Richard Grogan: How a mandatory sick pay scheme could impact Irish employers
Employment law solicitor Richard Grogan of Richard Grogan & Associates considers the impact on Irish employers of a mandatory sick pay scheme.
This issue has been around for some time. It will be interesting to see what is going to happen in relation to this. The reason we are mentioning this is that there is a proposal now for effectively a mandatory sick pay scheme. If we have both a mandatory sick pay scheme and a mandatory pension scheme, this is going to put significant cost on employers. This is going to mean that there will have to be a debate as to how employers are going to afford this.
It would be relatively easy for employers who are taking on new employees. If there has to be a mandatory pension scheme and a mandatory sick pay scheme then that would be taken into account in the remuneration packages which will be offered. That’s a simple fact of life.
The problem will arise in relation to employers with existing employees where there could be a significant additional cost placed on the employer.
Take the position of an employer who has an employee who is paid €30,000 per annum. The employee works five days a week. Therefore if the employee goes out sick the actual cost for the employer in providing sick pay will be a gross amount of €3,461.53. In addition the employer will pay 11.5 per cent employer’s PRSI, which is a further €398.07. If we have a mandatory pension scheme and say there is a contribution of say 10 per cent, this adds another €3,000 to the payroll cost for an employer. Therefore the actual cost of employing an employee on €30,000 per annum will in fact be closer essentially to €40,000 per annum, certainly over €36,000 per annum if only employer’s PRSI and pension contributions have to be paid. If the employee goes out sick, the cost goes up to over €40,000.
Now, of course, not every employee is going to go out sick. However, there will be an issue on putting a significant additional payroll cost on employers as to how this is going to be funded and the issue will be, particularly in relation to employers taking on new employees, will those salaries be reduced to take into account the potential cost? The reality is that will happen. The next issue then will be whether employers will look at redundancy to effectively give employees a choice of taking statutory redundancy or taking lower terms so as to cover the additional cost which an employer is going to issue.
We do need to have an open and transparent discussion on this issue so as to avoid problems arising in the future. These will have to be a recognition by employers that there is going to be an additional cost in mandatory pension schemes and sick pay. At the same time there is going to have to be recognition that employers, in employing individuals, look not at the headline cost but at the real cost of taking on an employee.
There are no simple answers. There will be calls from employers and employee representatives on the other. However we have to get to a situation which is workable for both large and small operations.
When it comes to mandatory pensions, there will be an issue of employees having to contribute to that pension themselves. This will create certain stress in workplaces where employees see their net salary going down and there will be claims and calls for additional monies to cover this when the take-home pay falls.
There will therefore need to be a proper public consultation and public education as to what a mandatory pension scheme means.
One thing is very clear. There will be no reduction in employer’s PRSI or employees’ USC just because a mandatory pension scheme is put in place.