 8175) (2022), p.5
4
Social Security and Housing Benefits Act, 1982
Page 6 of 46
Ill health stopping people from working is
estimated to cost our economy up to £130
5
On top of these costs, ill
health-related worklessness is estimated to cost
6
Reducing
At the heart of how we manage sickness absence in the
UK is Statutory Sick Pay (SSP), the minimum statutory
payment made by employers to employees who are
absent for health reasons. SSP was introduced in the
early 1980s
7
to replace state sickness benet and is
currently paid at a pro-rated rate of £99.35 per week
8
for up to 28 weeks to employees who meet the
eligibility criteria.
Because employers are no longer required to record
and report payments of SSP,
9
it is dicult to know how
much is paid out and to whom. While an estimated
141.4 million working days were lost to sickness
10
in
2018, the number of absences resulting in payment is
far smaller as a result of SSP’s various eligibility criteria,
including ‘waiting days’ and the exclusion of around
2 million workers
11
with earnings too low to qualify.
Around 18 million ‘SSP-eligible days’ are taken by 6
million employees a year, with direct costs to employers
(i.e. employees are o sick and receiving sick pay at the
level of SSP) of between £100 million to £250 million.
12
There are variations in the types of employees who get
SSP or who get additional sick pay from their employer.
Since SSP’s introduction, the proportion of employers
choosing to go beyond it and provide enhanced
‘occupational sick pay’ (OSP) above the minimum has
fallen, from 56% in 1988
13
to 28% in 2019.
14
Up to
around 70% of employees eligible for SSP are presently
paid more through formal or informal arrangements.
15
It is thought that employees in large organisations
(more than 250 employees) are 1.5 times more likely to
be paid OSP than those in small organisations.
16
For the vast majority of people, the at rate SSP
payment of £99.35 per week is very low compared to
their normal earnings. This ‘replacement rate’ — the
proportion of previous pay covered — is much lower
in the UK than in comparable advanced European
economies.
17
What’s more, as the world of work has
evolved, SSP hasn’t kept up. Over the last 40 years, the
way we all live and work has changed dramatically, with
many more of us working exibly, part-time or in the
gig economy. SSP has also not evolved to take account
of our ageing population, or to learn from the policy
successes in other advanced economies. The result is a
sick pay system that is no longer t for purpose.
5
Department for Work and Pensions & Department of
Health, Work, Health and Disability Green Paper Data Pack
(2016), p. 15
6
Work, Health and Disability Green Paper Data Pack (2016),
p. 16
7
Social Security and Housing Benefits Act, 1982
8
GOV.UK, Statutory Sick Pay (SSP): What you’ll get (2022)
9
HM Government, The Statutory Sick Pay (Maintenance of
Records) (Revocation) Regulations 2014 (2014)
10
ONS, Sickness absence in the UK labour market (2019)
11
TUC, TUC accuses government of abandoning low-paid
workers after it ditches sick pay reforms (2021)
12
WPI Economics, 2022, Statutory Sick Pay: modelling
costs and reforms. Available: http://wpieconomics.com/
publications/modelling-ssp/
13
House of Commons, House of Commons Debate (2
November 1988, vol. 139, col. 645-6W)
14
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), p. 35
15
WPI Economics, 2022, Statutory Sick Pay: modelling
costs and reforms
16
Department for Work and Pensions and Department of
Health and Social Care, Health in the workplace – patterns
of sickness absence, employer support, and employment
retention (2019), p. 26
17
TUC, Welfare States: How generous are British benefits
compared with other rich nations? (2016), p. 28
Page 7 of 46
The outdated SSP system and its focus on providing
very low levels of payment and not on promoting
eective and proactive sickness absence management
results in other undesirable policy outcomes. These
include higher state expenditure on social security
benets — in eect, subsidising low levels of employer
funded sick pay — and the Exchequer costs of the
current system at around £850 million a year, meaning
that the direct costs of the current system are likely to
be greater for the government than for business.
18
The government believes that too low a rate of sick
pay undermines the economic incentive for employers
to invest in reducing absence.
19
The current system
does not encourage or guide employers to provide
comprehensive and eective sickness absence
management support. Reform of SSP has the potential
to strengthen employer incentives to reduce levels of
sickness absence. Insurance models oer a way to pool
risks and resources with other rms, and allow even the
smallest employers to access a comprehensive package
of support which has a strong track record of improving
absence outcomes.
It is clear that the current system is not working for our
economy, for our health, or for our society. We believe
that to be successful, a new system must provide:
· A targeted safety net that protects workers and
encourages returns to work where possible
· Eective employer incentives to act and invest in
better workplace health
· Support for the competitiveness of our economy,
reducing costs and supporting innovation
· Increased tax revenue and reduced spending on
social security benets
· Broad cross-party support and appeal to a range of
stakeholders across society.
To deliver on these objectives, we propose moving from
the current system, which is primarily concerned with
prescribing payments, to an enhanced system that goes
beyond simply resolving the nancial element of SSP
and instead encourages proactive and eective support.
We call our proposed system Statutory Sickness Support.
Statutory Sickness Support would x our country’s
broken sick pay system, by:
· Widening eligibility, so all workers are protected
· Bringing the rules up to date, to allow ‘phased returns’
and accommodate exible working
· Simplifying calculation and administration for
employers
· Strengthening the safety net to reduce ‘income
shocks’ and alleviate poverty.
18
WPI Economics, 2022, Statutory Sick Pay: modelling
costs and reforms
19
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), pp. 34-35
Page 8 of 46
Reforming sick pay in line with our proposals would
generate savings for the Exchequer of around £120
million a year as well as projected wider economic
benets of around £500 million.
20
Our proposals would
go further however, and Statutory Sickness Support
would deliver a shot in the arm for the system by
unlocking £500 million to level up SME investment in
workplace health across the UK, with:
· Stronger guidance and support for employers to
manage absence
· A new conditional rebate of SSP costs to directly
reward employers’ eorts
· A workplace health stimulus package to enable SME
investment in proven support.
Our system would provide better protection for Britain’s
workers, and especially the low-paid, with the majority
of the benet of our reforms accruing to workers
earning less than £25,000 a year. Many more workers
would have access to health and wellbeing support
at work, reducing the risk and length of absence and
supporting a strong economy, benets system and
health service.
Based on conservative assumptions, economic
benets could be in excess of £1 billion in year one,
accompanied by £400 million in Exchequer benet
(reduced spending and increased tax receipts). By year
ve, economic benets could be up to £3.9 billion, and
over £1 billion in Exchequer savings.
21
20
WPI Economics, 2022, Statutory Sick Pay: modelling
costs and reforms
21
WPI Economics, 2022, Statutory Sick Pay: modelling
costs and reforms
Sickness absence and health-related job loss
Combatting this policy challenge is crucial to
Ill health stopping people from working is estimated
to cost our economy up to £130 billion each year
22
— roughly equivalent to total planned pre-pandemic
health spending in England
23
or more than three times
the defence budget.
24
On top of these costs, ill health-
related worklessness is estimated to cost government
up to £29 billion in foregone tax and National Insurance
contributions.
25
Tackling the policy challenge of sickness
absence is a clear policy imperative — with the potential
to unlock billions in tax receipts and increased
economic output.
For families, we know that being out of work for health
reasons is also a major driver of poverty; half (50%)
of people in poverty live in a family where someone
is disabled.
27
More broadly, we know that work can
be good for health
28
and worklessness is strongly
correlated with serious negative health outcomes.
29
For
employers, there are very large benets to reducing
sickness absence. As well as the clear implications
in terms of lost output, there are broader knock-on
eects of potentially positive impacts on mental health,
reduced presenteeism and increased productivity.
30
Estimated annual economic costs of ill health preventing work among working age people, 2016
26
Cost element Description Estimated cost
Costs to UK
economy
Sickness absence Lost output due to sickness absence £15-20bn
Economic inactivity Lost output due to working age ill health that prevents work £73-103bn
NHS costs Extra treatment costs for conditions aecting ability to work £7bn
Informal care giving Lost output due to working age carers caring for working age sick < £1bn
Total cost
£95-130bn
Costs to
government
Benet payments Employment and Support Allowance and associated benets £19bn
NHS costs (as above) Extra treatment costs for conditions aecting ability to work £7bn
Exchequer owbacks Tax receipts foregone due to health-related worklessness £21-29bn
Total cost
£47-55bn
22
Department for Work and Pensions & Department of
Health, Work, Health and Disability Green Paper Data Pack
(2016), p. 15
23
The King’s Fund, The Health Foundation, and Nuffield
Trust, Budget 2018: What it means for health and social care
(2018), p. 3
24
House of Commons, UK Defence Expenditure (Commons
Briefing Paper 8175) (2022), p.5
25
Work, Health and Disability Green Paper Data Pack (2016), p. 16
26
Department for Work and Pensions & Department of
Health, Work, Health and Disability Green Paper Data Pack
(2016), pp. 15-16
27
Social Metrics Commission, Measuring Poverty (2020), p. 11
28
Department for Work and Pensions & Department of
Health, Improving Lives: the Work, Health and Disability Green
Paper (2016), p. 10
29
Benach, J., Carles, M. and Santana, V., Employment
Conditions and Health Inequalities: Final Report to the WHO
Commission on the Social Determinants of Health (2007),
pp. 105-106
30
Deloitte, Mental health and employers (2022), p.8, 23
Page 10 of 46
31
It is paid
32
to those
that an employee earning at least £123 a week,
For those without access to an occupational sick pay
(OSP) scheme (enhanced sick pay in excess of that
prescribed by SSP paid voluntarily by employers), these
eligibility criteria reduce the likelihood of payment in the
event of sickness. The at rate of SSP means that those
who receive it get a very low rate of pay compared to
what they would typically take home.
The requirement for businesses to record and report
payment of SSP was removed in 2014,
33
which makes the
exact scale of SSP in payment and the associated costs
for businesses hard to quantify. What we can estimate
condently is that eligibility for SSP is likely to be relatively
limited as compared to the total number of sick days
taken. In 2018, an estimated 141.4 million working days
were lost to sickness.
34
However, the vast majority of
those sick days (around 70%) are not eligible for SSP,
primarily because of the ‘waiting days’ eligibility criterion.
35
Eligibility is further reduced by the fact that some of
those o sick for 4 days or more will not be classed
as employees, are earning less than the earnings
threshold, or are ineligible because of one of the other
criteria for claiming SSP. Bringing all of these together,
there are around 18 million ‘SSP-eligible days’ taken by
around six million people each year.
37
31
Social Security and Housing Benefits Act, 1982
32
GOV.UK, Statutory Sick Pay (SSP): What you’ll get (2022)
33
HM Government, The Statutory Sick Pay (Maintenance of
Records) (Revocation) Regulations 2014 (2014)
34
ONS, Sickness absence in the UK labour market (2019)
35
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
36
Ibid
37
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
58
12
9
17
1
3
1-2 days 3 days 4 days 5 days 6 days 7+ days
% of those with some sickness absence
Ineligible
for SSP
Distribution of sickness absence by spell length, 2017
36
Source: WPI analysis of Office for National Statistics, Social Survey Division. (2018). Annual Population Survey, 2004-2017: Secure Access. [data collection]. 13th Edition.
UK Data Service. SN: 6721, http://doi.org/10.5255/UKDA-SN-6721-12
Page 11 of 46
As highlighted above, eligibility for SSP requires an
individual to be earning at least £123 a week — the so-
called ‘Lower Earnings Limit (LEL). Beyond the point at
which a worker becomes eligible for SSP (£123 a week, or
a salary of slightly over £6,000 a year), the at rate makes
SSP unrelated to their previous level of pay. This means
the amount the vast majority of people receive in SSP
is very low compared to their normal earnings. We can
think of this as the ‘replacement rate’ — the proportion of
previous pay covered.
The at rate of SSP creates clearly undesirable eects in
practice:
2 million employees with earnings below the LEL —
70% of them women
38
— are not eligible for SSP at all
The replacement rate of SSP has a very sharp peak at
around the eligibility threshold
After this point, the replacement rate falls very quickly,
meaning that for employees earning more than
£18,000 a year, the weekly replacement rate is less
than 30%.
Replacement rate of SSP (%) by gross annual salary
Annual salary
Source: WPI Economics modelling
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
10
20
30
40
50
60
70
80
Current SSP replacement rate (%)
£48,100£45,500£42,900£40,300£37,700£35,100£32,500£29,900£27,300£24,700£22,100£19,500£16,900£14,300£11,700£9,100£6,500£3,900£1,300
38
TUC, TUC accuses government of abandoning low-paid
workers after it ditches sick pay reforms (2021)
Page 12 of 46
To put it another way, on an annualised basis, an employee working full time and
earning around the National Living Wage would go from a salary of about £18,500 to sick
pay of around £5,500.
The wide variance in replacement rates makes it important to understand the incomes
of those who are o work sick and likely to be eligible for and in receipt of SSP. Little
robust evidence currently exists on this. Our estimates using Annual Population Survey
data are shown below, and overlay the proportion of the SSP population at each point
of the income distribution, with the replacement rates shown above. Around 75% of the
SSP-eligible population earn less than £25,000 a year.
39
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Replacement rate of SSP (%) and distribution of SSP-eligible population by income
39
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0%
12%
24%
36%
48%
60%
72%
84%
0
12
24
36
48
60
72
84
Current SSP replacement rate (%)
4810045500429004030037700351003250029900273002470022100195001690014300117009100650039001300
0%
3%
6%
9%
12%
15%
18%
21%
0
3
6
9
12
15
18
21
total SSP elig pop % of total
494004810046800455004420042900416004030039000377003640035100338003250031200299002860027300260002470023400221002080019500182001690015600143001300011700104009100780065005200390026001300
0
10
20
30
40
50
60
70
80
total SSP elig pop % of total
Current SSP replacement rate (%)
494004810046800455004420042900416004030039000377003640035100338003250031200299002860027300260002470023400221002080019500182001690015600143001300011700104009100780065005200390026001300
Current SSP replacement rate (%) Total SSP eligible population (% of total)
Total SSP eligible population (% of total)
Current SSP replacement rate (%)
Page 13 of 46
To understand the costs of the SSP system to business,
we need to assess the extent to which these costs
actually ‘bite’ for employers. For those employers who
already voluntarily pay enhanced sick pay well above
the minimum requirements, the level of SSP is unlikely
to impact their behaviour or costs. The rate of SSP only
represents an actual or ‘biting’ cost for those employers
who only pay the minimum mandated amount of
sick pay.
One analogy might be the National Minimum Wage
or National Living Wage. While this is a legally
enforced statutory minimum rate of pay for all
employees, increases have no relevance to the costs
of employment in respect of employees who already
earn signicantly more.
Since SSP’s introduction, the proportion of employers
choosing to go beyond it and provide OSP has fallen,
from 56% in 1988
40
to 28% in 2019.
41
Despite this, the number of employees employed in
businesses relying on the statutory minimum is smaller
than this would suggest. For example, survey evidence
suggests that six in ten workers (57%) receive their
usual full pay when they are o sick, whether through
the operation of formal OSP schemes, or more informal
arrangements where pay simply continues in the case
of absence.
40
House of Commons, House of Commons Debate
(2 November 1988, vol. 139, col. 645-6W)
41
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), p. 35
Page 14 of 46
Based on this evidence, up to around 70% of employees
eligible for SSP are presently paid more through
formal or informal arrangements.
43
It is thought that
employees in large organisations (more than 250
employees) are 1.5 times more likely to be paid above
the level of SSP than those in small organisations.
44
The total direct employer costs in respect of employees
for whom the costs of SSP are ‘binding’ (i.e. employees
who are o sick and receiving sick pay at the level of
SSP) fall somewhere in the range of £100 million to £250
million a year.
45
42
TUC, based on polling by Britain Thinks
43
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
44
Department for Work and Pensions and Department of
Health and Social Care, Health in the workplace – patterns
of sickness absence, employer support, and employment
retention (2019), p. 26
45
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Employee-reported sick pay arrangements by income bracket, 2021
42
Your full pay as usual SSP More than SSP, less than full pay Nothing Don't know
Source: TUC, Sick Pay that Works
0% 20% 40% 60% 80% 100%
Up to £15k
£15-£29k
£29-£50k
£50k+
35% 30% 14%
7%
18%
57%
73%
80%
19%
27%
Page 15 of 46
The introduction of Statutory Sick Pay in the early
46
time making all employers directly responsible
Statutory Sick Pay remains one of the main ways
by which the relationship between an employer
and a sick or disabled employee is currently
But, as the world of work has evolved, Statutory Sick
Pay has failed to keep up. Over the last 40 years, the
way we all live and work has changed dramatically, with
many more of us working exibly, part-time or in the
gig economy. SSP has also not evolved to take or ageing
population into account, or to learn from the policy
successes in other advanced economies. The result is a
sick pay system that is no longer t for purpose.
This chapter provides an overview of some of the
adverse impacts of the current system.
Higher levels of insecurity and poverty
The pandemic has brought into sharp focus
the extent to which those in receipt of SSP
suer from a lack of a safety net. The equivalent gross
hourly rate for those on SSP is only £2.76.
47
This is much
lower than similar advanced economies.
In many other developed countries, the sick pay
system prevents a sharp fall in income that risks
making a worker’s nancial circumstances precarious.
48
A Trades Union Congress analysis highlighted the
low replacement rate in the UK compared to similar
European nations.
46
Social Security and Housing Benefits Act 1982
47
This represents the weekly SSP payment of £99.35 spread
over a 36-hour week
48
Institute for Public Policy Research, Working Well: A Plan to
Reduce Long-Term Sickness Absence (2017), p. 42
Page 16 of 46
Where replacement rate varies over period of sickness or between groups of employees, the
highest rate is reported. Durations expressed as the nearest number of complete months to the
statutory maximum. Where a range exists, the upper bound is reported.
UK: at-rate benet (replacement rate based on average earnings). France: employer makes up
dierence between benet and salary, so replacement rate is 100% in practice.
Comparison of sickness benefit and sick pay protection in selected developed countries, 2012
49
Minimum gross replacement of benefit on average earnings
Maximum duration of sickness benefit (months)
0%
25%
50%
75%
100%
0
6
12
18
24
Austria
Belgium
Finland
France
Germany
Ireland
Luxembourg
Netherlands
Norway
Sweden
UK
49
Adapted from TUC, Welfare States: How generous are British
benefits compared with other rich nations? (2016), p. 28
Page 17 of 46
The existing evidence base paints a worrying picture of
the human impact of low sick pay.
· Two-thirds of respondents surveyed by Mind said that
receiving SSP had caused them nancial problems. For
some it had caused them to go into debt. A quarter
of respondents specically mentioned that SSP had
impacted on their ability to buy food or pay their bills.
50
· A Chartered Institute of Personnel and Development
(CIPD) survey found that just under a quarter (23%)
of workers who would receive either SSP or no pay in
event of sickness absence due to coronavirus would
struggle to pay bills or buy food within just a single
week. This gure rose to a third (33%) of respondents in
the event of needing to take 2 weeks o work.
51
Research suggests that the impacts of SSP go beyond
the nancial and can even catalyse a vicious cycle.
Three-fths of respondents to Mind’s survey stated that
the reduction in income as a result of SSP negatively
impacted on their mental health, with a quarter adding
that this impact had slowed down their recovery.
“ I was signed o due to depression and
anxiety. I was meant to take 2 weeks to
recover but I couldn’t as I was constantly
aware that I would not be getting paid
much and I’ll struggle nancially. It really
aected me.”
52
The low rate of SSP impeding recovery is not a
phenomenon limited to those with mental health
conditions. Cancer patients have also faced worrying
challenges as a result of a lack of protection. Cancer
support specialists Reframe provide case studies as part of
research conducted for this report, such as the one below.
53
Following her cancer diagnosis, Hannah was
unable to work as her treatment regime
rendered her bedbound. She was only entitled to
SSP from her employer, and this had a signicant
impact on her nances.
A prolonged period away from work caused money
to become so tight that Hannah consulted with her
treating care team to reduce her treatment dosage
so she could return to work part-time.
Hannah returned to work part-time. Because
SSP does not accommodate so-called ‘phased
returns’, she was not entitled to any sick pay for
the hours she was not able to work. Despite her
returning to work part-time, Hannah was still
struggling to make ends meet.
With the help of support from Reframe, Hannah
was able to make a claim for state benets and was
referred to local food banks. Hannah also needed
to contact her energy supplier and tell them about
her cancer diagnosis to make sure they wouldn’t
cut o the supply to her home.
50
Mind, Statutory Sick Pay: Our Research (2019)
51
CIPD, Some workers face financial hardship in just one week if
they have to take time off for Coronavirus (2020)
52
Mind, Statutory Sick Pay: Our Research (2019)
53
Case study provided by Reframe Cancer Support. The
patient’s name has been changed to protect their privacy.
Page 18 of 46
This analysis suggests that, at present, SSP fails to provide a basic safety net for some
of the most vulnerable workers in the UK. This is a signicant problem on its own and
should be particularly concerning in the context of rising costs for essential expenditure
such as food and energy.
Higher welfare spending
Some of those receiving SSP will be eligible for social security benets,
although not all will realise this or make a claim. Where employees are claiming
social security benets (now likely to be Universal Credit), low replacement rates are
counteracted somewhat by the tax and benets system. As their weekly income falls, the
tax they owe decreases and their benet award may increase. This osets somewhat the
income shock of moving onto SSP and means that net incomes are not as heavily impacted
as gross incomes. The below chart shows the theoretical impact of tax and benets.
Notional replacement rate of SSP, and effective replacement rate after tax and benefits (%)
54
Annual salary
Source: WPI Economics modelling
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
10
20
30
40
50
60
70
80
90
100
SSP replacement rate (%) with UC
Current SSP replacement rate (%)
£49,400£48,100£46,800£45,500£44,200£42,900£41,600£40,300£39,000£37,700£36,400£35,100£33,800£32,500£31,200£29,900£28,600£27,300£26,000£24,700£23,400£22,100£20,800£19,500£18,200£16,900£15,600£14,300£13,000£11,700£10,400£9,100£7,800£6,500£5,200£3,900£2,600£1,300
Current SSP replacement rate (%) SSP replacement rate (%) with UC
54
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Many employees on SSP, in practice, will not be claiming benets. This means they will
not see a rise that compensates their move onto SSP. Very few of those earning more
than £25,000 a year are in families that claim means-tested benets, and so the vast
majority of people earning above £25,000 per year amount face an eective replacement
rate lower than 20%.
While it is positive that the benets system provides an additional emergency safety net
for the individual, it comes with a signicant burden for the Exchequer. This is a little-
raised point in recent discussion of SSP: Its low rate shifts the burden of supporting sick
employees towards the state, signicantly increasing welfare spending.
Overall, the Exchequer costs of the current system are estimated to be around £850
million a year,
55
including people who are not paid SSP because they are o sick for
fewer than 4 days but nonetheless see a reduction in earnings and therefore an increase
in benets such as Universal Credit. In short, the direct costs of the current system are
likely greater for the government than for business.
On top of this, the current system does not eectively incentivise or support employers
to invest in preventing and managing sickness absence, which is likely to increase
disability benet onow.
Disability benet spending was projected to be a record £58 billion in 2021/22, of which
£33 billion of support was for working-age people.
56
Limited employer incentives
Employers play a central role in managing and reducing levels of sickness absence.
A review of international systems of sick pay conducted by the OECD in 2010 concluded
that employers should “be given a much more prominent role in sickness monitoring
and sickness management [as] they are in a good position to judge what work their
employees can still do and what work or workplace adjustments might be needed to
[address] the health problem that has arisen.”
57
55
Ibid
56
Department for Work and Pensions, Shaping Future
Support: The Health and Disability Green Paper (2021), pp.
10-13
57
OECD, Sickness, Disability and Work – Breaking the Barriers
(2010), p. 14
Page 20 of 46
There is a growing evidence base about the key
elements of support needed to help employees with
health conditions to remain in work:
· Active management of sickness absence, early
intervention and multidisciplinary support
· Adjustments to the workplace, tasks and hours
· Access to expert-led, impartial advice (e.g. on
capability, return to work planning)
· Time o and adequate income to support recovery.
58
A growing number
59
of businesses are
using Group Income Protection Insurance
to address employee health needs. Group Income
Protection is a product which has been specically
designed to prevent and proactively manage
sickness absence and support returns to work.
Group Income Protection is one solution available to
employers to help them take care of an employee if
an illness or injury threatens their ability to work.
An employer takes out the policy to cover their
promise to provide sick pay to employees if they
are unable to work for a prolonged period because
of illness or injury. Group Income Protection
policies are available to SMEs with as few as three
employees, right through to the largest employers,
and typically provide:
· Personalised and tailored early intervention and
rehabilitation support to help an employee back
to work, aiming to reduce the length of sickness
absence
· Preventative services designed to improve
general employee health and wellbeing, empower
employees to better manage existing health
conditions, or improve line manager capability to
deal with absence and health issues
· A nancial benet if the employee is unable to work
due to illness or injury, meaning that — in addition to
nancial security and peace of mind — the employee
will continue to contribute to society through tax and
National Insurance contributions, and be less reliant
on means-tested state welfare benets.
A Group Income Protection premium is a known
expense that can be budgeted for, providing
certainty for business over costs and ensuring that
employees are protected when absence occurs
regardless of other pressures on the business.
There are also often a range of preventative and
rehabilitation services available as needed, even in
advance of any potential claim against the policy.
Because the support services are arranged by the
insurer, the employer does not face the diculties
of evaluating and procuring them themselves, and
benets from the insurer’s economies of scale.
58
Adapted from HM Government, Health is everyone’s
business: proposals to reduce ill health-related job loss (2019),
pp. 12-13
59
Visavadia, H., ‘Swiss Re: Group risk policies rose 4.1% in
2021’, Cover (20 April 2022)
Page 21 of 46
While many employers are already proactively and
eectively supporting their sta at work, there are wide
variation in employers’ capability across the UK, with
smaller employers typically at a particular disadvantage.
This is often because smaller employers are more likely to:
· Lack time, sta, and capital to invest in expert support
or health interventions
· Be unsure whether the benets of investing in
employee health outweighs the cost
· Have more limited knowledge about their legal
responsibilities surrounding managing sickness
absence
· Have less access to expert advice, such as occupational
health support.
60
Given the positive impact that services like Group
Income Protection can have, the importance of
employers playing a greater role in supporting
employees in returning to work is clear. However,
employers will only be engaged in these types of
activities where there is an incentive for them to do
so. The government believes that too low a rate of sick
pay undermines the economic incentive for employers
to invest in reducing absence.
61
Even putting aside the
low rate of SSP, the current system is also only focused
on prescribing payments. It also does not encourage
or guide employers to provide comprehensive and
eective sickness absence management support.
Reform of SSP has the potential to strengthen
employer incentives to reduce levels of sickness
absence. Insurance models oer a way to pool risks
and resources with other rms, and allow even the
smallest employers to access a comprehensive package
of support which has a strong track record of improving
absence outcomes. Insurance models have also been
shown internationally to improve absence levels over
time through ‘experience rating’ — in the Netherlands,
this eect reduced disability benet onows an
estimated 15%.
62
At a population level, anything
approaching this scale of impact in the UK would be
strongly positive for a whole range of economic, health
and social outcomes.
60
Adapted from HM Government, Health is everyone’s
business: proposals to reduce ill health-related job loss (2019),
pp. 14-15
61
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), pp. 34-35
62
Koning, P. and Lindeboom, M., ‘The Rise and Fall of
Disability Insurance Enrolment in the Netherlands’ in
Journal of Economic Perspectives, Vol. 29, No. 2 (2015), p. 159
Page 22 of 46
It is clear that the current system is not working for our
economy, for our health or for our society.
To help us design a more eective system, we need
to be clear about what we want to achieve. As part of
our research, we held discussions with a wide range of
stakeholders. Based on what we heard, we believe that
a new system needs to deliver ve key criteria in order
to succeed:
Targeted safety net: The rate of sick pay
needs to be sucient to ensure that those
who are unable to work due to sickness
are protected from poverty and insecurity,
while encouraging a return to work where possible.
Diering employer capabilities mean a new system
needs to provide a responsible baseline, rather than an
overly prescriptive solution.
Employer action: The workplace is vital
for addressing the UK’s levels of sickness
absence. Maximising the role of employers
needs to be at the heart of future sick pay
policy as a result. This needs to be delivered through a
mixture of incentives and support for businesses.
Business benet: The system needs to
support a globally competitive economy
and businesses, meaning that it must work
for employers as much as it works for
employees. That means that it should help reduce costs
to business and the wider economy, as well as support
hiring, investment and innovation.
Exchequer benet: Reform needs to
improve the UK’s scal position, by
increasing tax revenue and reducing
spending on means-tested benets.
Financial support to businesses from Government
should minimise the potential for deadweight loss.
Broad support: Reform should forge a
new political consensus and appeal to
a range of stakeholders across society,
much in the same way as reforms to the
private pensions system that arose from the Turner
Commission.
OUR FIVE SUCCESS CRITERIA
Page 23 of 46
Changing SSP alone will not be enough
Given the signicant issues with the current system of SSP, it is no surprise that
many have called for tweaks to the current system. Some of the previously suggested
proposals have been highlighted in past government consultations.
63
These ideas oer
improvements on the current system, but none satises our ve criteria or creates the
step change impact needed to tackle UK sickness absence.
Analysis of selected existing proposals for SSP reform
64
OUR FIVE SUCCESS CRITERIA
Impact of change Numbers aected Cost to business Commentary
Remove
waiting
days
Sick pay payable
from day 1 of
absence
Doubles the
number of SSP-
eligible days to
around 36 million
Up to £500
million
Extends support to those with short spells of absence.
Increases costs for businesses — but does little to
incentivise companies to provide more support to
those with longer spells of absence (costs for these
employees would be unaected)
Replacement rate still very low
Remove
time limit
Allows for very
long-term SSP
beyond 28 weeks
Low — few spells
last this long
Less than £100
million
No additional early intervention incentive and no
increase to support before 28 weeks
Replacement rate still very low
Increasing
exibility
Allows ‘phased
returns’ to work
(i.e. part-wages,
part-SSP).
Unknown — but
likely moderate
Likely to be low Helpful in supporting those transitioning back to
work or managing uctuating conditions
Limited additional incentive for employers to improve
support
Replacement rate still very low
Paid at
National
Living
Wage
SSP paid to
eligible sta at
NLW rate
All those currently
receiving SSP
Also brings into
scope many
currently handled
by OSP schemes
Up to £1 billion May increase incentives for rms to invest in absence
support, but rate increase alone does not guarantee
this. Could create ‘perverse incentives’.
63
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), pp. 25-35
64
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Page 24 of 46
Each of these options oers some improvement on the current SSP system, but in
isolation most are unlikely to have a signicant positive impact on return-to-work
outcomes or levels of protection for sick employees, with the exception of increasing the
rate to match the National Living Wage.
This would represent a signicant increase in employee protection but comes at a total
direct employer cost of around £1 billion a year.
65
Without mitigation of these costs and
the provision of signicant return to work support, it is unlikely that such a business
burden would be desirable or politically feasible.
The same is true when implementing all the above options together as a package. This
option would improve living standards and provide more exible nancial support,
plus deliver Exchequer savings. However, the combined cost would be high, and such
a package oers little support for businesses to improve return to work outcomes. We
judge this package to oer little direct business benet, and so it also does not meet our
ve success criteria.
OUR FIVE SUCCESS CRITERIA
Assessment of current system and package of selected SSP reforms against success criteria
Current
SSP system
Package of selected
SSP reforms
Targeted safety net Very poor Moderate
Employer action Very poor Moderate
Business benet Moderate Poor
Exchequer benet Poor Adequate
Broad support Very poor Poor
65
Ibid
Page 25 of 46
to secure widespread support from the business
To bring about the scale of change needed in our
system, changes to the system of SSP payments need to
be partnered with a wider system of proactive support
that makes it easier for employers and employees to
work together to secure a sustainable return to work
where possible.
To be successful, a new system needs to consider
questions relating to:
· Payment: Who gets paid, how much, and by whom/
what mechanism
· Support: Both for employers and employees to
prevent sickness absence and to manage health issues
proactively and eectively if they arise.
Elements of design
Payment Support
Design questions
Who gets
paid?
How
much?
By
whom?
For the
employee
For the
employer
Benets of reform
Higher
productivity,
reduced
worklessness,
increased
retention
Higher living
standards
while o sick
Higher pay,
increased
wellbeing
Better chance
of returning
to work
Short term Long term
Page 26 of 46
Payment
A new system must consider three issues:
· Who is eligible
· How much they get paid
· Who pays them.
Who is eligible?
The current system was designed for a dierent era,
when workers were more likely to receive their week’s
wages in cash and without the diversity of working
practices and hours that characterises today’s labour
market. A new system should be easier and fairer, while
controlling employer costs and minimising legislative
complexity for policymakers.
Under our proposal:
Eligibility is enhanced: By extending
eligibility to include workers with earnings
below the Lower Earnings Limit of £123
per week, around 2 million more workers
(70% of them women)
66
would gain protection in the
event of sickness that they currently lack today. This
policy is supported by the Trades Union Congress and
Federation of Small Businesses.
67
Flexibility is built in: By shifting to an hourly
rather than weekly calculation, and allowing
sick pay and regular earnings simultaneously,
the system will easily take account of part-
time or exible working. Employees will have the option of
a ‘phased return’ to work, which can be make a return to
work more sustainable and successful.
Calculation is simpler: The existing concept
of ‘qualifying days’ makes calculating sick
pay for employees with working patterns
that change week to week very dicult.
The new system could do away with this anachronism
entirely with no adverse eects.
Waiting days remain: While there is a
strong argument for extending eligibility
forwards to the rst day of sickness
absence, in practise this approach would
be inordinately expensive as the vast majority of spells
last for fewer than 4 days. On balance, we believe that
maintaining waiting days is the right approach for now,
but this could be revisited later.
Length of entitlement remains: Although
extending sick pay beyond the current
28 weeks appears to provide greater
employee protection at little overall cost,
there are a number of issues with this approach. While
the overall business cost is low, individual businesses
could see unfortunate and unavoidable ‘peaks’ of very
long-term, very expensive absence. At the same time,
changes to SSP duration have knock-on impacts to
the welfare system, and this would likely mean long
consultations and dicult legislative change.
66
TUC, TUC accuses government of abandoning low-paid
workers after it ditches sick pay reforms (2021)
67
FSB, FSB and TUC call on Chancellor to deliver sick pay for all
(2022)
Page 27 of 46
The generosity of sick pay has a number of important
rst and second order eects. Put simply, low rates
of sick pay (as in the current system) help to control
employer costs at the expense of protections for sick
employees, while for higher rates of sick pay the reverse
is true. The second order eects are more complicated.
As seen in the previous chapter, the current system’s
low at rate has a negative Exchequer impact through
increased spending on means-tested benets, and could
aect value judgements for employers about the benets
of increased investment in absence management.
The mechanism by which to set a new rate presents its
own challenges. A at rate is the simplest to administer
and can eectively control costs, but — as now — carries
the risk of creating undesirable outcomes for certain
workers depending on where it is set. A percentage
replacement rate could deliver a more appropriate safety
net for dierent groups, but costs could spiral if not
capped. Without a ‘oor’, some workers would receive a
lower level of protection than they have today, which is
likely not to be politically acceptable. These options are
considered in more detail below.
Option 1 — Paid at Minimum Wage
One common suggestion is to simply increase the level
of sick pay to the equivalent of the hourly rate of the
applicable National Minimum Wage or National Living
Wage. This is administratively straightforward and
increases worker protection substantially.
However, most people earning below £20,000 a year
would see a replacement rate of 100% under such a
system, and this creates the risk of a ‘moral hazard’
eect which is likely to undermine the acceptability of
such a policy to businesses. The cost for employers
would be, as a minimum, around £700 million a year.
Assuming that all the costs were borne by employers,
there would be Exchequer savings through reduced
social security payments and increased taxes of around
£220 million a year.
68
68
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Page 28 of 46
Replacement rate of ‘NLW-equivalent rate’ proposal vs. present system (%)
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
Weekly sick pay under ‘NLW-equivalent rate’ proposal vs. present system (£)
Reform payment Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
100
200
300
400
0
100
200
300
400
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
Replacement rate of ‘NLW-equivalent rate’ proposal vs. present system (%)
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
Weekly sick pay under ‘NLW-equivalent rate’ proposal vs. present system (£)
Reform payment Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
100
200
300
400
0
100
200
300
400
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
Option 2 — Static replacement rate of 60%
An alternative approach, akin to a ‘Continental’ style social
security system, is to target a given replacement rate,
paying sick employees a set proportion of their normal
salary. This allows living standards to be supported while
retaining ‘work incentive’ eects and avoiding moral
hazard. Typical European replacement rates average 50%-
70%
69
, and similar rates are seen in insurance products.
70
This approach would also be relatively simple. However,
it would be a big departure from the current system
in that statutory payments linked to someone’s salary
could continue all the way up the income scale, meaning
those on higher incomes could receive far higher levels
of sick pay than today — at a concomitant business
cost. Additional business costs would be around £700
million a year.
71
At the same time, workers at the lower end of the
income distribution could actually see their level of
protection decline — those earning just above the
Lower Earnings Limit in the present system (quite often
people working part-time in jobs earning the National
Living Wage) would see the biggest drop.
With some of the UK’s poorest workers losing out
under such a scheme, and the majority of the benets
accruing to those with salaries of over £25,000, this
option is unlikely to garner cross-party support or be
endorsed by trade unions. At a replacement rate of
60%, we estimate Exchequer savings through reduced
social security payments and increased taxes of about
£150 million a year.
72
Replacement rate of 60% vs. present system
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
Weekly sick pay under ‘60% replacement rate’ proposal vs. present system (£)
Reform payment(capped) Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
100
200
300
400
500
600
0
100
200
300
400
500
600
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
69
TUC, Welfare States: How generous are British benefits
compared with other rich nations? (2016), p. 28
70
MoneyHelper, What is income protection insurance? (2022)
71
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
72
Ibid
Page 30 of 46
Option 3 — Targeted Support
The above options highlighted the challenges posed by
simplistic solutions and led us to the conclusion that the
rate needed to achieve three objectives:
· Achieving replacement rates of between 50% and 70%
for most workers
· Acting as true safety net, oering the greatest protection
to workers on the lowest earnings who are the least
likely to be covered by occupational sick pay schemes
· Avoiding seeing low-paid workers lose out as a result
of the new system.
To do this, we propose a new rate based on:
· A universal standard allowance based on the NLW
up to 10 hours of work, pro-rated for the number of
days o sick — meaning that those on extremely low
incomes see very high replacement rates, and there
are no losers compared to the current SSP system
· A top-up replacement rate providing 35% of weekly pay
on top of the standard allowance, again pro-rated for the
number of days o sick, resulting in gross replacement
rates for those earning up to £30,000 that exceed 40%
· A weekly cap on costs set at £250 to ensure that
costs are managed and that the system is focused on
a statutory minimum, rather than trying to replace
occupational schemes that are regularly provided for
those on higher salaries.
Replacement rate of 60% vs. present system
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
Weekly sick pay under ‘60% replacement rate’ proposal vs. present system (£)
Reform payment(capped) Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
100
200
300
400
500
600
0
100
200
300
400
500
600
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
Page 31 of 46
This option achieves our three objectives to provide targeted and eective support.
Around 60% of the benets would be accrued by those on salaries of less than £25,000
a year. It also comes at a substantially lower cost to businesses than either an enhanced
at rate or static replacement rate option, at an additional cost of around £400 million.
73
Direct Exchequer savings (before any behaviour change) through reduced social security
payments and increased taxes would be about £120 million a year. On top of these, WPI
Economics modelling projects further savings of at least £500 million a year because of
reduced incidence of sickness absence, and fewer people falling out of work and onto
sickness and disability benets.
74
Replacement rate of ‘targeted support’ proposal vs. present system (%)
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
W
eekly sick pay under ‘targeted support’ proposal vs. present system (£)
Reform payment Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
50
100
150
200
250
0
50
100
150
200
250
Reform payment
Current SSP (£)
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
Reform replacement rate (%)
Current SSP replacement rate (%)
73
Ibid
74
Ibid
Page 32 of 46
Discussing each of the proposed options for rate reform reveals that the status quo
represents the worst of all worlds: low levels of worker protection, limited employer
incentives and high (largely hidden) taxpayer costs. Our third option provides targeted
support at a controlled cost.
Replacement rate of ‘targeted support’ proposal vs. present system (%)
Reform replacement rate (%) Current SSP replacement rate (%)
Replacement Rate
Source: WPI Economics modelling
W
eekly sick pay under ‘targeted support’ proposal vs. present system (£)
Reform payment Current SSP (£)
£ per week SSP
Source: WPI Economics modelling
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
Annual salary
£48,100
£45,500
£42,900
£40,300
£37,700
£35,100
£32,500
£29,900
£27,300
£24,700
£22,100
£19,500
£16,900
£14,300
£11,700
£9,100
£6,500
£3,900
£1,300
0
50
100
150
200
250
0
50
100
150
200
250
Reform payment
Current SSP (£)
0%
20%
40%
60%
80%
100%
0
20
40
60
80
100
Reform replacement rate (%)
Current SSP replacement rate (%)
Page 33 of 46
Though the least burdensome, the rst order costs for business presented by Option 3
do present a hurdle to securing broad support, and so it is important to consider how
changes to the rate of sick pay interact with other elements of the proposed policy
design, and the wider existing policy landscape. This means considering of who pays,
and the package of business support available.
The system of employers being responsible for the administration and payment (transfer
of funds) of sick pay has worked well, and we do not propose fundamentally changing this.
However, the question of who bears the ultimate cost of sick pay is an important one.
Employers bearing a higher proportion of sick pay costs increases burden on business,
but brings Exchequer benets in the form of reduced spending on means-tested benets
and increased tax receipts. Alternatively, the government could choose to bear some or
all of the costs of sick pay, though this is likely to have a detrimental scal impact.
Assessment of rate reform options against key success criteria
Current
SSP system
Option 1 —
Minimum Wage
Option 2 —
Replacement Rate
Option 3 —
Targeted Support
Targeted safety net No Unbalanced Unbalanced Balanced
Employer action No Some Some Some
Exchequer benet Limited Good Good Good
Broad support No Unlikely Unlikely Possible
Page 34 of 46
We have considered four potential approaches to this question.
1. 100% employer-funded: This option sends a strong signal to businesses that they
must act. It substantially increases employer costs without state support.
2. 100% state-funded: A big departure from the current system, this option would
increase taxpayer costs signicantly. Some would argue this could reduce employers’
incentives to manage sickness absence eectively. This option would likely need to
be accompanied by a highly prescriptive system governing absence management to
reduce taxpayer spending.
3. Employer-funded, with targeted state support: This option would see the Exchequer
redeploy some of the savings it makes through reduced social security payments
and increased tax take under a more generous employer-funded system to give
substantial help to businesses needing the most support to improve their workplace
health programme.
4. Employee contribution: This option would see employees contribute from their salary
to fund an enhanced sick pay system. Given the current political and economic climate,
and the present high burden of taxation, this option is unlikely to be politically feasible.
Assessment of suitability of funding models against key success criteria
100%
employer-funded
100%
state-funded
Employer-funded
with state support
Employee
contribution
Employer action High Low High Unknown
Business benet Moderate High High Moderate
Exchequer benet High Low High Moderate
Broad support Unlikely Unlikely Possible Unlikely
Page 35 of 46
Support
We have demonstrated the benets of a reformed rate that provides targeted support
for employees at the lower end of the income distribution while still lifting the minimum
level of protection for all workers and strongly incentivising proactive sickness absence
management. At the same time, we believe there needs to be targeted support for
employers to help them meet this challenge and the costs of improving the help and
support they are able to oer their sta.
Given the scale of the policy challenge and the modelled Exchequer savings from a
reformed rate of sick pay, £500 million should be unlocked to level up the health of
employees in SMEs across the UK.
75
There is a strong and growing international and
domestic evidence base supporting a wide range of workplace health interventions. In
the UK, the government is supporting this work by its joint Work and Health Unit, which
by mid-2018 had already launched projects to improve workplace health and disability
employment worth around £1 billion.
Page 36 of 46
Stakeholders consulted as part of our research raised
a range of potential routes forward. A brief discussion
of these can be found below, and is followed by our
preferred package.
76
1. Unconditional employer rebate: This option
would see costs fully or partially rebated to SMEs
or particular sectors that could be impacted more
strongly by increases in sick pay. While it would be
eective in supporting businesses to deal with sick
pay costs, spending could quickly hit or outpace
available funding, and some would argue it could
act to diminish the incentives of employers to take
eective action to better manage sickness absence.
This option would not most eciently target public
funds towards eecting business action.
2. State-funded support service: This option would
use the money to create a publicly funded service
(likely digitally delivered) to provide advice and
support to employers to help them manage sickness
absence better. It might also act as a ‘gateway’ to
claim a conditional rebate of sick pay costs. Some
local authorities run similar services today. The
government previously ran a national service called
Fit for Work, but this saw very low take-up from
employers. Any new state-funded support service
would therefore need to overcome the challenges Fit
to Work faced.
3. Conditional employer rebate: This option would
provide a targeted rebate of sick pay costs to
employers who were able to demonstrate they were
eectively managing sickness absence. There are
a range of approaches to this, including a rebate
conned to a particular employee’s absence journey,
such as where it can be demonstrated that the
employer has supported the employee through
interventions such as a return-to-work plan. It may
also occur at an organisational level, for instance by
rebating sick pay costs incurred by businesses which
meet certain prescribed standards. However such a
scheme was designed, it would need to both deliver
eective behaviour change among employers while
also being simple to understand and administer.
4. Workplace health stimulus package: This option
would nudge businesses towards existing market
solutions for workplace health support. Criteria could
be set to support businesses to purchase support
which was backed in the government’s view by strong
evidence. Such a scheme would allow businesses
to improve their workplace health oering straight
away, with the nancial support being obtained
either automatically by service providers, or through
the tax system. The government has already set an
ambition to see more SMEs take up both high-quality
occupational health
77
and has indicated that Group
Income Protection policies accompanied by high-quality
services aimed at preventing ill health and oering
return to work assistance oer valuable support.
78
75
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
76
House of Commons, Written Answer UIN166484 (20 July
2018)
77
HM Government, Health is everyone’s business: proposals to
reduce ill health-related job loss (2019), p.5
78
HM Government, Health is everyone’s business – consultation
response (2021), p. 48
Page 37 of 46
While an unconditional employer rebate would be popular with business, reviving
smaller employers’ ability to claim back SSP costs that was progressively abolished over
recent decades, it is unlikely to be popular with policymakers who might agree with
the principle but could struggle to evidence the measure’s eectiveness in improving
employee health overall.
A state-funded support service does have promise — it would present the opportunity to
design a leading model to help reintegrate employees back into the workforce and could
be embedded within with Jobcentre Plus. However, the government’s previous Fit for Work
service failed to see expected take-up from employers,
79
despite being free of charge. A
new service might be able to overcome the challenges experienced by Fit for Work, but it
will take signicant time to design and deliver. It would also place government in conict
with the existing market for workplace health and support, which has seen increased
interest since the onset of the coronavirus pandemic and move to hybrid working.
Conditional employer rebates show promise as a way to strongly encourage employer
action on sickness absence management. While designing an eective yet easy-to-use
scheme does present some challenges, if done correctly it could lead to widespread
changes in employer behaviour as it would directly link improvements in absence
management to nancial reward. The Federation of Small Businesses (FSB) recommends
government introduce a sick pay rebate and use this scheme to “prompt positive
sickness absence management among employers”.
80
Assessment of suitability of support package approaches against key success criteria
Unconditional
employer rebate
State-funded
support service
Conditional
employer rebate
Workplace health
stimulus package
Employer action Low-Moderate Low-Moderate High High
Business benet High Moderate High High
Exchequer benet Low Moderate Moderate Moderate
Broad support Unlikely Unknown Likely Likely
79
House of Commons, House of Commons Debate
(30 November 2017, vol. 632, col. 501)
80
FSB, Business without barriers (2022), p. 65
Page 38 of 46
A stimulus package for SMEs would also create a route
for businesses who are considering improving their
employee health oering, but who are unsure about the
cost, to do so straight away and benet from being able
to access government-approved support more cheaply.
This would have the advantage of helping businesses to
access services that could work to prevent absence, and
which serve to make them a more attractive employer
in the ongoing war for talent.
The FSB has also found support among SMEs for
nancial help to access expert advice services such as
occupational health, whether through direct subsidy
or the tax system. It called for a subsidy scheme to be
introduced over the next two years.
81
A shot in the arm for workplace health
We believe that British businesses will see reforms to
sick pay and sickness absence management as a strong
signal to act and further improve the oering they
provide to employees, and that the presence of a rebate
or stimulus scheme will amplify their motivation further.
Individual businesses will be best placed to understand
whether the rebate scheme or the oer of stimulus
works best for them. For instance, a business with
dedicated HR support that feels condent in its ability
to eectively manage the majority of absence cases
without outside help might leverage the rebate scheme
to secure a refund of its costs and take full credit for its
contribution. Alternatively, a business with a less well-
developed oering might wish to take advantage
of the chance to quickly level up its capabilities with
new external support backed by the government.
Both approaches could work well. We therefore
recommend that government takes them both
forwards in concert with any changes to sick pay, as
coordinated action is likely to be a far stronger driver
for behaviour change.
81
FSB, Business without barriers (2022), p. 73
Summary of recommendations
SSP turns 40 years old this year — and it is a policy
that is clearly showing its age. This report has shown
that tackling the UK’s sickness absence problem is
about moving from a system focused just on pay to
one that provides proactive and eective support for
both employees and employers. This approach is a
partnership between business, the state and workers
themselves, and is designed to boost productivity and
living standards across the UK.
While the detail of proposals must be developed
in concert with business, trade unions, people with
disabilities and their organisations, we believe that
Statutory Sickness Support could look like this.
Elements of design
Payment Support
Design
recommendations
Who gets
paid?
How
much?
By
whom?
For the
employee
For the
employer
Those sick for
more than
three days,
who are o
work for all
or part of a
contracted
day.
No
requirement
to earn above
a particular
threshold
Not limit on
numbers of
weeks.
Payment of:
• Standard
allowance,
of up to 10
hours at
NLW.
• 35% on top
– based on
salary.
• Weekly
payment
limit of £250.
Use social security / tax benets of increased sick
pay to part-fund £500m scheme for supporting
businesses to improve back-to-work support.
Our recommendation is that a support package
includes both:
• Conditional employer rebate – a targeted rebate
of sick pay costs to emplyers who were able to
demonstrate they were eectively managing
sickness absence.
• Workplace health stimulus package – a nancial
incentive to encourahe businesses to adopt existing
market solutions for workplace health support,
where these are backed by a strong evidence base.
Pilots / testing and evaluation of dierent option
needed to ensure maximum benet to employees,
employers and society. Facilitated by return of
mandatory reporting of sickness absence from rms.
Employers pay
for statutory
minimum.
Employees
can top up to
provide extra
support.
Page 40 of 46
The scale of the potential benets of our proposed reform for individuals would be
signicant.
Statutory minimum sickness pay replacement rates would increase for all
workers — and access would be given to those on low incomes. Flexibility would
also increase.
The average replacement rate for someone receiving sick pay would increase
from 28% on SSP to 63% under the new system.
82
Around 60% of the direct nancial benets of the scheme would go to those
earning below £25,000 a year. When on sick leave, these individuals would
receive an average of £103 a week — more than under the current SSP system.
This would improve their ability to make ends meet.
83
It is very likely that many more workers would also have access to professional
support to return to work, thereby increasing the likelihood and speed of a
return to work and bringing signicant longer-term nancial, health and
wellbeing benets.
The reforms would also come with large benets for employers and the Exchequer,
with an understanding that these are key to making the case for reform. Overall, there
are three key routes through which businesses and the Exchequer can benet from
the reform.
82
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
83
Ibid
Page 41 of 46
WPI Economics has sought to quantify these benets, and a summary of their ndings
can be found below. The underlying methodology for that work is an extension of that
used in Improving Lives: the Work, Health and Disability Green Paper, and is based on an
updated version of its central case.
84
Benets of reform for
business and the
Exchequer
Quicker return
to work
Reduced ows
into health-related
inactivity
Reduced presenteeism,
reduced recruitment,
higher retention
Increased tax and
reduced social
security payments
Increased productivity Reduced lost output
Benets of an improved statutory sick pay and support system
84
Ibid
Page 42 of 46
Between 150,000 and 200,000 people a year ow onto
disability benets from work.
85
To understand the
potential of this reform, take account of the proportion
of those who come directly from sickness absence
and are likely to have been on SSP (rather than an
occupational scheme). Existing evidence suggests that
well-managed sickness absence could lead to return
to work rates from long-term sickness absence of
50%-90%.
86
However, given the scale of uncertainty,
conservative assumptions indicate that this ow can be
reduced by 20% for the group moving from Statutory
Sick Pay to long-term disability benet.
87
Results suggest:
· Initial benets to the economy of up to £800 million
a year
· Initial Exchequer benets of up to £300 million a year.
These benets will increase over time, as more people
are supported to stay in work each year. This implies
that, after 5 years, the benets each year will amount to:
· Benets to the economy in the fth year are up to
£3.6 billion
· Exchequer benets in the fth year of up to £1.2 billion.
88
Reduced sickness absence
With 17 million SSP-eligible sick days being taken
each year, even a small reduction of these could lead
to signicant benets. Again, evidence suggests that
eective management of sickness absence can lead
to quicker return to work and lower sickness absence.
For example, one study has suggested that using early
intervention services such as vocational rehabilitation
can reduce the average length of sickness absence
by 17%.
89
Using a conservative assumption, of a 10%
increase in the speed of return to work for the group on
Statutory Sick Pay, suggests:
· Benets to the economy of up to £300 million a year
· Exchequer benets of up to £100 million a year.
90
Reduced presenteeism
Existing evidence suggests that the equivalent of 750
million days a year are lost to presenteeism in the UK
economy.
91
Even if these costs were reduced by 1%
overall, it would lead to very signicant economic and
social benets.
We heard evidence from a range of stakeholders on the
fact that the current system of SSP is a driver of some of
these costs, as poorly managed sickness absence leads
to employees attending work, even if they are not well
enough. Assuming that the proportion of these costs
attributable to those eligible for SSP are similar to the
proportion of sickness absence that is attributable to
those on SSP, it is expected that:
· Benets to the economy could be up to £100 million
a year
· Exchequer benets could be up to £50 million a year.
92
85
WPI Economics analysis. Evidence suggests that around
one in five (22%) of new claims for disability benefits comes
following a period of sickness absence (Sissons, P., &
Barnes, H., (2013), ‘Getting back to work? Claim trajectories
and destinations of Employment and Support Allowance
claimants’, in Journal of Poverty and Social Justice, Vol. 21
(3) (2013): 233-246. Cited in Holmes, E., Pickles, C., & Titley,
H., (2015), Employment and Support Allowance: the case
for change. (Reform, London). There are around 1,000,000
new claims for social security benefits each year (DWP
StatXplore).
86
Social Market Foundation, Insuring a return (2021), p. 58
87
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
88
Ibid
89
CEBR, Long-term sickness absence costs UK businesses
£4.17bn a year (2015)
90
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
91
WPI Economics analysis of Vitality and RAND Europe,
Britain’s Healthiest Workplace Survey 2016 data on sector-
level presenteeism as cited in ‘Health at Work’ supplement
in Financial Times (2016), p. 13
92
WPI Economics, 2022, Statutory Sick Pay: modelling costs
and reforms
Page 43 of 46
The below chart shows projected total economic and Exchequer benets from the introduction of the Statutory Sickness
Support scheme. It illustrates:
· In year one:
–
Benets to the economy of up to £1.1 billion.
–
Exchequer benets of up to £400 million.
· In year ve:
–
Benets to the economy of up to £3.9 billion.
–
Exchequer benets of up to £1.3 billion.
Projected economic and Exchequer benefits from introduction of Statutory Sickness Support
93
Exchequer benefits High case Economy benefits High case
Exchequer benefits Low case Economy benefits Low case
0
1
2
3
4
5
6
7
8
Economy benets Low case
Economy benets High case
Exchequer benets Low case
Exchequer benets High case
Year 10Year 9Year 8Year 7Year 6Year 5Year 4Year 3Year 2Year 1
0
1
2
3
4
5
6
7
8
Year 10Year 9Year 8Year 7Year 6Year 5Year 4Year 3Year 2Year 1
£bn
93
Ibid
Page 44 of 46
with huge hidden costs both through lost
output in our economy and through increased
employer-funded sick pay which are among the
To truly level up, improve our health, increase
productivity and deliver the high-wage, high-skilled
economy of the future, this situation must change.
To do this, we need to move from an antiquated and
anachronistic system of payments to a system that
delivers real support.
Our proposed system — Statutory Sickness Support —
would deliver universally improved nancial support for
employees and empower smaller businesses to level up
their workplace health oering. It delivers immediate
and signicant benets for individuals, businesses, the
economy and our public nances.
The case for change is clear — all that’s left to do now is
deliver it.
Page 45 of 46
Acknowledgements
The authors would like to thank James Taylor at Scope
for allowing us to update and replicate previous WPI
Economics work on SSP reform, commissioned by
Scope. We would also like to thank the stakeholders and
experts who have engaged with this work. All views and
opinions remain those of the authors.
Legal
This report has been produced by WPI Economics, an
independent economics and policy consultancy. The
views expressed in the report are based on independent
research and represent solely the views of the authors.
They are provided for informative purposes only.
Whilst we undertake every eort to ensure that the
information within this document is accurate and up to
date, neither WPI Economics nor the report’s authors
accept any liability for direct, implied, statutory, and/
or consequential loss arising from the use of this
document or its contents.
Page 46 of 46
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