​Small Businesses Fear Financial Strain from Labour's Sick Pay Plans

Small businesses across the UK are expressing growing concerns over the potential financial consequences of proposed changes to statutory sick pay (SSP) under Labour's employment reform plans. The warnings come in response to Labour Deputy Leader Angela Rayner's push to increase sick pay entitlements, sparking fears that many small businesses could face bankruptcy due to the increased costs.

Simon Dawson / No 10 Downing Street, OGL 3, via Wikimedia Commons

Craig Beaumont, chief of external affairs at the Federation of Small Businesses (FSB), highlighted the financial strain already faced by small businesses, saying, "The average cost of sickness absence, including finding cover, stands at more than £3,000 a year for a small business – or £5bn across the small business economy as a whole."

Labour's proposal suggests scrapping the three-day waiting period for SSP, introducing a payment from the first day of illness, and removing the minimum earnings requirement. The overhaul is seen as part of Labour's broader plan to improve workers' rights, but small business leaders warn that these changes could disproportionately affect smaller enterprises that already operate on tight margins.

Beaumont emphasised that while larger companies might absorb these additional costs, small businesses could be overwhelmed without some form of financial support. "If we want to tackle economic inactivity, we've got to help those who we know disproportionately recruit those with health issues," he stated.

The rising number of UK employee's sick days compounds this concern. According to the Chartered Institute for Personnel and Development (CIPD), workers took an average of 7.8 sick days last year, the highest in a decade. The number of people out of work due to long-term sickness has also reached a record high, with 2.8 million people currently unable to work due to health-related issues.

In light of these statistics, the FSB fears that a blanket approach to sick pay reform could lead to greater financial strain on small businesses, potentially forcing them to reduce hours or cut staff altogether.

The proposed sick pay changes come as part of Labour's "New Deal for Working People," a package of reforms to strengthen workers' rights. Other key proposals include:

• Scrapping zero-hour contracts.
• Increasing the national living wage.
• Giving employees certain rights from their first day of employment.

While intended to protect workers, these additional reforms are causing further anxiety among business owners. The FSB has raised concerns that small businesses will struggle to adapt to the combined pressures of higher wages, more comprehensive worker benefits, and stricter employment regulations.

Speaking on the potential impact, Beaumont warned, "This could result in small business owners being forced to cut hours and staff numbers."

Further concerns have emerged over creating a Fair Work Agency (FWA), which Labour has proposed to enforce employment regulations. Business leaders argue that while the agency may be necessary to ensure compliance, it risks "drowning" law-abiding businesses in paperwork and unnecessary compliance costs.

A business executive at a meeting with Rayner warned that the reforms could burden honest businesses. "Lots of firms find that governments have a habit of passing a law that raises costs for the compliant, then failing to enforce the rules on the non-compliant," they said.

Ben Willmott, head of public policy at the CIPD, echoed these concerns, stating, "There's little point in bringing new regulation if it's not enforced effectively." Willmott noted that many small and medium-sized enterprises (SMEs) comprise two-thirds of UK employment and are at risk of unintentionally breaking new laws due to a lack of resources and awareness.

In addition to the statutory sick pay reforms, Labour's plan includes a significant overhaul of employment tribunals. Workers have the right to sue employers if they are made to work beyond the maximum permitted hours under the European Working Time Directive. Labour also aims to extend the time limits for bringing claims from three to six months.

Kathleen Healy, deputy chair of the Employment Lawyers' Association, acknowledged the potential benefits of this reform but warned that an uptick in claims could overwhelm the current tribunal system. "Tribunals are already struggling with delays of two years or more," she said.

Labour has promised to introduce these reforms within 100 days of taking office, but the prospect of increased costs for small businesses remains a pressing concern. As Beaumont of the FSB pointed out, "Fear of getting sued is one of the most stressful aspects of running a business."

As Labour continues to refine its employment reform agenda, businesses will be watching closely to see how these policies are developed and implemented. For many small business owners, the balance between protecting workers' rights and maintaining financial sustainability will be key to their future success.