Government Reforms to Statutory Sick Pay to Benefit 1.3 Million Workers
The Government has announced that approximately 1.3 million workers across the UK will experience an improvement in their living standards due to long-awaited reforms to statutory sick pay. Ahead of the upcoming election, Labour revealed its intentions to overhaul sick pay as part of its comprehensive “Plan to Make Work Pay,” which is being legislated through the Employment Rights Bill.
In its spring 2024 proposal, Labour committed to ensuring that the sick pay system provides fair earnings replacement for individuals earning below the current statutory sick pay rate. Currently, employees are entitled to receive £116.75 per week for a maximum of 28 weeks if they are unable to work due to illness. This rate is set to increase to £118.75 per week starting in April 2025. However, these payments only commence after the third consecutive day of sickness, and workers earning less than £123 a week on average are not eligible for sick pay.
In response, the Government has pledged to enhance sick pay by eliminating the three-day waiting period before payments begin and abolishing the minimum earning threshold, allowing low-paid or part-time workers to claim sick pay. The forthcoming Employment Rights Bill, once enacted, will require employers to pay the lesser of the standard weekly sick pay rate or a designated percentage of the employee’s wages. While the legislation has been introduced, the Government has not yet disclosed the specific percentage of wages that employers will be mandated to pay. The Department for Work and Pensions (DWP) conducted a consultation in November to determine this percentage.
Proposed Changes to Statutory Sick Pay
The Employment Rights Bill encompasses significant changes that will allow workers to claim sick pay from their first day of absence and eliminate the £123 lower earning limit. Following the DWP’s consultation, it has now been confirmed that the new rate of statutory sick pay will be set at the lower of either £118.75 or 80 percent of the employee’s wages. These adjustments will be incorporated into amendments to the legislation as it returns to the Commons in the upcoming weeks.
The Government asserts that this reform will benefit 1.3 million workers by providing increased earnings during periods of illness. For instance, consider a part-time worker who puts in 10 hours a week at an hourly wage of £12.21—the national minimum wage for individuals over 21 starting in April 2025. This worker would earn £122.10 per week, and under the current regulations, they would not qualify for statutory sick pay. However, under the proposed reforms, this employee would be entitled to receive £97.68 per week from their employer while sick. Additionally, the removal of the three-day waiting period for sick pay claims will further benefit employees.
For example, if a full-time employee earning £488.40 a week is off sick for two weeks, they would currently be eligible for only £166.25 a week starting in April 2025. However, with the removal of the waiting period, they would be able to claim £237.50 for that 10-day period, resulting in an increase of £71.25.
Reasons Behind the Government’s Sick Pay Reforms
Work and Pensions Secretary Liz Kendall highlighted the necessity for these changes, stating that sick workers often face the difficult choice between staying home and losing pay or risking their health by going to work. She emphasized, “No one should ever have to choose between their health and earning a living, which is why we are making this landmark change. The new rate is beneficial for workers and fair for businesses, as part of our plan to enhance rights and Make Work Pay, while delivering our Plan for Change.”
The Government reached this decision to ensure that low-paid workers receive 80 percent of their wages during sickness after a six-week consultation that garnered over 1,700 responses. The aim is to strike a balance between providing financial security for employees who fall ill and minimizing costs for businesses, all while encouraging individuals to return to work. Concerns have been raised that low rates of sick pay can discourage individuals from working, as it may be more feasible for them to leave their jobs and seek alternative support, such as benefits, if they are not entitled to sick pay.
The DWP stated that the new sick pay system, expected to be implemented by 2026, will help keep more individuals off welfare, as they will not need to resign from their jobs to recover from illness. Additionally, the Government aims to strengthen sick pay to stimulate economic growth, with the DWP noting that the World Bank has indicated that the UK needs improvements in productivity to achieve economic growth. The UK has experienced significantly slower productivity growth compared to other countries since the 2008 financial crisis, which has raised concerns about the resilience of the UK economy. The DWP’s announcement concluded that “today’s changes will enhance workforce productivity to help drive growth and usher in a decade of national renewal.”
Current Claims for Long-Term Sick Benefits
Individuals with long-term or chronic illnesses are eligible for various benefits, including universal credit, personal independence payments (PIP), and disability living allowance (DLA). PIP is gradually replacing DLA, both designed to assist those with long-term physical or mental health conditions or disabilities who struggle with daily tasks or mobility. Currently, only individuals under 16 can make new claims for DLA.
Recent statistics from the DWP indicate that 3.5 million people were claiming PIP in 2024, marking an increase of 400,000 (13 percent) from August 2023 to August of the following year. Additionally, 1.3 million individuals were claiming disability living allowance, with claims rising by 51,000 during the same period. The latest welfare figures reveal a rise in those claiming out-of-work benefits without obligations to seek employment, with 3.1 million falling into this category. As of January 2025, 7.5 million people were on universal credit, up from 6.4 million the previous year, with the majority either required to seek work or currently employed. Notably, 37 percent were employed in December 2024.
The Government has indicated that the proportion of individuals in the “no work requirements” conditionality regime has now reached 42 percent and continues to grow. Those exempt from work requirements are typically due to health issues or caregiving responsibilities.
Government Initiatives to Increase Employment Among the Long-Term Sick
Ministers have committed to revamping the sickness and disability benefit system to encourage more economically inactive individuals to enter the workforce while simultaneously alleviating the financial burden on the Treasury. Further details on these reforms are anticipated to be unveiled in the spring, with the DWP stating that the focus will be on ensuring that individuals can receive adequate support to transition into employment.
The Government is reportedly considering a tiered payment model for PIP as part of broader disability benefit reforms. This model would classify claimants based on their condition’s severity, ensuring that payments accurately reflect the level of assistance needed for personal care, medical equipment, home modifications, and other disability-related expenses. Another potential approach under consideration is replacing the PIP system with one-off cash payments for specific needs instead of regular monthly benefits. While this proposal initially emerged from the Conservative government, Labour has not completely dismissed the idea of substituting cash payments with vouchers or grants for necessary equipment and services.
Ministers are also expected to review the eligibility criteria for PIP as part of the upcoming reforms, aiming to narrow the pool of individuals eligible for the benefit. Such changes may result in some claimants facing more frequent reassessments, while others, especially those with long-term or severe conditions, may experience fewer assessments or none at all. Recent consultation documents suggest that the Government intends to extend the qualifying period for PIP to better understand the impact of long-term illnesses and distinguish between short-term conditions from which an individual can achieve a full recovery.
