Sick pay is another pressure SMEs did not ask for

For many small enterprises, be it private business, charities or RSL’s, statutory sick pay reform is not landing in isolation. It is arriving on top of increased National Insurance, higher business rates, rising wage costs and ongoing uncertainty about growth.

That context matters. When policymakers talk about employment rights, they often treat each reform as a standalone issue. Businesses experience them differently. They feel cumulative. Another cost. Another obligation. Another area where getting it wrong carries legal risk.

Recent employer research shows that changes to statutory sick pay are expected to have the biggest impact of all the Employment Rights Act reforms. Not because employers are resistant to supporting staff, but because this is one more pressure point in an already stretched operating and trading environment.

Why this change is causing frustration

Statutory sick pay has traditionally been predictable. Limited eligibility. A short waiting period. Manageable exposure. Making it a day one entitlement and widening access removes that predictability. Absence now carries an immediate cost, regardless of size, sector or margin. For many running lean or marginal operations, that changes the risk calculation. Particularly where there is no capacity to absorb short-term absence without redistributing work or incurring overtime. This is, understandably, concerning.

The real risk is how pressure changes behaviour

When costs rise across the board, businesses become more cautious. I recently wrote about recruitment slowing, as well reported by the BBC and Reuters. Permanent roles are being delayed or scope and responsibility limited to essentials only. Decisions that might have once been flexible become more risk averse and it stunts innovation, job buoyancy and overall confidence in the marketplace.

Couple this with the new regulations on sick pay obligations it is no wonder that an ACAS survey has concluded this is being perceived as one of the biggest hitters in terms of reform.  Legal risk does not arise from the entitlement itself. It arises from rushed decisions, inconsistent handling of absence and managers trying to balance compassion with commercial reality without clear guidance. That is where disputes start and acrimonious employee relations stem.

Where SMEs are most exposed

In practice, the danger areas are common:

• managers unsure what questions they can ask about absence,
• inconsistent treatment between employees,
• poor records because “it’s a small team”,
• waiting too long to address patterns that are becoming unsustainable.

These issues were manageable when sick pay costs were limited and dismissal risk was remote in early employment. That is no longer the case.

Preparation is key

This is not about pushing back against reform. The law is changing regardless. The question for SMEs is whether they adapt deliberately or react under pressure.

Practical preparation means:

• understanding the true cost of absence under the new regime,
• Assessing and re-evaluating absence triggers and probation processes,
• training managers to have lawful, confident conversations early,
• documenting decisions before problems escalate.

None of this removes the headache. It does reduce the risk of it becoming an employment claim irrespective of ability to successfully defend.

What tribunals will look at when the pressure is on

One thing that strikes me is that, more often than not, there is very little sympathy by an employment tribunal in relation to commercial pressures being experienced at or around the time things go wrong. Increased National Insurance, higher rates and expanded sick pay obligations may explain why decisions are taken but they will do nothing to justify them. It remains the case that what will be important is “was the process fair” “was the decision proportionate and properly evidenced”. Those considerations are not changing.

It strikes me that cost pressures may change the “mindset” of decision makers as they work under more pressure and have a stricter view on absence. My word of caution would be that Employment Judges will expect Employer’s to separate commercial frustration and lawful decisions. It is not about having the most generous policy or procedure, its about can you demonstrate consistency, engagement and clear reasoning!

Final thought

Employment law reform rarely arrives at a convenient moment. This one arrives when many SMEs already feel exhausted and battered. Sick pay is not the headline change. It is the one that will be felt most immediately, because it impacts directly with cash flow, staffing and trust.

Handled well, it becomes another manageable cost of doing business. Handled badly, it becomes an avoidable source of dispute at exactly the wrong time.