By Peter O’Donnell, CEO, Unum

The Statutory Sick Pay Percentage Threshold Scheme has been a huge help for small businesses struggling to cope with high levels of sickness absence. But news that this will be scrapped next month to pay for the new Health and Work Service means SMEs must look for other ways to protect themselves against the unpredictable costs of absence.

What’s happening?

This year the government is introducing a new Health and Work Service to help reduce long-term sickness absence. The service will offer free advice for employees who have been off work for over four weeks, as well as non-compulsory medical assessments and treatment plans. Whilst this is a positive step forward, cutting support for employers with high levels of absence in order to raise funds will leave many small businesses exposed.

Previously, the Percentage Threshold Scheme would offer compensation to employers that experienced high levels of sickness absence at the same time, and allow them to recover some or all of the Statutory Sick Pay they incurred. But under the new rules this compensation scheme will be scrapped, leaving employers to bear the full cost if they experience high levels of sickness absence.

What does it mean for small businesses?

This change could represent a major additional cost for small businesses. Research shows that as many as 1 in 10 people are unable to work for 6 months or more due to illness during their working lives and many more are off sick for shorter periods of time, making sickness absence an issue that is likely to impact all small businesses at one time or another. The Health and Work Service may help employees back into work and reduce absence in the long-term, but employers will nevertheless be left with the immediate financial burden of paying Statutory Sick Pay.

This is a burden most small businesses can ill afford. Whilst the cost of sickness absence is a problem faced by all companies, large or small, SMEs are the most vulnerable to these kinds of financial pressures. Cash flow can be an issue if just one sizeable invoice is paid late, so large unexpected costs, like the cost of sickness absence if employees fall ill, can pose considerable business risks. This was certainly the view of accountancy firm Baker Tilly which recently went as far as to say the impact on smaller businesses could be catastrophic for the survival of the smallest firms, and in some cases lead to closures.

How can small businesses protect themselves?

The Percentage Threshold Scheme provided a much needed safety net. Without it, smaller employers must consider the other ways available to support staff while mitigating the unpredictable costs of high sickness absence. Equipping managers with the skills to identify and support employees with health and wellbeing issues before they get too serious, and putting aside a contingency pot to help with unexpected costs, can help with low-level absence.

Protection is also available on the market, but most employers may not be aware of the options. For example, Sick Pay Insurance provides employees with a regular monthly income if they are off sick for up to 12 months so employers don't have to pay Statutory Sick Pay. It also comes with rehabilitation services to support employees when they are ready to return to work. The insurer will handle the sickness absence, ensuring the right help is given to sick employees while freeing up staff – an important consideration for small businesses which are unlikely to have a formal HR department to handle the process.

The Percentage Threshold Scheme is due to come to an end in just a few weeks on 6th April. Small businesses should use this time to make sure they are protected against the unpredictable costs of sickness absence and make sure neither they nor their employees are caught out when the changes come into effect.