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New sick pay rules risk dismissals as businesses grapple with Rayner’s reforms

December 9, 2024

Recruiters have warned that Angela Rayner’s proposed overhaul of workers’ rights could force employers to sack staff who fall ill for extended periods, as businesses grapple with new cost burdens at a time of escalating employment expenses.

Under the government’s plans, employees will be able to claim statutory sick pay (SSP) from the first day of absence instead of the fourth. The earnings threshold, currently set at £123 per week, will be scrapped, making more people eligible for SSP. While hailed as a boost to workplace support, critics say the move risks saddling businesses—especially small firms—with unsustainable costs.

Shazia Ejaz of the Recruitment and Employment Confederation (REC) warned that higher outlays stemming from the reforms could encourage employers to “move swiftly to capability-based dismissal” if staff remain off work for lengthy periods or suffer repeated absences. She added that smaller businesses, which make up a substantial share of the labour market, would shoulder 60 per cent of the extra SSP costs.

With the government’s wider employment reforms also including a £25 billion rise in employers’ National Insurance Contributions and the most recent in a series of sharp minimum wage increases, companies face a mounting tally of additional costs. Ms Ejaz said: “A balance between worker support and business sustainability is necessary.” Setting SSP at a more manageable level could, she suggests, encourage employers to retain staff rather than resorting to layoffs.

The proposed measures form part of a broader package to enhance workers’ rights, which includes tighter restrictions on zero-hours contracts and tougher rules against “fire and rehire” practices. Deputy Prime Minister Rayner has described it as “the biggest upgrade to rights at work for a generation,” claiming it will raise both pay and productivity in a modernised employment landscape.

However, the Regulatory Policy Committee, an independent body charged with scrutinising new regulations, branded the package “not fit for purpose” due to insufficient analysis of how businesses will pass on these costs. Government estimates put the annual price tag for businesses at more than £4.5 billion.

Agency workers are set to be particularly hard-hit by the expansion of SSP eligibility, Ms Ejaz said, with agencies likely to shoulder the lion’s share of the financial burden rather than passing it onto clients. Faced with higher costs, businesses are expected to respond by cutting job creation, limiting wage growth, or raising consumer prices, according to recent surveys.

A spokesman for the Department for Work and Pensions defended the changes, arguing that no one should be forced to choose between health and financial hardship. “These reforms as part of the Employment Rights Bill will support people managing a health condition to stay in work and raise living standards across the country,” he said. The department is now reviewing responses to a public consultation, promising to proceed “at pace” as it shapes the final legislation.