Small companies can often struggle to make ends meet, with business rates and rising energy bills piling pressure on already overstretched finances. However, a piece of legislation due to come in on the 6th of April may add to the woes and, according to tax experts, could see some SMEs forced to throw in the towel completely.
Under current employment law, firms are able to reclaim statutory sick pay for employees from the Department of Work and Pensions (DWP) through a deduction in monthly National Insurance contributions. Unwell employees are paid £86.70 per week in sick pay by small firms who also cover costs for any replacement staff, and the business is able to reclaim the statutory sick pay once the amount lost exceeds 13 per cent of their National Insurance bill.
However, under the new legislation, small firms will be entirely responsible for paying workers taking a break from work due to health reasons and will also receive no financial support in the event of temporary workers being taken on. Furthermore, statutory sick pay is set to increase to £87.55 per week next year, meaning that the loss of this “disaster relief” will be felt even more by smaller businesses.
According to the DWP, the present system is being scrapped as it claims it does not provide an incentive for employers to get sick employees back to their jobs as soon as possible. However, the question is whether penalising a small firm for the ill health of an employee is fair.
Employment taxes partner at Baker Tilly, David Heaton, certainly doesn’t believe so. He argues that the modest £50 million per year saved by the Government is unlikely to make a big impact on Treasury results, but could prove to be disastrous for micro firms with fewer than five employees and low turnovers.
To better illustrate his point, he uses the example of a small nursery business at which one of the two employees is forced to take long term sick leave for a serious illness.
He says; “For some of the smallest [firms] this will be catastrophic and may lead to closure.
“They can’t afford the statutory sick pay and this could result in the business going under.”
While it is true that the Government is not responsible for the finances of companies within the private sector, small firms have contributed hugely to the UK’s recent recovery efforts. Whether this has been through an increase in exports, tackling regional unemployment or simply achieving a higher turnover – which in turn raises taxes – small firms have become the backbone of the UK economy.
Although the £50 million saved each year will be used to establish a new Health and Work Service for small firms, which any worker taking more than four weeks sick leave must be referred to, small firms may indeed struggle to make ends meet if an employee becomes very ill.
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