Oireachtas Joint and Select Committees
Wednesday, 16 December 2020
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Introduction of Statutory Sick Pay: Discussion
Today I am pleased that we are able to discuss the introduction of statutory sick pay. The importance of this issue became apparent at the beginning of the Covid-19 pandemic. I am pleased that we are joined remotely today by representatives of the Irish Congress of Trade Unions and the Irish Small and Medium Enterprises Association. From ICTU we have Ms Patricia King, general secretary, and Dr. Laura Bambrick, social policy officer. From ISME we have the chief executive, Mr. Neil McDonnell.
Before we continue, witnesses should note the limitations to parliamentary privilege and the practice of the Houses with regard to references witnesses may make to another person in evidence. The evidence of witnesses who are physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, today's witnesses are giving their evidence remotely from a place outside the parliamentary precincts. They may not benefit from the same level of immunity from legal proceedings as a witness physically present. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of a person or entity. If statements are potentially defamatory in respect of an identified person or entity, the speaker will be directed to discontinue the remarks. It is imperative that witnesses comply with any such directions.
The opening statements have been circulated to all members already. I wish to remind everyone that because of Covid-19 restrictions, the meeting is limited to 1 hour and 55 minutes. There will be time limits on speaking. The first person I will call on to speak is Ms Patricia King, general secretary of ICTU.
Ms Patricia King:
On behalf of ICTU I thank the members of the committee for the invitation to input into considerations on issues relating to the introduction of statutory sick pay. I am accompanied by my colleague, Dr. Laura Bambrick.
The pandemic has widely exposed the failings in how we protect workers' incomes when an interruption to earnings occurs, the lack of statutory sick pay being one of the most glaring examples. Almost all of the EU 27 member states require employers to provide a minimum period of sick pay to their workers. With the exception of those covered by a sectoral employment order or employment regulation order, workers in Ireland have no legal right to sick pay. Sick pay is at the employer's discretion in a contract of employment. As a result, hundreds of thousands of workers, mainly in the private sector, including many essential workers, are not covered for sick pay. They face being forced out of financial necessity to continue to work unwell or to rely on social protection. Illness benefit is onerous to access and inadequate for most workers' needs.
The trade union movement has long recognised that our voluntary sick pay provision is not working. However, it took a pandemic to bring the long-standing flaws in the current arrangement to wider attention, in particular clusters among meat plant workers denied paid sick leave by highly profitable employers. On foot of our calls for legislation to make sick pay mandatory, significant public and political attention followed. The Government has committed to introduce a statutory sick pay scheme by the end of 2021. In our submission to the public consultation, a draft copy of which we have provided to the committee for consideration, we set out our recommendations on key design and operational features which must be included in any new scheme. In the short time I have available for my opening comments, I will focus on the most fundamental consideration to be decided on. This is how the cost of statutory sick pay is to be shared between employers and the State.
It is commonplace in European statutory sick pay schemes for employers to be responsible for the continued payment of the worker's wage, in full or in part, for a minimum period of absence due to sickness or injury. In the group of high-income European countries, of which Ireland is a member, the duration of statutory sick pay ranges from two weeks to two years. Typically, it replaces all or nearly all of the worker's wage. If the sickness lasts longer than the statutory sick pay entitlement, a social benefit is then paid by the state from social insurance contributions. Financial measures are in place to support businesses in meeting the cost and for cases where there is a genuine inability to pay.
Our unusual practice of social insurance funding sick pay from the outset exposes the Exchequer to greater liabilities than those countries with a statutory scheme. Department of Social Protection officials estimate each week of employer-funded statutory sick pay would reduce the draw on the Social Insurance Fund by €35 million. This money could instead be funding other social benefits for workers. At the same time as employers shift responsibility for paying their sick workers exclusively onto the Social Insurance Fund, their contributions into the fund are markedly below employer's contributions in wealthy western European countries. Raising employer taxes, including social contributions, to comparator averages would have collected nearly €9 billion in additional receipts at average tax levels in 2018. ICTU recommends that the new statutory sick pay scheme should follow the EU practice of employers paying for an initial period of absence followed by benefits paid from the Social Insurance Fund for the duration of sick pay where appropriate.
ICTU does not underestimate the scale of the economic fallout from Covid-19 and is acutely conscious of the significant challenges facing some businesses. We view the proposed gradual introduction of the scheme, starting with a modest scheme that is improved on over time, as warranted in principle. Nonetheless, the pace of the introduction of the full scheme should not be unduly prolonged, as businesses with a genuine inability to pay can be supported in meeting their obligations through financial measures.
Finally, having convinced Government of the necessity to introduce statutory sick pay, the priority for ICTU is now to deliver a fit-for-purpose scheme. We favour a scheme which does not serve to displace current collectively agreed sick pay schemes, which will improve working conditions and protect workers' health and incomes, which will replace the current voluntary approach to sick pay with a statutory obligation on employers to provide a minimum period of sick paid leave, and which will bring workers' basic entitlements into line with European norms.
I thank the committee for its attention, and we are happy to take any questions.
Mr. Neil McDonnell:
We understand the desire of the Department and the members to extend to workers the availability of a statutory sick pay scheme. The then Department of Employment Affairs and Social Protection paid out €13.64 million in illness benefit to 49,000 people in 2019, an average of €276 per person. However, we note the equivalent in the public service on the basis of a 4.2% sickness rate in 2019 cost €381 million. Any system of statutory sick pay that relaxes the rules currently applied to illness benefit would result in a far higher cost for statutory sick pay. Presumably, it is the intention of the House that employers bear this cost. Sick pay is a material cost for many small businesses, especially those that have to hire temporary replacement labour.
There are public comparisons being made in this consultation to rates of sickness benefit being paid in other EU countries where social contribution rates are far higher. If we want higher personal benefits, we must be willing to pay for them via employee PRSI. We also acknowledge that our social insurance system is not social insurance in the terms meant by our EU neighbours. Employer and employee contributions, which used to be capped, are no longer. However, benefits are capped. This is not how true social insurance systems function. This is how tax systems function.
Workers earning less than €18,304 make no contribution to the Social Insurance Fund. They make a payment of €185.90 as a universal social charge, USC, which some people wish to get rid of. Many part-time workers fall into this category. We think it is valid to ask workers who want to avail of social security benefits to make a small contribution to them. This means we must socialise those costs elsewhere. If we are going to have a conversation about social insurance entitlements, we need to have an adult conversation about how we fund them. Putting the burden on employers will simply increase the cost of labour with knock-on implications for annual incomes.
We spend €3.5 billion annually on the pay as you earn, PAYE, tax credit. Should we revise this? While Ireland is already heavily and overly dependent on income tax, Irish Small and Medium Employers, ISME, has previously proposed, and does so again this morning, a solidarity tax of 3% on all PAYE incomes over €100,000. This would bring PAYE workers in line with high earning self-employed persons, and it would generate €314 million per annum. Whatever way we choose to fund statutory sick pay, let us not make it a burden on employers, and let us not borrow more money to fund it.
I now invited members to discuss the issue with witnesses. We have a roster system and the first person is Deputy O'Reilly who is joining us remotely. She has seven minutes, or does she want to share time?
No, I will take seven minutes. I thank the Chairman and the members for facilitating me in joining remotely from the convention centre. The noise behind me can probably be heard. By way of an observation, I think we have all experienced the importance of sick benefit in recent months, In a global pandemic access to paid sick leave becomes an important instrument of public health. This has been brought into fairly stark relief for a lot of people.
What is Mr. McDonnell's view of the ICTU proposal, which seems very reasonable to me, that a clause similar to the minimum wage would be inserted into any sick pay scheme to ensure that employers that could not pay would be supported?
Mr. Neil McDonnell:
I believe ICTU knows the financial implications this presents, especially for small businesses. We are well aware that for some businesses, the cost of labour is a decimal percentage of the cost of sales. Let us be honest; there are some highly profitable mostly multinational companies working in this country for which this does not present an issue.
On the other hand, there are small businesses in the service sector where the cost of labour can be north of 50%. The National Competitiveness Council puts it at 86% in some businesses. I refer to what one is faced with when someone who is entitled to statutory sick pay is in a small business. I acknowledge we are having a discussion in the abstract about what percentage of daily or weekly pay that is. In a small business, if one takes, for example, somewhere where the service has to be delivered by a person physically being there, such as a hairdresser, a barber, security function, coffee shop and what not, one is not merely looking at the statutory sick pay but also the replacement cost of labour. In businesses which are marginally profitable, that is a significant cost, which potentially makes the delivery of that service on that day loss-making.
We are not suggesting there are businesses that could not pay an element of statutory sick pay. The worst-case scenario would be an inability-to-pay clause but the reality of some of those European countries that have been quoted earlier is that they have significant rates of employee social insurance - up to 20% in the case of France - so these things have to be paid for somewhere.
In the event that an employer cannot pay, it is surely reasonable that there would be a cannot-pay clause. I would have thought, however, it is equally reasonable that in the event that an employer can pay, the employer should pay. Mr. McDonnell made reference in his submission to the perceived lack of contribution by those who earn less than €18,000 a year. It is pretty obvious those people are not earning enough to be able to make a substantial contribution but the notion that there is a mechanism for employers to be able to assess their own capacity and have their capacity to pay assessed is very important.
My next question is for Ms King and it relates to the waiting days. Can she outline the impact of this for members? It is pretty clear that if a person is unwell but goes to work because he or she is driven there by his or her financial circumstances, that is not good for anybody. It is not good for the person him or herself and it is most definitely not good for the people with whom that person is working. Replacement costs have been talked about but the replacement costs of one person can escalate into replacement costs for multiple persons in the event of somebody going to work when he or she is not well. Can Ms King outline to us her view on the need to eliminate the waiting days?
Ms Patricia King:
From our point of view, waiting days are a bit of a nonsense in the overall scheme of things. I took part in all of the discussions with Government officials in respect of all of this when the pandemic first occurred. The Deputy will be aware that it adjusted the six waiting days that were in place and so on and so forth. The collectively bargained agreements contain a variety of provisions with regard to waiting days. The Deputy will be well aware of the provisions, for instance, in the public sector sick pay agreements and so on, where it just does not occur, full stop. If people become eligible to receive payment for illness, then they go into that scheme and that is how there are paid for the duration of the illness.
From our point of view, ideally there should be no waiting days. When people are ill, they have to have income. One clear issue arising in the pandemic was that people were going to work when they were unwell because they could not afford to stay at home and waiting days were a contributory factor. That is the reality. As waiting days mean that someone will receive no income, when a person is on very low wages and every cent counts it can therefore have quite disastrous effects.
From our point of view in the consultation, we are trying to get the point across that illness benefit should cover the illness because the illness does not wait for a day, two days or three days. From that point of view, the illness benefit should do what it needs to do which is cover the worker for the period he or she is out sick. On some occasions there will be some differences. Currently the system is quite onerous if one talks about State payments.
One of the benefits of an employer having an obligation is that whatever we agree at the end of this, the employer will continue to pay for a period. In other words, the issue of waiting should no longer be appropriate or should not even arise, quite candidly, if we get into that scenario. If we take a person on maternity leave, for example, the day that person goes on maternity leave she gains the benefit of the maternity leave. In many cases, as the Deputy will know well because she negotiated many of them, workers have top ups from employers. They also apply from day one and then the State payment kicks in, so there are a whole variety of ways and means to do this. That comes into play in the construction sector where sick pay is on a daily basis.
We are in a public consultation process and hopefully we are going to be engaging in many discussions under the labour employer economic forum, LEEF, system with the Department on what the final outcome of this will be. From a starting point, the illness benefit should do what it is meant to do. The employer has an obligation and a break in wages should not occur if that obligation is met. That is our point of view on it.
We learned a lesson from when the sick pay scheme in the public service was slashed. It did not actually save any money nor did it cut any illness days, because workers get sick even if that benefit is not available to them. We could learn a lot from that fairly vicious cut.
I thank both witnesses for the information. I want to quote a couple of workers to put this whole issue into context. Denise, who works in a midland's nursing home said:
... not having sick pay is brutal and unfair when you are out sick and unable to attend work. Having had cancer myself, I understand the need for workplace sick pay. You just cannot afford to be out sick and there is no way you can survive on €203 a week.
Martina, who is a healthcare assistant in Kildare said:
I have had to take time off from work because I was sick. As I work in the care of the elderly unit, if I am sick I cannot go to work and I am not allowed to, as I would be putting the residents at risk. But I cannot afford to be off work sick, as I will not receive illness benefit for six days, and when I do qualify I will only receive €203 a week.
I could go on as I have a number of quotes. I will ask Ms King my first question, and I thank her for her presentation. Just how widespread an issue is this in the workplace, particularly the private sector workplace?
Ms Patricia King:
I thank Senator Gavan for the question. The overall view of the coverage of sick pay at the moment is that there is a collectively bargained agreement in the public sector which covers about 350,000 workers who have provisions of a sick pay scheme. In the main, the commercial and semi-State bodies also have collectively agreed sick pay schemes. Quite a number of mainly larger entities, in the chemical and medical device areas, have collectively agreed sick pay schemes.
It is very much the same picture in the private sector as it is for the coverage of pension in that about two thirds of workers in the private sector are not covered by any scheme other than current State payments during the course of an illness. We are in a bad way in the private sector in terms of the coverage of sick pay.
That paints a very stark picture with two out of three workers having no coverage. I thank Mr. McDonnell for his presentation and I want to take up on the last point that Deputy O'Reilly raised with Ms King. Would he accept that the idea of making people wait before they get an illness benefit has to end?
Mr. Neil McDonnell:
Of course. For people who are ill and not able to attend work there is a logical and understandable expectation that they get paid. In the context of talking about transferring the burden of statutory sick pay from the State to the employer, it is interesting that it is only now that we are talking about ending it. Not alone are we talking about increasing the entitlement we are talking about ending the waiting days. One can see immediately that there is a notion that employers are capable of shouldering a burden that even the State refuses to pay. I would ask the Senator to bear that in mind.
On the piece he raised about nursing homes, and especially during Covid, we have seen how important nursing homes are to the fabric of the State. Those nursing homes go through public tendering to provide services, especially on the fair deal scheme, to the State. It is worth asking how many of those providers are allowed to insert into their contract for service a 4.2% allowance, for example, for sick pay for their workers? If they do not include an element of assumed sick pay within their pricing, then where is that money meant to come from? I ask that the Senator bears that in mind.
I want to move on because I was struck by the line in Mr. McDonnell's statement that we need to have an adult conversation about how we fund them. I was slightly puzzled by the line that if we want higher personal benefits, we must be willing to pay for them via employee PRSI. Was that a typo? Did Mr. McDonnell mean to say employer?
It is serious, and I will tell Mr McDonnell why. The Economic and Social Research Institute, ESRI, produced an excellent report last month on tax rates, and one thing that is very clear is that PRSI tax rates for employers in Europe average at 18% as opposed to 11% here. That is not just a gap; that is a huge gaping chasm. Is Mr. McDonnell seriously saying that employers cannot afford to pay any additional money in relation to this?
Mr. Neil McDonnell:
No. What we are saying is that, as legislators, members are free to put up the cost of labour through the tax system by as much as they want. This is a little bit like the circularity of the discussion around the national minimum wage. If it is thought that the solution to worker poverty is to increase the minimum wage, why bother talking about putting it up by 10 cent, 20 cent or 30 cent? Why not double it?
Mr. Neil McDonnell:
The point I am trying to make is that employee and employer rates in Ireland are significantly lower than they are on the Continent with which we are making these comparisons about higher benefit. I absolutely agree with the Senator that our employer rate of 11% is low, but we have traditionally enjoyed far lower rates of unemployment as a result of that. However, the real outlier is that of employee PRSI at 4% which does not even start until someone is on €18,000. Our employee taxes, especially for workers below the average industrial wage, are extraordinarily low by comparison with the Continent. That is just a fiscal fact.
What makes Ireland so different? Why should we not insist that employers pay their fair share, particularly in the system suggested by ICTU, which is a double payment system initially by employers and then taken up by the State?
Mr. Neil McDonnell:
I do not know why the Senator insists on putting words in my mouth, that is, the notion no one wants to pay is or her fair share. I have said that it is within the members' gift, as legislators, to decide what both levels of contribution should be by putting them up as high as they want. However, the cost of that is to make labour more expensive and in countries where labour becomes more expensive, the impact of that is seen on unemployment and recruitment rates, for example.
I would make the point that both employer and employee social insurance rates in Ireland are low but the employee rate of 4% is extraordinarily low.
I thank our guests. They have both made valid points that the committee needs to try to understand as it tries to shape this.
From ICTU's point of view, where there are collective agreements around sick pay, is there a rule of thumb around how the cost is shared in contributions between the employee and the employer? Would that be any guide to this issue of how we should try to divide up the relative costs? In a sick pay scheme, the State will be a significant player as well.
Things are changing in terms of the responsibilities of enterprise. The more volatile nature of employment and the need to invest more in staff means that employers will take on more responsibility for training and for illness arrangements. From ISME's point of view, have SMEs learned any lessons from the Covid-19 period? I know Mr. McDonnell talked about the cost of absences but a sick person with Covid-19 coming into the workplace would be a disaster for the workplace. There has been clear merit in having some arrangements so that people feel confident staying at home. What have been the lessons of Covid-19 from an enterprise point of view as to the way we should go?
When ISME looks at ICTU's proposals, what elements does it see as being the most problematic from an employer point of view? Is it the duration or the waiting times, etc.? That is apart from the issue of the cost. Mr. McDonnell raised the valid issue of the replacement of absent staff being a cost. It is a cost that we need to think about in terms of the design of a scheme. What are the most problematic elements of a scheme that has applied in other countries and has been at the heart of the ICTU proposal?
How has Europe coped with these low-margin, high-labour sectors? I know we are talking about an inability to pay clause but that seems a bit strange in a system that is trying to be easy to operate and comprehensive and so on. Are there models other than inability to pay for some of these lower margin businesses, which, as was rightly pointed out, are in a different boat to the multinationals? Are there good models that we could look at for that?
There is a concern about higher sickness and abuses of a scheme. Have anti-abuse mechanisms been built into any of these schemes elsewhere that we should be considering?
Ms Patricia King:
One of Deputy Bruton's first questions was about other collective agreements. By and large, collective agreements usually cover a certain number of weeks. There is no real provision for a contribution in most of the collective agreements but I would give an example of another collective agreement that does. For instance, in construction there is a small contribution from workers every week on an ongoing basis. It is something in the order of cents that is paid into a fund, which then pays out for sick pay, in the order of about €44 per day for someone who is sick. Most of the collectively bargained agreements would include the provision, much like the maternity leave system, that when State payments kick in, they are refunded back to the employer. That would be the same in the public sector as well.
We are strongly arguing that sick pay paid by the employer should be a condition of employment. A strong argument has been put forward about labour costs and the increase in same and so on. I fundamentally disagree with the argument made by employers because if one goes into business, a company cannot go to the ESB and ask for a lesser price for electricity because it is small, for example. If one goes into business one should be able to counter and deal with the cost of a decent wage and decent terms and conditions.
From our point of view, we pay a big bill in this State for the privilege of low pay. One in four workers in this country is low-paid. It cost the State just under €1 billion in 2018 to supplement the income of low-paid workers to try to keep them out of the worst levels of deprivation. That is the price of low pay to this Government and State. The answer of employers to this is that either the worker should pay through extra tax or PRSI, or the State should pay more money to the employer to put this condition in place. We fundamentally reject that. Workers going to work and giving of their labour should be given a decent rate of pay and should have decent conditions. We regard sick pay as a decent condition of employment and it should be paid for by the employer.
Mr. McDonnell is right about having an adult conversation. That is the piece of the adult conversation we should have. When one looks across Europe, they have much higher employer contributions for social insurance but their social wage benefits to workers are much better and those states do not have the large level of bill that this country has to uphold employers paying low wages.
Mr. Neil McDonnell:
I will follow up on some of the questions the Deputy asked me. One of the stand-out lessons from Covid-19 goes back to the philosophy of sickness and unemployment benefits as a charge on the social welfare system. We saw that when the temporary wage supplement scheme was introduced at the start of the pandemic, the payment to workers making more than €76,000 per year through the system was €0. We should contrast that with countries in continental Europe. For instance, if someone loses one's job in Denmark, the payment can temporarily be up to 80% of one's salary. That tapers down to a national basic payment but the principle is that caps on salaries were removed a number of years ago. The benefits are capped, however, and that is fundamentally unfair. That is one of the lessons we learned.
I will give an example of the high wage costs for businesses. We represent many people in the personal grooming sector. The UK has brought in an element of statutory sick pay and in some hair salons in the UK that has meant that salon owners have moved away from employment and what they are doing now is renting the chair. The outcome of that, which I am sure ICTU would not like to see happening either, is that people who were previously employees are forced to become contractors, generating their own charges for their services and then renting the fixed assets from a salon owner. That is an example of what is happening on the ground and what those in the grooming industry brought to my attention when I shared this proposal.
In terms of waiting days, there is one element that plays against that. In the scheme of the management of a statutory sick pay scheme, currently one has a State payment made after day six. To understand the impact of waiting days and so forth, in the case of a person who is on a daily rate of pay of X per day, what percentage of X would be represented by sick pay and what percentage of that could be recovered from the State that is currently covered by the illness benefit scheme? Unless we can see meat on the bone in the proposals, it would be difficult for us to deal with issues such as that.
ICTU has actively advertised the benefit of the scheme in the Netherlands, which is up to two years. Employees who avail of that are put into quite an intrusive return to work and health recovery protocol, which some people might not like. Second, SMEs can avail of insurance. The State insures and underwrites the cost of that for them. It is not an inability to pay. It is more a question of how one does that. Does an employer tell the State that he cannot afford to give two weeks' sick pay to that person? Do we just simply adopt an insurance measure that would be far more practical and sensible?
We certainly do not want people to feel that they have to go to work when they are sick for all kinds of reasons such as lack of pay, loyalty to the company or whatever else. The other side of that coin is that we do not want people abusing the system by taking so-called sick days either. There are two sides of the coin and it needs to be balanced.
I am struck by how some of the large companies deal with this. Diageo, for example, offers 26 weeks' paid maternity and paternity leave to its employees. Other large companies offer significant perks. This idea of looking after one's employees is important. Many employers are beginning to realise that to retain talent, they have to look after employees very well. Then we come down to the issue of the smaller employers.
How would an insurance scheme work? What does the ICTU think of an insurance scheme that would be paid into by the State, employers and employees in the case where sick benefit or sick leave cannot be paid?
Ms Patricia King:
On non-payment, members will be familiar with the terms of the National Minimum Wage Act 2000. The provisions relating to the proof of inability to pay take up two and half pages. From my experience on the Low Pay Commission, it is interesting that since 2000, 20 years on, not one claim has ever gone before the Labour Court where an employer was unable to pay. There is a reason for that. The provisions of the Act state that an employer must prove he cannot pay. In other words, the employer must open his books. Employers do not want to do that.
I have not read any proposals on an insurance mechanism. However, it seems that it would be an avoidance mechanism for saying we do not to want to tell why we are unable to pay. That is wrong. If employers expect the State to support them on inability to pay, then they at least should prove to the State that they cannot pay. That is reasonable.
Other schemes and other areas of conditions of employment that have included insurance-based programmes may have been considered. We have not seen anything, so I am not going to comment on anything we have not seen. I am familiar with the inability to pay provisions of the minimum wage Act, however. They require proof and that is the reason we have not seen any claims.
Mr. Neil McDonnell:
It is absolutely not a matter for us, nor are we permitted because we are not a trade union but a trade association. We cannot tell separate businesses. We are a horizontal trade association. We represent businesses in all business sectors, services, manufacturing, food and construction. It is good for those businesses that are sufficiently profitable to be able to provide 26 weeks' maternity leave such as Diageo. I do not know of any small business that would not love to be in the position to do that. Unfortunately, for a small business, such as a café with two or three employees, it is not an economically viable proposition. That is why it does not happen. It is not because the people running those businesses do not want to do it or would not like to do it.
I note from a PDF document on sick leave on the ISME website that there is a big bold observation that there is no legal obligation on an employer to provide an occupational sick pay scheme for employees. I agree it is quite clear that the organisation does not recommend it.
Does Mr. McDonnell agree that Covid has underlined the problems with not having a sick pay scheme? For example, there was the issue of the conditions of meat factory workers where some of them felt pressurised to go to work and had no alternative even when sick. There is a story reported in the media about a contract cleaner in a hospital who was earning €10 an hour. She had a bowel infection but could not afford to lose pay so had to work wearing a nappy. She said she simply could not afford to be sick. Does Mr. McDonnell agree that the case for a statutory sick pay scheme is much clearer now?
Mr. Neil McDonnell:
Of course it is. We do not disagree with that. I am not sure if the Deputy wilfully or accidentally missed the point. We want this. However, he is undermining the entire basis for employers paying social insurance in the first place. Why are employers paying into the Social Insurance Fund? If currently the State is providing a de minimis level of sick pay for people on the basis of the 15% that comes from employers and employees, on what basis is the Deputy suggesting employers should take on that entire burden?
If the Legislature passes legislation stating that employers must provide two, three or four weeks' paid statutory sick pay at a given rate per annum, that will mean that when a company tenders for business with the State or when a company factors in the price of a cup of coffee or a haircut or a litre of petrol-----
Is Mr. McDonnell denying the fact that ISME has repeatedly opposed any concrete sick pay scheme? The organisation might be in favour of a sick pay scheme that employers do not have to pay for at all. However, it has consistently opposed sick pay schemes. Is that not ISME's position?
Mr. Neil McDonnell:
What we are saying is that employers and employees pay into a Social Insurance Fund. What does that mean? What is insurance? Insurance - for example, home insurance or car insurance - is a payment against a contingency. If something goes wrong, the insured party takes money from that fund. What the Deputy is saying, however, is that employers and employees, especially higher earning workers, who pay even more money into that fund, should continue to pay into it. He is saying employers should not get any benefit from the fund for paying employees who are ill. That does not make sense.
I stand with the meat factory worker. I stand with the contract cleaner who felt she had to go to work in a nappy even though she is on a low income. Yes, I think she should be entitled to sick pay and, yes, I think those who have it should pay for it. Does Mr. McDonnell accept that if employer's PRSI were increased by 2%, which would still leave it substantially lower than the EU average, that would raise close to €1.5 billion, which would be more than enough money to take the example of the public sector sick pay scheme and expand it across the entire economy.
Mr. Neil McDonnell:
One can use the Revenue ready reckoner to show the yield for anything. I am amazed that Deputy Murphy in particular has not twigged what I said in my opening address about applying a 3% surcharge to all PAYE workers earning over €100,000. I am quite amazed he did not pick up on that because it-----
Mr. Neil McDonnell:
I know, but the point is really clear. The Deputy is suggesting I want a worker to go to work in a nappy because there is no statutory sick pay for her. I want that worker to be paid. The net issue on which he and I disagree is the notion that 100% of that burden should fall on the employer and-----
Mr. Neil McDonnell:
-----but what that means is that the employee rate is only 4%. That is even lower than in countries such as France, where these social benefits are far higher. The Deputy really needs to think about this in a logical, structured way and stop blaming employers for all the ills of Ireland.
The conversation has probably moved on. I am sure we would all like to see a statutory sick pay scheme for all workers in the State. Covid has shown in recent months the kind of precarious employment that exists, but we must also recognise the precariousness of employing. I ran a small business for a number of years and I get very frustrated when I read some of the input coming from Congress in particular, which reads as if every employer can pay every cost. One has to differentiate between large, profitable employers and very small employers. Ms King said in her opening statement that "businesses with a genuine inability to pay can be supported in meeting their obligations through financial measures"? What is she proposing in that regard?
Dr. Laura Bambrick:
It has been mentioned that statutory sick pay is common practice across the EU 27. Because Ireland is a late mover here, we can see the design methods various countries have. They address the inability of small businesses, microbusinesses and businesses in sectors that have higher than average rates of sickness to pay. The way they do this is twofold. First, there is a government-provided fund. That is for businesses in respect of which a genuine inability to pay has been established. The second way, to which Mr. McDonnell referred, is a form of insurance whereby if a business feels that its statutory obligation to provide sick pay to its workforce will place a burden on it, it can take out a form of insurance which will assist it in meeting its obligation. As I said, Ireland is really unusual in not having statutory sick pay. One of the benefits of being a late mover in adopting this method is that we can see the types of schemes and the design features others have put in place and how they have worked successfully. There is nothing that we see or that we have talked about today that other countries have not faced and been able to deal with successfully.
Dr. Laura Bambrick:
There are two points. One is that where the company had an inability to pay, and once that inability had been established through the procedures Ms King mentioned, a State fund would cover that cost. Small businesses and businesses that have a higher incidence of sick leave than the average can take out an insurance policy to help them meet their obligation to pay sick pay.
I will go back to ISME's statement and the proposal which has just been discussed on the solidarity tax of 3% on high earners to give equality between the PAYE sector and the private sector. What is Ms King's take on that?
Ms Patricia King:
I thank the Deputy for the question. We in Congress have consistently and over successive pre-budget submissions made the point that for employees earning above €100,000 an increased level of PRSI should be paid by the employers.
Ms Patricia King:
I do not support increased employee PRSI contributions, but we have consistently made proposals whereby employers who employ people on over €100,000 could marginally increase for the amount of money over €100,000 the social insurance contribution.
While I might find agreement with Ms King, I think somebody earning €100,000 could afford to pay something, and the employers who are able to pay that money definitely could. This brings us back, however, to the disconnect from the smaller people in the private sector. It was said that about two thirds of private sector companies do not offer any kind of voluntary sick pay scheme. For a large number of those, particularly the businesses that have just been highlighted such as the small beauticians and coffee shops, if they employ three people and one of them goes off sick and they have to provide a statutory sick pay scheme and replace that person in the business, how is that small business supposed to pay for that? How does Ms King feel a small business can support that payment?
Ms Patricia King:
Just as the Deputy has given his history of this, I know of a number of people who have been successful in small businesses for a very long time. I am related to some of them. They know very well that paying a decent wage and offering good conditions is the manner in which they will retain their employees and that they will get a much better return for the company as well. That is tried and trusted.
It is now accepted by all of the major bodies that that is a fact of life. I do not think it would be an easy job to reconcile our position in regard to this, which is that decent work includes a decent rate of pay. People cannot live on the minimum wage. It is about €2.20 per hour below the living wage.
Terms and conditions of employment are a matter between workers and employers in the first instance. Therefore, the obligation on employers to provide sick pay for their employees is a term and condition of employment. Somebody in business has that judgment to make about affordability and having proper wages and conditions. Those are very serious considerations that an employer has to make when he or she undertakes to employ people. The very strongly advocated view from the employer side for years has been that they pay wages but other social matters such as pensions and sick pay are not a matter for them, they are a matter for the State.
Mr. McDonnell asked earlier what the Social Insurance Fund is for. I can tell him that one of the primary uses of money from the Social Insurance Fund is the provision of a State pension. Some 70% of the fund is used to provide a State pension to people because they have no other access to a pension and would be in total poverty if there was not a proper State pension in this country. Those are some of the pieces that also come from the Social Insurance Fund. I do not know why Mr. McDonnell is questioning what the Social Insurance Fund is for. It is going to be in deficit. There is not any doubt about that. That is the reason we welcome the very good debate that we hope will happen. I agree with Mr. McDonnell that we will have an adult debate about how sick pay should be funded, but we are fundamental in our view that it is an obligation of the employer to pay sick pay to an employee.
I thank ISME and ICTU for their presentations. I apologise if some of my questions have already been asked. Unfortunately, I was delayed at another event.
My first question is for Mr. McDonnell and ISME. I very much welcome the fact that ISME supports the call for the statutory right to sick pay in this country. That is progress, but I am not sure that the demand that employers pay nothing towards it stands up to scrutiny. I am struck that his predecessors would have made the very same argument against paid annual leave 70 or 80 years ago, before we had a right to paid annual leave in this country. My understanding is that there are three types of employers. There are employers who can afford to pay sick pay, and do. There are employers who can afford to pay sick pay and choose not to. Then there is a cohort of employers who are just about getting themselves back up on their feet at the moment and are obviously struggling to make ends meet.
What research has been undertaken by ISME on the affordability issue? Mr. McDonnell talks about the costs to an employer from a statutory right to sick pay. What share of firms would require temporary replacement cover if a person falls ill? In some organisations two people have to do the job of three people if somebody is out sick. In other firms, that is simply not possible. What share of his membership require temporary replacement cover? Of the member organisations of ISME, what is the average number of sick days among their workforce on an annual basis? Does he have any idea of that? We need to understand what is going on within his representative body in order to take his concerns seriously. I take his concerns seriously, but we need to see the research from within the organisation upon which they are based in order to be able to better understand those concerns.
Mr. Neil McDonnell:
Regarding the first issue, which is some sort of quasi-equivalence between annual leave and sick leave, they are entirely different. Senator Sherlock might be mixing me up with some of my 19th century predecessors in objecting to annual leave. I am a PAYE employee, albeit on a contract basis. I have an entitlement to annual leave. I expect to be able to avail of that. I do not expect to be-----
Mr. Neil McDonnell:
Yes, but I need to briefly clarify this point. If an employee's entitlement to annual leave is X number of days per annum, that becomes a structured, costed part of his or her remuneration. Any entitlement to statutory sick pay would have to be treated in the same way if a company was not to go bust, especially those that are more labour dependent.
Not being in receipt of any State moneys, I am afraid we are not in a position to survey membership about how many sick days employees take per annum. We are one of the very few associations one will talk to here that is not in receipt of direct State subvention, so we do not have the resources to do that. I would love to do it, if the Houses wish to resource me to do it, but I am not in a position to do it.
As to those entities where replacement is a necessity, that is very much a sectoral question, but I will give a broad answer. Typically, people in an office environment are not replaced when they go sick. In a lot of service entities, staff who are sick must be replaced because the service is sold at point of delivery, so if a cleaner, a security person or a hairdresser does not show up then one cannot deliver the service and therefore there is no turnover. In those types of service industries, replacement is typically 100% and then there are other areas where it is mixed. In construction, if one of a number of bricklayers on a site is missing then the work slows down for the day, but if the crane operator is missing then the crane does not work unless a replacement worker is found. I appreciate that that is a very segmented answer to the Senator's question, but I am doing my best to give her a clear answer.
I thank Mr. McDonnell for that. What I would respectfully say is that we do need to hear the voice of business in this conversation and discussion about how we pay for sick pay, but we do need hard facts and figures as well. If we can be of assistance in undertaking the research to understand what is going on among ISME's member organisations then that is something to be considered.
I am sorry, but I must allocate time to ICTU. I thank Mr. McDonnell. I am sorry for being rude.
It is good to see Ms King and Dr. Bambrick. I thank them very much for their presentation today. I have two very quick questions. There is a lot of commentary about the Trumpian management of the economy in the United States but on 31 December the Families First Coronavirus Response Act will ensure that workers in firms of fewer than 500 employees will have full sick pay for the first two weeks they are sick. I wish to hear from ICTU about the timing of the legislation here. We have a commitment from the Government. When do the witnesses want such legislation to be enacted? Great credit is due to the witnesses for the work they have undertaken and to the constituent unions of ICTU, such as SIPTU and others, in terms of shining a light on the practices of firms where workers do not have access to sick pay. It is important to acknowledge that. I would like to hear about the timing and the minimum number of days an employer would have to pay 100% before the illness benefit kicks in.
Dr. Laura Bambrick:
The Senator asked about the timeline. The Department and the Minister are due to respond to the Senator's Bill in March. That will bring forward legislation. The plan is for that to be adopted by the end of the term with the scheme being introduced by the end of the fourth quarter of next year. Our understanding is that it will be introduced gradually. It will start with a small introduction and build up over time.
The Senator also asked about the number of days that we think employers should be responsible for paying sick leave before the charge comes on the Social Insurance Fund. We have deferred giving an answer to that until we have confirmation on how the cost is to be split between the employers and the State.
Perhaps this is a naive question but if the cost is, let us say, €100 million, what would each group regard as a fair share of the cost between the employee group, the employer group and the State? I would like to hear from both sides as to how far apart they are on the division of the cost that Dr. Bambrick just mentioned.
My question supposes that we are adding a given cost. We know the cost of social insurance in terms of illness benefit paid out. If we are adding another €100 million, what would be the congress's view of how that should be divided? Should the ratio be 20:40:40? I am asking for a rough idea. Is there a huge gulf between the two sides as to how this extra cost should be shared between the three parties?
Dr. Laura Bambrick:
The cost would not be split like that. The easiest way to think about the cost was provided by the Department of Social Protection officials who estimate that every week of employer-funded statutory sick pay would save the Social Insurance Fund €35 million. The way the cost would be divvied up would depend on the length of time the obligation is on the employers to pay sick pay. If the statutory scheme is going to be two weeks, that means €17 million a year. If it is going to be four weeks, it is going to be double that. The length of the obligation on employers to pay statutory sick pay will determine the cost of the scheme.
I do not know whether the representative of Irish Small and Medium Employers, ISME, wants to offer a view on that cost sharing. It seems that we are quite a distance apart in terms of where the cost should fall.
Mr. Neil McDonnell:
It depends on how it is divvied up between the State and the employer, notwithstanding the point that Ms King made earlier. I absolutely appreciate that the majority of social insurance is collected for pensions and we both acknowledge that that contribution for State pensions, contributory and non-contributory, is grossly underfunded and represents a liability on the State that is almost twice the size of our current national debt, to put it in context.
Unfortunately, in many areas of the public service, what are called uncertified sick days or contractual sick days tend to be viewed as an entitlement and are taken up and used in full in many areas. The average across the public service in 2019 was a 4.2% absence rate, which equated to 9.2 days per employee.
Without committing to a figure, I noted Dr. Bambrick referred to payments across Europe. The average replacement by the employer in those regimes is 65% of gross wages. That introduces an element of moral hazard. By all means, if someone is ill, they are ill, but that approach recognises that someone will not get 100% of their pay while they are ill. That incentivises both sides to return to work as quickly as possible. Employers would also have to know if any of the current illness benefit will be available to employers in the calculation of what would be paid. In the absence of knowing what is on the table from the State side, I could not give the Deputy an answer to his question.
I will go back to the substantive point to which I do not think anybody here would object, that is, the rationale for a statutory sick pay scheme across the board. I have concerns around competitiveness. We have to remember that we an export-led economy and that feeds into the more indigenous economic rationale.
The issue of insurance has been discussed. Has anybody looked at funding a statutory sick pay scheme for smaller businesses through private insurance and how that would work? There is a disparity between what happens in the public and private sectors. If we are going to adopt a public sector model in the private sector, we have to recognise where relative costs and benefits arise, which I do not think we have done. Perhaps the congress has a view on this. What would a social insurance cost look like in terms of providing the statutory sick pay scheme for which the congress is advocating?
Dr. Laura Bambrick:
The Deputy started off by talking about labour costs and that we have to remember that we are an open economy. I accept that. We have to remember that our cost of labour, our national minimum wage, is driven by two factors. The first is the costs of goods and services, and business charges, which we know are high. The second is the size of the social wage, which is very low in Ireland. The social wage is the cost of education, healthcare and public transport. The reason it is so low is that we spend, on average, approximately €3,500 less per person than comparative EU countries. The reason for that is that our intake from employer social insurance is comparatively low. If we do not take in more in employer's social insurance contributions to fund the social wage, the cost of wages is driven up. The cost is being paid, one way or the other. Investing more in the social wage will keep us competitive and introducing statutory sick pay is not lose-lose for business.
I am not responding in particular to what the Deputy just mentioned but we have heard a lot about absenteeism, moral hazards and how to ensure that people are not abusing the system. It is one of the great paradoxes that the more generous statutory sick pay is, either in terms of replacement rates or in the low number of waiting days, the lower the level of absenteeism. That might sound counter-intuitive but the reason is that if people get the opportunity to get themselves better when they have a small ailment, it stops the sickness or illness from festering and becoming a bigger health issue, thus necessitating more time off.
As I mentioned in my earlier contribution, statutory sick pay is normal practice across our European partners, including Northern Ireland and the UK.
They also have small businesses. They also have micro-businesses. They also have to remain competitive. They also care about absenteeism. All these matters have been dealt with successfully and we can learn from that.
I take that last point. There is another side to that, that if employees feel valued they would want to go back to work earlier and will not take time off. I have seen that in some companies. In fact, there is a worry that some people might not take time off sick even if they are sick because their loyalty to the company is so strong. It is something I know some people do as well which they should not do.
I have two questions. First, I note in some countries that sickness benefit is 80% of salary and there is a cap on what is paid. What is their view on that? Second, is there any European Union state that has already done this where the witnesses feel there is best practice that we should emulate?
Dr. Laura Bambrick:
Looking at which country offers the best for Ireland, because we are a late mover and because there are already a number of good collectively-bargained voluntary sick pay systems in place, we have to be careful when we are introducing a statutory sick pay that layering over that model does not have the perverse consequences of displacing good existing benefits. It is possible that we will be taking a mishmash and borrowing different parts of the policy from different countries. There will not be a one-size-fits-all solution. We are not at that stage of our negotiations, saying we will take, for example, the French model or the Dutch model. My own thinking around this is it will be a patchwork of the different schemes, probably closer to some countries than others. However, no one system is without little bits that would be problematic.
I thank Dr. Bambrick. That concludes our consideration of the matter today. I thank the representatives from ICTU, Ms Patricia King and Dr. Bambrick, and from ISME, Mr. Neil McDonnell, for assisting the committee today in this important matter. We look forward to giving this further consideration as soon as we possibly can. I thank them for attending today.
The next meeting of the committee is scheduled to take place in private session on 12 January 2020.
I thank the members for their co-operation and work for the committee since its establishment. I wish them a happy Christmas and a happy new year. Nollaig shona dhíobh go léir. I look forward to working with all the members in the new year. Hopefully, 2021 will be somewhat of a better year for us than this year has been.