Businesses across the UK are spending an estimated £3.1bn every year on employees who are unable to work due to long-term illness or injury. This estimate increases to £6.5bn if the public sector is included.
New research carried out by the Centre for Economics and Business Research (Cebr) on behalf of Income Protection specialist, Unum, reveals for the first time the high business cost of employees who are off sick for more than 6 months.
300,000 people leave employment due to illness or injury every year and the average duration of long-term sick leave is 7 years . For a typical business with more than 500 employees, long-term absence costs an estimated £620,000 per annum.
The costs of long-term absence include:
- Occupational Sick Pay (OSP) paid to the absent employee
- the salaries of replacement staff
- the recruitment and training costs associated with these replacement staff
- a loss in productivity
- absence management, and the compliance and red tape associated with this
If UK businesses were to insure all staff against the impact of long-term sickness absence with Group Income Protection (GIP), employers would have greater cost certainty – instead of the employer having to pay the employee a salary of OSP, the insurer would instead pay an average of 50% of their pre-sickness salary via the claim. This would also free up time for their HR teams to focus on other areas, such as helping companies to retain valuable staff, knowledge and skills.
Carlie Bryan, Benefit Manager at accountants and business advisors BDO commented:
“Like every firm, our staff are our greatest asset, so we have a duty as their employer to make sure that they have adequate protection, should they go off on long term sick leave. Most employees do not know the value of having Income Protection cover and believe that state provisions will be enough to support them, so it is important that we communicate the value of this benefit.
“A good benefit package is key to retaining and attracting staff. Whilst salaries in our industry have plateaued in the difficult economic climate, we are able to reward staff by providing them with a benefits package that has a genuine financial value”
Peter O’Donnell, Financial Director at Unum, said: “You are 3 times more likely to be ill for 6 months or more than to die during your working life, and 1 in 10 employees will experience this at some point – sobering news I know. Yet most companies provide Life insurance to all staff while just 1 in 10 employees is offered a financial back-up plan to protect them should they be on long-term sick leave.
“Providing all employees with Income Protection makes for more predictable annual costs and is one of the few employee benefits to provide a valuable saving for the employer if you do need to claim. The additional intangible benefits shouldn’t be undervalued either, such as fulfilling your moral obligation to look after sick staff, by allowing the specialist IP provider to manage their absence and return to work, and freeing up your HR team to focus on the other day-to-day aspects of their job.”
Oliver Hogan, Head of Microeconomics at Cebr, added: “Much research has been conducted into the cost of sick leave to the UK economy but this is the first time research has been commissioned to examine the cost of long-term absence specifically. Cebr’s estimates suggest that it is costing the UK private sector alone more than the Government’s annual rail budget.”
Income Protection provides a replacement regular monthly income for an employee if they are unable to work due to long-term illness or injury. It pays up to 80% of their pre-illness income, and normally begins to pay out after 6 months off work, and continues to do so until they are able to return to work or until retirement. It is also the only employee benefit that provides direct, substantial financial benefits to the employer as well, with up to 60% of the premium being returned in insured costs, on average.
For every £100 an employer spends on a Group Income Protection policy, they get an average £48[i] ‘payback’ in savings by not having to pay Occupational Sick Pay – the insurer, rather than the employer, pays the absent employee a monthly income – and through other indirect cost savings.
As published on unum.co.uk June 2012