Income protection to the rescue: the cost of sickness hits £100bn

Long-term sick leave is defined as being off work for at least four weeks and according to the latest figures from the ONS 2.8 million people currently meet that definition. The question is not so much ‘how many days sick leave per year does an employee take?’ but rather ‘what is the cost of sickness absence?’ A recent report translates that 2.8 million into an average of 128 lost working days per company.

Employers are legally obliged to give their employees statutory sick pay, which is currently £118.75 per week, although many have a workplace sickness policy that pays more. That’s a significant negative cost for business, not only in terms of the financial outlay but also in lost productivity.

However, although sick leave – or absenteeism – is a drain on resources, it’s not the only reason why productivity rates are suffering. Presenteeism is also damaging and it’s harder to calculate its financial impact.

Employees are frequently reluctant to take sick leave, so they turn up to work even when they’re not fit to be there, preferring to muddle through on less than a full tank. That’s presenteeism.

There are many reasons why people might do this.

Fear of lost income

Unless their employer offers a generous sickness package, or the employee has income protection insurance, they’ll often keep going to work because they can’t afford not to.

Workplace culture

Even though healthcare and wellbeing are taken more seriously than in the past, some companies still have a culture of toughness that makes employees feel pressured into working, however ill they may be.

Job insecurity

The modern employment market is so volatile and competitive that employees are fearful of damaging their prospects and even the security of their job if they get a reputation for poor health.

Marginalised groups

Presenteeism is disproportionately common amongst those in unskilled or lower-paid jobs and especially marginalised ethnic groups. People of colour are twice as likely to work while sick compared to white employees.

Stigma

Despite huge improvements in the understanding of mental health problems, some employees still worry that stress, anxiety and depression are not taken seriously in the workplace.

The problem of absenteeism and presenteeism is also one of money. While lost working days, sick pay and low productivity are sources of financial costs for businesses, for employees, the impact of illness or injury on their income can be devastating.

Income protection insurance is one of the easiest and most cost-effective safeguards of incomes and lifestyles that are vulnerable to sickness. Employees with income protection are likely to feel much more comfortable with the idea of taking the appropriate time off work to recover. It benefits employers too, because even those that offer more than the minimum of SSP have relatively limited resources, so income protection can lessen their burden, while enabling their employees to make wiser decisions about their own healthcare.

That’s not to say that income protection is a get out of jail free card, giving employees the green light to be unhealthy or live recklessly. It’s better to see income protection as working in conjunction with a sensible diet, regular exercise and the willingness to see a doctor when necessary.

The consequences of trying to work while suffering from illness or injury can affect short-term and long-term productivity.

Efficiency

Employees who are experiencing physical or mental ill-health tend to work more slowly and are more prone to making mistakes, which take time and resources to correct.

Quality

Substandard work has an impact on a business’s products and services, causing reputational and financial damage.

Recovery

Working instead of taking time to recover means employees can take longer to get back to full health, which means productivity suffers for longer.

Morale

If some employees are unable to work at peak capacity, this can have a detrimental effect on their colleagues, both in declining morale and increasing workloads.

A combination of public service shortcomings and demographic shifts is largely to blame.

The National Health Service

The NHS’s focus on treatment rather than prevention limits its effectiveness. For years, leading consultants and professors of medicine have been calling for a rebalancing of NHS priorities that would enable the institution to make a greater contribution to public health. Through the promotion of healthy diets and lifestyles, together with anticipation and early diagnosis, the health service could play a considerable part in reducing the incidence of illness that either keeps people off work and forces them to carry on working when they shouldn’t.

Longer life expectancy

People are living longer today, which compounds the shortcomings of the NHS and has consequences for the workforce. Not only is the retirement age increasing, many people are choosing to work into their 60s and 70s because they can’t afford to retire, while the declining birth rate means there’s a significant demand for older workers. Holistic healthcare is urgently needed.

In addressing the question of how to reduce sickness absence in the workplace, there is no shortage of suggestions.The Tony Blair Institute for Global Change (TBI) issued a report in July 2024 calling for a new emphasis on preventative healthcare and made several recommendations, which echo and crystallise what others have been saying for years.

Group Income Protection

If employees are reluctant to take sick leave when they really need it, employers can encourage them to do the right thing by providing group income protection insurance for their workforce. It gives employees the reassurance of knowing their income needn’t suffer as a result of taking time off and it’s likely to be cheaper for employers.

Health plans

Workplace health plans could be a sound investment for employers, reducing employee sickness by monitoring blood pressure, weight, cholesterol and arranging regular check-ups. Mental health and sick leave are closely connected, so providing counselling services would be in the interest of the employer and their employees.

Reviewing workloads and practices

Supporting the physical and mental health of employees doesn’t work best in a vacuum, so the TBI report also calls on employers to review their workplace practices, pay structures and workloads. Severely over-worked employees are unlikely to remain healthy, whatever other measures are taken.

Responsibility for health outcomes and safety

Another proposal is for employers to be held legally accountable not just for safety at work but also for the health outcomes of their employees.

Reporting employee data

Along with that responsibility, employers could also be required to supply data on the health of their workers, in the way that they currently report on carbon emissions.

Tax incentives

If these proposals sound like regulatory sticks to beat employers, there is also the possible of a substantial carrot in the form of tax incentives for companies who can show their positive contribution to the health of their employees.

Diet and lifestyle are crucial, but illness and injury can happen to anyone at any time, even the healthiest of us. That’s why employees ought to consider creating their own financial safety net. An emergency savings fund is a good idea, but the money can only be spent once. Income protection can give support that lasts for an entire working life, providing the twin benefits of a replacement income and a worry-free life.

We’ve concentrated on employees and employers but we shouldn’t forget the self-employed. For them there is no employer scheme and no statutory sick pay, only Employment and Support Allowance of £92.05 per week.

There are 4.28 million self-employed people in the UK. In 2023 self-employment contributed £331 billion to the UK economy, which may be small as a proportion of the whole economy but it’s significant. The self-unemployed are uniquely vulnerable to presenteeism because they are entirely responsible for maintaining their own income and lifestyle. That means they’re even more likely than employees to ignore illness and injury for the sake of maintaining their business and income.

For the self-employed, income protection may be even more relevant than it is for employees as a corrective to the financial impact of workplace sickness.

Business leaders, politicians and medical professionals will continue to debate this issue in search of workable, affordable solutions. As more people are either taking sick leave or continuing to work when they shouldn’t, the costs to business and the economy are only going to rise. Those solutions need to be found soon and, in the meantime, income protection insurance can play a vital role. It gives much better support than statutory sick pay, pays you up to 65% of your pre-tax income, lasts longer than most employer sick pay schemes, offers free extra benefits and there’s no limit to the number of times you can claim.