Michael Taft: Healing Our Sick Pay System

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From top: Minister for Finance Paschal Donohoe; Michael Taft

In the budget the Government will have to show it has drawn lessons from the pandemic. One of those lessons is Illness Benefit.

When the crisis broke, the Government realised our Illness Benefit system was wholly inadequate. Not only did potential recipients have to wait a week to access the Benefit (thus receiving no income support in their first week of illness), the level of benefit at €203 per week for a single person (22 percent of an average full-time employee wage),meant that many people could not afford to take time off, thus risking the spread of the virus.

In March the Government abolished the 6-day waiting period and increased weekly payments to €300 per week, followed by another increase to €350 per week. However, this only applied to Covid-19.

Another feature of poor sick pay coverage emerged. According to surveys, only 44 percent of private sector employers had a sick pay top-up scheme (meaning the employer topped up the social protection payment in order to protect the employees’ income – though not necessarily to the full wage and for varying periods of time).

The majority of private sector employees have no occupational sick pay scheme and are totally reliant on the social protection system. With no sick pay obligations on employers, workers’ benefits are reliant on what sector and company they happen to work in.

Any reform of sick pay needs to be based on two principles:

1) All employees should have equal access to a full sick pay scheme (universal)

2) Illness Benefits should protect people’s income while they are out sick (comprehensive)

In most EU countries, employers are required to pay an employee their illness over the short-term. For instance, German employers must pay full salary up to six weeks.

Dutch employers must pay at least 70 percent of pay for two years while Belgian employers must pay a month in sick leave, depending on the contract and length of service. ICTU has produced an informative meme (below) giving one-line summaries of sick pay schemes in other European countries.

It is this principle that informs the Labour Party’s private member’s bill – Sick Leave and Parental Leave (Covid-19) Bill – to ensure that every employee is entitled to six weeks of sick pay at full pay.

This is a positive and progressive proposal. However, it is constrained given that a private member’s bill cannot place a charge on the Exchequer. Therefore, there are no provisions for increased public support to fund sick pay schemes.

For instance, in Germany employers with fewer than 30 employees receive a public subsidy of up to 80 percent of their sick pay costs. In other countries, employees move from employers’ sick pay to social insurance payments which still maintain 50 to 70 percent of an employee’s wage. The Labour Party bill was barred from including such provisions.

There is a strong argument to channel sick pay through the PRSI system, rather than through employers. Some companies and sectors are more exposed to illness than others.

Companies and sectors with a higher proportion of women, older workers, low/average income earners, and caring activities will face higher sick pay bills. Indeed, it is those sectors with higher skills and income, along with a younger profile that have less need to access Illness Benefit – and in these sectors you’ll find the most generous sick pay schemes (e.g. ICT, financial, professional and modern manufacturing).

Under a social insurance system approach, each company pays an equal social insurance contribution rate (a percentage of payroll). If paid through employers’ social insurance, it becomes part of employees’ compensation and could be part of a wider collective bargaining process (if we had such a process).

And through the social insurance system, the cost is socialised meaning that sectors will below-average illness rates subsidise those sectors with above average-rates; as a rule this means higher income sectors subsidising lower income sectors.

In 2019, €603 million was spent on Illness Benefit from the Social Insurance Fund. This would likely more than double under a reformed benefits system. A one percentage point increase in employers’ PRSI would have raised €850 million in 2019.

Obviously, the amount would be lower today and, in any event, one wouldn’t start increasing PRSI until recovery is fully embedded in the economy. But a long-term, incremental rise starting within two to three years would pay for a universal and comprehensive sick pay plan available to all employees.

A model to work from would be the sick pay plans that exist in many private sector companies and the public sector; namely, three months on full pay followed three months on half pay in a rolling one year period. To help reduce costs, a payment threshold equal to the average full-time pay – €48,000 – could be introduced.

Businesses and the Exchequer would benefit from such a programme. Companies would no longer need to fund their own company sick pay plans (though they could subsidise income above any threshold), bringing about payroll savings. Second, the increased income to households would help spending and maintain demand. Third, such benefits would be taxed, boosting revenue for the Exchequer.

The Government can use the budget as an opportunity to announce their future intentions. They could establish a working party made up of relevant stakeholders (e.g. employees, employers) to draw up the plans. At that stage it could be decided which would be a better sick pay mechanism: through social insurance or through obliging employers to make the payments, or a combination of the two.

More importantly, this would give concrete proof of the Government’s social goals. Minister Paschal Donohoe, discussing the rebooting of the economy following the pandemic crisis, stated:‘

It is very clear that we can create a new economy and the country can recover from this.’

And at the heart of any new economy is the rolling out of new, enhanced in-work benefits and social protection payments which can bring about greater social security for households – such as a universal and comprehensive Illness Benefit.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. Michael’s regular column resumes next Tuesday.

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