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The rising cost of sickness

Finance directors need incentives to stop short-term illness turning into something longer, writes Peter Crush

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THERE ISN’T AN EMPLOYER in the land that hasn’t been affected by the inexorable rise in sickness absence. While occasional (cough, cold) sickness absence has oscillated at between six and eight days off annually per employee for the last decade, it is the rise of long-term sickness (for six months or longer) that is of growing concern. It is now responsible for one-fifth of all work time lost and, statistically, 10% of staff will experience long-term absence at some point in their career.

Last June, think tank the Centre for Economics & Business Research quantified this for the first time. After number-crunching costs arising from paying sick-pay, replacing staff, loss of productivity, retraining, and red tape, it found a 500-person company can expect long-term absence to cost it £620,000 every year.

“Long-term sickness is not yet something that is being very well tracked in organisations,” says Steve Harry, finance director, Unum. “As well as sick-pay, the drain on central resources and loss of morale, there is a 20% drop in productivity from those covering sick staff. But many don’t even benchmark their occupational health costs. Some offer full pay for six months; others pay more like 50% for one to six weeks. The difference between these two alone is massive.”

Cause and effect

A complicating matter has been the government’s recent crackdown on the signed-off workers whom it feels could work. Some 2.6 million are officially ill – a figure that includes 1,020 people signed off since 2001 because of headaches – leading to Work Capability Assessments being introduced in 2008. They immediately passed 30% of all long-term sick as being able to work (rising to 50% currently), and this is putting FDs in a tight spot.

As David Knight, associate partner in KPMG’s HR practice says: “No employer wants ill people at work. But neither do they want sickness to turn to long-term absence, and nor do they want people returning to work when they’re not able.”

Knight says FDs need to “think much more about cause and effect – whether sickness is caused by poor health and safety at work or whether it’s a cultural problem that needs tackling”. Since December, for example, Starbucks no longer pays for the first day off due to sickness – a move that is seen not only to reduce costs, but deter casual sickness.

Harry says forward-thinking FDs talk more about “wellness rather than illness” and in group risk circles, it’s certainly known that early intervention prevents short-term illness from turning into something longer.

“Six weeks is the tipping point,” confirms David Ost, regional director at EEF, the manufacturers’ association. “After that, staff are significantly less likely to return to work.” But it’s interesting to note that currently it’s still the private sector that is most likely to include income protection (IP) – which protects against long-term sick pay costs – even though the public sector has the highest instance of long-term sickness.

Wellness policies are huge investments, and other options available to FDs include Employee Assistance Programmes (EAPs) – advice lines that provide staff with counseling – which start at as little as £1 a week. “Sickness is like an iceberg – there’s so much more to it that you can’t see,” argues clinical HR consultant Mandy Rutter. “But EAPs only bring benefits by being seen as part of long-term approach, with full buy-in. My worry is that I’m seeing EAP/occupational health investment being cut due to short-term financial pressures. But this won’t be a long-term saving.”

Encouraging intervention

Finance directors clearly need incentives to encourage interventions. In January (after a year’s wait), the government finally responded to the independent review of sickness absence authored by Dame Carol Black and David Frost. The good news is that it will continue to give tax relief to firms providing EAPs, but there is uncertainty too. FDs will have wait for the Budget to be released in March before they know if this also applies to vocational rehabilitation and other paid-for medical treatments – those proven to help get people back to work.

Meanwhile, John Letizia, head of public affairs at income protection provider Unum, believes that long-term sickness is a problem which the review will not solve: “We are moving in the right direction, but it sounds like government will leave it alone now, when it should be looked at yearly.

“This is a debate about economic performance. The NHS isn’t equipped for helping get everyone back to work, but is it right that more burden will fall on employers? If the government withdraws tax relief, it will send the wrong message to employers. They shouldn’t be investing in back-to-work schemes, as they’ll already be saving the government’s benefits bill.”

A slither of better news is the fact that government has agreed to establishing (in 2015) an Independent Assessment Service, which will independently gauge a person’s health within the first four weeks of illness. “This is vital,” says Harry. “What FDs most want to know is whether people can return and do ‘some’ work, even if it’s not what they used to do [as proposed in the report]. It’s when businesses know this that they can confidently plan other supporting wellness initiatives.” ?


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