Before I discuss the issues directly associated with statutory sick pay, I want to emphasise in the clearest possible terms, as outlined by Minister Perry, that this Government is profoundly aware of the role that the 200,000 small and medium sized enterprises, employing over 650,000 people, play in the Irish economy. They contribute some €10 billion to the Exchequer each year. They are the backbone of our economy and our communities and are central to our economic recovery. It is precisely because of our commitment to the SME sector that the Government’s Action Plan for Jobs 2012 contains over 270 measures to transform the economy, including many initiatives to improve supports for business.
I should also point out that the Government also provides a range of measures to support employers in placing people in employment. These include the Job Bridge National Internship Scheme, the Employer Job (PRSI) Incentive Scheme and Revenue Job Assistance Scheme as well a number of Workplace Supports specifically for people with disabilities.
At the outset, I hardly need to remind Deputies that our social welfare system is the product of an evolutionary process dating back at least one hundred years.
Welfare states have evolved inEuropeand elsewhere as a combination of
- the social welfare system (or what the state provides)
- the fiscal welfare system (benefits provided through the tax system) and
- the occupational welfare system (social benefits provided by employers or with their assistance).
It is worth noting for instance that other countries – for exampleSweden– have undertaken welfare reform in the area of disability/illness, and placing certain obligations on employers – such as paying for an initial period of absence through illness – formed a key element of the reform measures.
My Department will spend an estimated €847 million on illness benefit payments alone in 2012. It will spend some €3.4 billion this year on the range of illness and disability payments in order to provide income supports to almost 300,000 people and their families – that figure of 300,000 people means that almost one in six people of working age (16%) is in receipt of an illness or disability related payment.
Over the last ten years, the number of people in receipt of an illness or disability-related payment from my Department has risen by over 100,000 and expenditure on disability-related payments has increased by over €2billion. These are staggering figures and the House will be aware that the social insurance fund, from which illness benefit payments are made, is seriously in deficit. The deficit is expected to be €1.82 billion in 2012. While consideration of all the issues is not yet complete and no final proposals are under consideration by the Government, that is the background against which the question of introducing a scheme of statutory sick pay (SSP) for both the public and private sectors is being considered.
However it is part of my role as Minister for Social Protection to provide for the long-term sustainability of the social insurance system. It is the very least that I can do to ask my officials to re-examine where the boundaries between the state and the private sector lie in the area of protection of people from loss of income from employment through illness
I want to turn now to discuss some of the specific issues associated with the question of statutory sick pay. Consideration of the merits of introducing such a scheme revolves around two separate but related strategic issues – the need to secure exchequer savings on one hand and the need to drive positive policy reforms on the other.
The question of introducing SSP was advanced in the context of the Comprehensive Review of Expenditure undertaken in 2011. It was also considered under the previous Government in 2009 as part of the An Bord Snip process. Such a scheme undoubtedly has the potential to deliver savings to the Exchequer, in terms of reduced expenditure on illness benefit. It is estimated that savings of €23m would result if SSP were payable for one week and €89m if it were payable for four weeks.
The House will be aware that I recently published the 2010 Actuarial review of the Social Insurance Fund. Amongst the key findings of the review was that:-
- The Fund currently has a significant shortfall of expenditure over income (with, for instance, estimated expenditure of €9.0bn set against income of €7.5bn in 2011).
- In the absence of any action to tackle the shortfall, the 2011 deficit of €1.5bn will double to €3.0bn by 2019 or, expressed as a percentage of Gross National Product, the shortfall will increase from 1.1% of GNP in 2011 to 2% in 2019.
- Unless PRSI income increases and/or expenditure levels are reduced, the Exchequer subvention will need to more than treble (from 2011 levels) by 2030 and increase by a factor of almost eight by 2040.
It needs to be said also, that we still have one of the lowest average rates of employer PRSI as measured by the OECD.
At an average employer contribution of 9.7%, we are well below for example 18.2% inFinland, 16.2% inGermany, 23% inBelgium, and 12.9% inPoland. That of course is one of the reasons that the social insurance fund is running a substantial and growing deficit.
And I need to stress a very important point here too, one which has been lost in some of the more strident responses to the possibility of the introducing SSP. Under the illness benefit scheme, there is a waiting period of three days where (subject to any arrangements within the company) the employee bears the cost. This waiting period would be carried through into any scheme of statutory sick pay – and any notion that statutory sick pay would create an incentive to take extra days off is therefore wrong.
Ireland is an outlier when it comes to employers being obliged to fund some element of sick absence pay. Most other European countries, including all of our major competitors, oblige employers to pay for some sick pay costs. The extent of this obligation varies considerably – from two years in theNetherlands; 28 weeks in theUK; six weeks inGermany; and 9 days inFinland.
The 2008 OECD report “Sickness, Disability and Work – Breaking the Barriers” was explicit on this point, noting that in Ireland the “the potential of employers being part of the solution for raising labour market participation of people with health problems or disability is largely untapped”. The report went on to recommend thatIrelandshould “investigate the potential of strengthening the financial incentives for employers e.g. by introducing a mandatory period of employer-provided sick-pay”.
The motion suggests that false comparisons are being drawn with our international counterparts in making the case for introducing SSP. But the evidence is there from the OECD that we have relatively low rates of social insurance, that SSP is the norm, and those systems – far from creating labour market problems – are actually effective in incentivising better absenteeism management and hence ensuring greater retention and reintegration of people back into work rather than into long-term welfare dependency.
The OECD has noted that “employers are critically positioned to monitor absences, which in and of itself can reduce inappropriately long sick leave, and to support an employee in recovering or learning to manage their condition such that they remain in work”.
We do need to be cautious in leaping to conclusions about sick leave levels in the public and private sectors and indeed in making international comparisons. Statistically robust and comparable data on sick leave levels across different countries is notoriously difficult to secure. A study undertaken for the European Foundation for Living and Working Conditions in 2010 noted that national data on absenteeism uses a variety of different definitions and are drawn from different sources – typically health insurance statistics and employer survey data.
In Ireland, the report suggests an overall national absenteeism level of c. 3.5%. The estimation draws upon a number of sources, including small-scale surveys undertaken by IBEC and SFA. The two surveys by ISME (2007) and SFA (2008) cover levels of absence in SMEs. The existing number of claimants on our Illness Benefit Schemes suggests an absence rate of c. 4%, whereas a recent IBEC report suggested an overall rate of c 2.6%.
The C&AG, in a special report on sickness absence in the civil service (published in 2009) estimated that some 5% of available working time was lost to sickness absence in 2007, with wide variations between Departments, grades, ages and genders. The House will be aware that proposals have been made by my colleague, the Minister for Public Expenditure and Reform, which seek to address some of the factors behind the rates of absenteeism in the public sector.
In its 2008 review, the OECD recommended that Ireland strengthen the role and involvement of employers in addressing the low rates of employment of people with disabilities by “investigat[ing] the potential of strengthening the financial incentives for employers e.g. by introducing a mandatory period of employer-provided sick-pay – some private-sector firms do this already and public-sector employees have sick-pay regulations.”
The OECD have also noted that “many of those claiming a disability benefit from unemployment or social assistance will also have had interim periods of sickness absence beforehand”. This is the major reason why “tackling sickness absence early on can be a very effective strategy for minimising the likelihood of eventual long-term labour market detachment.
In all of this debate, I have been deeply conscious of the need to balance the positive aspects of statutory sick pay – exchequer savings, better absenteeism management, reduced recourse to long-term dependency on welfare payments – against the pressures which I know only too well are being faced by employers and particularly employers in the small and medium enterprise sector. These concerns were articulated at a consultative seminar on the “Feasibility and implications of introducing a scheme of statutory sick pay in Ireland” which I hosted in February of this year, and they have been restated subsequently in official meetings with IBEC, the Construction Industry Federation and Chambers of Commerce Ireland. The concerns relate naturally to the potential impact on employment costs, and by extension employment levels, if SSP is introduced, and the impact of this cost on SMEs in particular.
I appreciate that there is a real issue for the smaller employers in particular and notably for those where there is a statutory requirement to maintain specific staff levels, such as in the childcare sector. In considering whether or not to proceed with a scheme of statutory sick pay, I can assure the House that a regulatory impact assessment would be carried out – taking into account in particular the likely impact of the scheme on small and medium-sized enterprises, where the issue of compensatory payments would obviously have to be considered.
That is just one of a number of critical issues - including the extent of coverage; the duration of payment; the rate of payment; the mechanisms for dealing with those who would not qualify for SSP; and how any such scheme would be enforced and policed - which would need to be addressed before Government could make any decision on whether or not to introduce a scheme of statutory sick pay.
In conclusion, I must stress that the Government is faced with extreme difficulties in striking the right balance between reducing Exchequer expenditure, supporting our indigenous business sector and continuing to provide vital income supports to the most vulnerable sectors of our society.
By continuing the process of transforming our economy step by step through the Action Plan for Jobs and Pathways to Work we will provide opportunities for those who wish to continue to live and work in Ireland.