On 21 November 2011, the outcomes of an independent review of sickness absence in the UK (Health at work — an independent review of sickness absence) were published. This review was commissioned by the Secretary of State for Work and Pensions last February, and was undertaken by David Frost, former Director General of the British Chambers of Commerce and Dame Carol Black, the Government’s National Director for Health and Work.

Steve Vale, HR Consultant, looks at the review’s main recommendations, and their likely impact on public sector and local authority employers.

Background to the review — the Government perspective

The primary reason for the review was the Government’s concern over the impact of the 140 million working days which the UK loses to sickness absence every year. While most of this absence is short term, and ends with a swift return to work by the employee, it also includes a significant proportion of longer-term absence. Furthermore, it is estimated that over 300,000 employees a year fall out of work onto health-related state benefits, at a cost of £13 billion per year.

The Government also has concerns that delays and inefficiencies in the current system mean that employees are absent for longer than they need to be, and that interventions are sometimes too late to secure the best outcomes.

The impact on overall economic performance is obvious, and, where sickness causes people to fall out of work, there is a danger of a downward spiral, as studies show that worklessness is in itself harmful to health.

Governments have long been concerned over sickness absence levels in the public sector, which increase the cost of public services, and included this issue in the brief for the review.

Background to the report — the employer perspective

Sick pay and associated payments cost UK employers £9 billion each year, in addition to the loss of productivity which results from sickness absence.

Such a background dictates that employers from all sectors, including the public and local authority sectors, have devoted considerable time and energy to reducing the incidence and impact of sickness absence through better management. Some employers have made considerable improvements, but the overall level of sickness absence across the economy has remained stubbornly high.

Piecemeal changes to the system for dealing with sickness absence have had only small effects. For example, the introduction of “fit notes” to replace sick notes in April 2010 was designed to help managers deal with sickness absence better, by giving a clearer indication about the employees capability of returning to work. But recent research by the Chartered Institute of Personnel and Development (CIPD) found that fewer than 1 in 10 employers have seen sickness absence rates fall as a result of the introduction of “fit notes”. The research revealed that many employers thought that GPs were not using the new system effectively, and felt that a culture change was still needed among GPs, employers and employees to ensure that a phased return to work became a positive and integral part of employees’ rehabilitation and recovery.

There have also been periodic initiatives aimed at concerted improvements in sickness absence levels. For example, the Government launched the Health at Work Pledge in March of this year. Under this initiative, employers that sign the pledge agree to publish their sickness absence rates, take pro-active measures on diet and smoking, offer flexible working to employees with chronic illnesses and use only occupational health services, which meet the new standards for such services.

The brief for the review

The brief for the review appeared to question whether piecemeal actions would ever produce the transformation in sickness absence levels, which both Government and employers are seeking. Thus the review had a broad remit, reviewing the present system against an ideal system, in which:

  • people who are unable to work would be swiftly identified and supported

  • those with conditions that are compatible with their current work would receive early treatment and support to return quickly

  • those needing to change jobs would be efficiently helped back into work

  • costs would be fairly distributed between employers, individuals and the State, and incentives aligned to manage these costs.

Compared with this ideal, it concludes that the current system falls well short at every stage of the journey, so that policy changes are needed to all its elements. The review therefore came up with a wide ranging set of recommendations covering both the work and the benefits dimensions of sickness. Its recommendations fall into two broad categories — those that aim to improve the efficiency of the system while people are still in work, and those that aim to improve the benefits system.

Key failings in the current system

The review highlighted the following key failings in the current system of handling sickness.

  • The contradictions in the role of General Practitioners (GPs), who are expected to verify the validity of claims for sick pay, while their primary duty is to the care and treatment of their patients. These contradictions mean that GPs do not have strong incentives to consider state and employer costs.

  • Poor use of medical certificates (“fit notes”), whereby most people seeking a certificate are signed off as completely unfit, making a phased or planned return to work difficult for employers to achieve.

  • Uneven access to occupational health services across the economy, and limited access to private health care, so that employees who are less well-paid and less well-qualified, and those from smaller firms, are more likely to be excluded from interventions to get them back to work.

  • Failure to spread good practice throughout the public sector — there are some excellent examples of low sickness absence in the public sector, invariably associated with good management practices, but there is also great variation in management and leadership across the sector, leading to poor outcomes for some staff and bad value for taxpayers.

  • No effort is made by the state to help employees whose medical condition is incompatible with their current job to look for an alternative job until they enter the benefits system.

  • There is no system in place to support and get back to work a large group (around 140,000 people) who fall out of work and claim health-related benefits, without any preceding period of sick leave with their employer.

  • Inefficiencies and delays in the benefit system — for example it takes an average of 17 weeks to assess people claiming Employment and Support Allowance (ESA). Since, for over 50% of claimants, assessment shows that they are fit for work and ineligible for the allowance, this builds in a major delay in their journey back to work.

  • Failures in Jobcentre Plus, whereby people are steered towards ESA inappropriately.

The review recommendations

The review makes a number of recommendations to improve the sickness absence and benefits systems. The majority of these relate to supporting employees at work.

  1. A new government-funded Independent Assessment Service (IAS) to provide an in-depth assessment of an individual’s physical and/or mental function and advice about how an individual on sickness absence could be supported to return to work. This service should be available once an individual’s absence spell has lasted around four weeks.

  2. The issuing of revised “fit note” guidance, to ensure that judgments about fitness to work move away from job-specific assessments, and encompass potential capability to undertake other work.

  3. Measures by Government to improve knowledge and awareness among healthcare professionals, particularly those involved in certification, of the Work Capability Assessment and benefits system generally and of the importance of work to people’s general health.

  4. Greater incentives for expenditure by employers targeted at keeping sick employees in work (or speeding up their return to work) by providing for spending on medical treatments or vocational rehabilitation to attract tax relief, especially where the expenditure affects employees who are basic-rate taxpayers.

  5. Existing tax relief on employee assistance programmes (EAPs), which provide information, advice and counselling on a variety of issues causing absence and/or performance problems, should be retained.

  6. Abolition of the current Percentage Threshold Scheme, which compensates mainly smaller employers for very high rates of sickness absence in their organisations, but also reduces incentives to manage absence.

  7. Abolition of record-keeping obligations under Statutory Sick Pay, thereby helping to reduce employer administrative burdens.

  8. The Government should update its Employers Charter to address misconceptions around sickness absence management, especially legal uncertainty.

  9. The Government should carry out further research into the reasons behind the significant number of people claiming ill health benefits who come straight from work, especially from smaller employers, but appear not to have been paid sick pay by their employer beforehand.

  10. Public sector employers should take immediate action to bring the worst performing parts of the sector up to the standards of the best. Government should also review occupational sick pay schemes in the public sector.

  11. The Government should introduce a new job-brokering service to help long-term sick employees find new work (where appropriate) before they fall onto the benefits system. This service should be offered free by the State in cases of very long-term absence (eg 20 weeks), but should also be available earlier for individuals and employers that are willing to pay for it.

The review also makes the following recommendations for improving the benefits system.

  1. The Government should end the Employment and Support Allowance assessment phase altogether. People should go onto Employment and Support Allowance only if they qualify after a Work Capability Assessment, or as at present, if they qualify to pass directly onto Employment and Support Allowance without a face-to-face Work Capability Assessment.

  2. There should be changes to Jobcentre Plus’ claims policies and processes to prevent large numbers of people being inappropriately directed towards Employment and Support Allowance.

Recommendations of particular importance to local authority employers

Of the above recommendations, the following are likely to be of particular importance to the local government sector.

  • Changes to the “fit note” system, and efforts to secure better awareness among health professionals of issues relating to sickness absence from work.

  • The introduction of the Independent Assessment Service for four weeks plus absences.

  • The greater incentives for expenditure by employers targeted at keeping sick employees in work (or speeding their return to work) by providing for spending on medical treatments or vocational rehabilitation to attract tax relief.

  • The state brokering service to help long-term sick employees find new work before they go onto benefits.

  • The abolition of Statutory Sick Pay record keeping requirements.

  • Addressing the legal uncertainties around sickness absence management.

  • The requirement on public sector employers to follow best practice on sickness absence management.

  • The review of occupational sick pay schemes in the public sector.

The review’s recommendations in each of these areas are therefore explored in more detail in the subsequent sections of this article.

Changes to the “fit note” system, and better awareness amongst health professionals

The review states that it would be better if the “fit note” system asked GPs to consider an individual’s functional capacity to return not only to their own job, but to work more generally. If the doctor considers that a person has a reasonable level of function, and could be supported to work with the help of their employer, a “may be fit” certificate should be issued.

Such an approach would have a number of advantages over “job-specific” certification. It would help employers to make sound judgments about whether an early return to work can be facilitated, and employees would have a much greater chance of getting the support they needed to stay in work as they recover from, or adapt to, their health condition or impairment. The certifying doctor would not be required to have extensive occupational health knowledge about specific jobs and/or training.

The review concludes that the fit-note system would be significantly strengthened if government guidance were changed to set out clearly for doctors that when issuing fit notes they should consider work in a general sense, not merely the specific job of an individual.

The introduction of the Independent Assessment Service

The review expects that asking doctors to certify whether their patients are, in general, fit for work will place an onus on employers to consider whether and how they can support individuals with health conditions to return to work. In some cases, adjustments to the job required to support individuals to work will be obvious, but in others, they will feel they need advice about the best course of action.

Few GPs have the time available or the training to give such specialised advice in more complex cases. It may be possible for large employers to get around this constraint by purchasing occupational health and related rehabilitation services (as is often the case in the public sector), but smaller employers will find it difficult to access similar services because of the costs involved. Therefore, the best solution will be for all employing organisations to have access to expert advice on whether and how an individual can be supported to work.

On this basis, the establishment of an Independent Assessment Service (IAS) to provide rapid and expert fitness-for-work advice about individuals on long-term sick leave or with complex health conditions is recommended in the review. Taking account of the individual’s state of health and functions, such a service would offer advice about what help, if any, is needed to support a return to work.

The IAS would need to draw on the best services available, whether in the private or public sectors, and could draw on the expertise of, for example, appropriately skilled occupational therapists, physiotherapists, GPs and nurses, as well as occupational health professionals. It would be accessible to both employers and GPs for specialist help when required.

The review acknowledges that, even if it is confined to long-term absentees (of four weeks or more), the IAS would not be a cheap option. It estimates that each year, up to 200,000 people would gain from using the IAS. Depending on how the service is configured, it could cost around £30 million each year.

However, on the basis that:

  • employees would be more likely to get the support they need to stay in and enjoy the advantages of work for themselves and their families

  • employers should gain around £100 million a year through reducing the costs of absence

  • the State would gain from fewer people claiming benefits such as ESA, and from increased tax revenues as a result of increasing economic output

the review recommends that the State funds the IAS, estimating that there will be a small net cost to the State of £10 million per annum.

Greater incentives for employers to keep sick employees in work

The review notes that there is clear evidence that early intervention helps sick employees return to work sooner. Longer-term absence (of more than four weeks), which accounts for 40% or more of working time lost, tends to be due to musculoskeletal disorders, common mental health problems and medical conditions such as cancer, diabetes, heart disease or stroke. Most employees who suffer from these conditions do make a successful return to work, so that quickening up their return through more effective intervention will make a significant difference.

But the current tax system discourages employers from investing in early medical intervention even when they see its advantages. Unless the intervention is for a work-related illness or injury — and 80% of sickness absence is not work-related — it is classed as a benefit in kind for the employee. The cost of treatment is liable to tax at the employee’s marginal tax rate. The employer also has to pay National Insurance contributions. In practice (although probably not in the public sector) it is often the employer who ends up paying both, adding considerably to the original cost of treatment.

In contrast, Employee Assistance Programmes currently attract tax relief, although a recent report from the Office for Tax Simplification recommended that this be abolished.

The review report feels that tax disincentives should be removed. It also argues that there is a case for offering tax relief for private medical treatment or insurance for lower earners, provided that the benefits from the treatment or insurance are clearly targeted at helping the employee return to work (so that wider health treatments would be excluded) and provided that the benefit attracting the relief is limited to the employee only.

On this basis, it recommends that:

  • expenditure by employers targeted at keeping sick employees in work (or speeding their return to work) such as medical treatments/insurance or vocational rehabilitation should, in future, attract tax relief for the employer and for employees who are basic rate taxpayers

  • tax relief on Employee Assistance Programmes (EAPs) should be retained.

However, the review stops short of recommending that tax relief should be provided for all private medical treatment or insurance, since it believes that employers are likely to purchase these employee benefits for higher-earning staff, regardless of the tax rules.

A state brokering service to help long-term sick employees find new work before they go onto benefits

The review report notes that, once it becomes apparent that, even with additional support, an employee taking sickness absence will not be returning to work for their current employer, the employer effectively has only two options at the moment:

  • to dismiss the employee on health grounds

  • to continue to pay sick pay until the employee’s eligibility runs out.

But, between these two stark options, there could be a third, intermediate option which would provide access to a voluntary job-brokering service that would support these individuals to change employer. While accessing this service, the employee would continue receiving sick pay from his or her current employer until his or her eligibility runs out. At that point, if he or she has not found another job, he or she would then most likely move onto the benefits system as at present.

The type of support provided through the brokering service would include:

  • working with employment advisors to identify what is stopping the individual from remaining with his or her current employer

  • developing a job-change action plan that reflects the needs of the individual

  • a skills audit and access to relevant training opportunities

  • practical help to access job vacancies.

Given the importance of early intervention, employees should ideally have access to this service as soon as it becomes apparent that, given their health-related problem, they would gain from a change of employer. But, to prevent the risk of abuse, the service would need to be limited to those employees who meet the following criteria.

  • Both the employee and his or her current employer must agree to this intervention

  • The employee should have been absent for a set number of weeks, eg 20 weeks, as at this point it is highly likely that the employee will eventually claim state benefits

  • The employee should have either been assessed as being “may be fit for work” (but have been unable to find appropriate work with his or her current employer) or have been directed to the brokering service by a health professional, possibly as part of the new Independent Assessment Service.

The review report recommends that the brokering service outlined above should be funded by the Government as an extension of the Work Programme, which already provides a similar type of service to those on benefits.

There could also be an option for employers to use the service at an earlier stage, before the state-funded scheme kicks in (eg before the suggested 20-week threshold), with the employer paying for the service at a level which reflects its benefit in not having to pay sick pay for as long as it otherwise would.

The abolition of Statutory Sick Pay record-keeping requirements

At present, employers incur considerable administrative costs in relation to SSP, mainly around the requirement to maintain records for three years of all sickness absence lasting for four days or more. This requirement is to ensure a record is available for SSP compliance checks by Her Majesty’s Revenue & Customs (HMRC) and to support claims under the Percentage Threshold Scheme, which currently offers a rebate to employers experiencing higher-than-average levels of sickness absence and is used mainly by small business employers.

However, the review is recommending the abolition of the Percentage Threshold Scheme. On this basis, and given it estimates that the current record-keeping requirements cost private business £44 million a year, the review recommends that the three-year record-keeping requirement under SSP is scrapped, and that employers should be able to rely on their own existing record-keeping arrangements. It believes that the latter will still be well-maintained by employers, since they are vital to each employer managing and costing absence properly.

Addressing the legal uncertainties around sickness absence management

The review report comments on the extent to which employers have reported uncertainty about the rights of employees and employers in respect of sickness absence, including:

  • concerns about communicating with an employee who is off sick

  • uncertainty over dismissing an employee because his or her health condition means he or she is no longer able to do his or her job

  • concerns over “getting it wrong” lead to a lack of confidence in dealing with sickness absence issues in an effective and straightforward way

  • nervousness about the link between long-term sickness absence and their potential obligations under the Equality Act, especially as compensatory awards for discrimination, including disability discrimination, are uncapped

  • problems arising from the ban on pre-recruitment health screening.

Unfortunately, the review recommendations in this area are necessarily limited, and are confined to:

  • employers setting out and explaining clearly in their absence management policy documentation the processes they intend to follow, and making sure that employees are familiar with the process

  • the Government updating its Employer’s Charter to address misconceptions around sickness absence management

  • the Government using the current Employment Law Review and Red Tape Challenge, to take stock of employment law in this area and to consider the following to help employers tackle sickness absence further:

    • making it easier for both employers and employees to end an employment relationship, where the parties could negotiate a financial settlement, but where neither would be judged to be at fault, as an alternative to more costly compromise agreements

    • looking at options around the use of a “protected conversation” to allow employers the chance to have an honest, without prejudice conversation with their staff about their condition

    • reconsidering the ban on pre-employment health questionnaires

    • looking at the issue of compensation for discrimination awarded by employment tribunals.

A number of the latter proposals have already been raised in other contexts, and there are already doubts about how easily they can be incorporated into UK employment law.

It is also the case that some lack of clarity will remain. For example, local authority employers may have seen the recent case of Dundee City Council v Sharp, in which the Employment Appeals Tribunal (EAT) pondered the frequently asked question of how long must an employer wait, while an employee is signed off on long-term sick, before being able to consider dismissal?

While the EAT made a number of useful observations (such as the standard of enquiry being no higher than that required in a misconduct case, there being no particular procedures to be carried out, the decision to dismiss being a management decision and not a medical one and length of service not being relevant to judging whether the employer has carried out “such steps as are sensible”), the conclusion to the main question remained undetermined. The EAT concluded (as in previous judgments) that the period of time must be what is “reasonable and sensible” and this will depend on case sensitive facts.

Requiring public sector employers to follow best practice on sickness absence management

The review report dedicates a whole chapter to this issue, estimating that the total wage cost of public sector absence is in the region of £4.5 billion a year.

It notes that there have been many previous studies of sickness absence in specific parts of the public sector and that many employers have demonstrated what can be done to improve attendance and there are plenty of guidelines for employers to follow. The way forward is therefore for all public sector employers to aim for the present upper quartile performance, and to be required to publish an account of what they are doing to make this happen.

The review suggests that there should be a review of occupational sick pay schemes in the public sector (see below), but also notes that there is often a wide variation in absence levels between employers who administer the same OSP rules, suggesting that it is not the schemes but their management by individual employers or at individual locations that impacts on absence levels.

This supports the view that management buy-in on good practice and implementation across all staff on all sites is critical. The review recognises that there is now much good practice and guidance for employers to follow in the public sector, but says that there is still too much unexplained variation in sickness absence between employers of the same type.

On this basis, it recommends that all public sector employers take immediate action to bring the worst performing parts of the public sector up to the standards of the best (ie the present upper quartile), with a requirement for:

  • public sector employers to adopt the best examples of absence management displayed in both the public and private sectors

  • board-level commitment to reducing absence

  • the recognition and reward of senior managers to include being accountable for absence levels.

A review of occupational sick pay schemes in the public sector

The review notes that, on average, occupational sick pay in the public sector is more generous than in the private sector, and is seen as an important employee benefit for public sector workers. The number and range of employers across the public sector has precluded it from undertaking a detailed assessment of each occupational sickness scheme, but it is obvious that the cost of these schemes to the employer and the taxpayer is significant. This justifies further research to see whether the public sector schemes are effective and provide best value, and the review recommends that the Government conducts a review of public sector occupational sick pay schemes.

Commentary

Reading the chapter on public sector absence in isolation, it is impossible not to feel a sense of “we have been here before”, which is a testament to how difficult and challenging public sector employers (local authorities included) have found the sickness absence issue, notwithstanding numerous efforts in recent years to tackle it and give it priority.

The encouraging feature of the review, however, is that it sets the public sector problem in a much wider context of how the whole issue of sickness absence is managed across the UK, in terms of both the employment and benefits systems.

As a result, it recommends some measures which could be very helpful to public sector employers in re-doubling and improving their efforts to manage reductions in absence — in particular, better use of the “fit note” system, the Independent Assessment Service and the job brokering service for long-term sick employees.

There is a potential problem that all three of these recommendations, if implemented, will require some up-front government funding, and there must be doubts over whether this will be provided in the current climate, notwithstanding that it ought to be seen as an investment to produce longer-term savings in state costs.

In the public sector it is important that the proposals to clarify/change employment law around sickness-related dismissals and review occupational sick pay schemes are not seen simply as further attacks on the terms and conditions of employees, compounding pay freezes and pension changes. It would be very unfortunate if the Government took forward only these recommendations from the review and none of the others.

The public sector line should, therefore, be one of welcoming the review, and being willing to play its part in helping to deliver change, including co-operating in the specific measures put forward for the sector, but to campaign for action on all the recommendations put forward in this wide-ranging review, arguing that such comprehensive action is vital to successful absence management in the future.

References

Health at Work pledge: http://www.dh.gov.uk/en/Aboutus/Features/DH_125106

The full report and recommendations of the review by David Frost and Dame Carol Black are published at: http://www.dwp.gov.uk/policy/welfare-reform/sickness-absence-review

Steve Vale is a Consultant in Human Resources and is a regular contributor to Croner-i HR for Local Government. Croner-i HR for Local Government is an online employment law and practice reference source designed specifically for HR Managers and their teams in local government.

Last reviewed 5 January 2012