New sick pay rules risk dismissals as businesses grapple with Rayner’s reforms

Angela Rayner’s proposed overhaul of workers’ rights could force employers to fire employees who fall ill for long periods, recruitment companies have warned, as companies face new cost burdens at a time when recruitment expenses are escalating.

Under the government’s plans, employees will be able to claim Statutory Sick Pay (SSP) from the first day of absence instead of the fourth day. The earnings limit, currently set at £123 a week, will be scrapped, making more people eligible for the SSP. While the move has been welcomed as a boost to workplace support, critics say the move risks burdening businesses – especially small businesses – with unaffordable costs.

Shazia Ijaz of the Recruitment and Employment Confederation (REC) warned that increased expenses caused by the reforms could encourage employers to “quickly move to capacity-based dismissals” if employees remain out of work for long periods or suffer frequent absences. She added that small companies, which constitute a large share of the labor market, will bear 60 percent of the costs of additional support.

And with the government’s wider employment reforms which also include a £25bn increase in employers’ National Insurance contributions, and the latest in a series of sharp increases in the minimum wage, businesses face a growing toll of additional costs. “A balance between supporting workers and business sustainability is essential,” Ms. Ijaz said. She suggests that putting the SSP system at a more manageable level could encourage employers to retain employees rather than resort to layoffs.

The proposed measures form part of a broader package to strengthen workers’ rights, which includes tougher restrictions on zero-hours contracts and tougher rules against “fire and rehire” practices. Deputy Prime Minister Rayner has described it as “the biggest upgrade to rights at work in a generation”, claiming it will raise wages and productivity in a modern employment landscape.

However, the Regulatory Policy Committee, an independent body tasked with examining the new regulations, described the package as “not fit for purpose” due to insufficient analysis of how companies pass on these costs. Government estimates put the annual cost to businesses at more than £4.5 billion.

Agency workers are set to be particularly hard hit by the expansion of SSP eligibility, and agencies will likely shoulder the lion’s share of the financial burden rather than pass it on to clients, Ms. Ijaz said. Faced with rising costs, businesses are expected to respond by reducing job creation, limiting wage growth, or raising consumer prices, according to recent polls.

A Department for Work and Pensions spokesman defended the changes, saying no one should be forced to choose between health and financial hardship. “These reforms as part of the Employment Rights Bill will support people who manage their health conditions to stay in work and raise living standards across the country,” he said. The department is now reviewing responses to the public consultation, and has promised to move forward “at pace” as it drafts the final legislation.