Changes to employers' responsibility for sickness compensation

In the Netherlands, far-reaching changes affecting the allocation of responsibilities for protecting the income of sick employees came to a head recently. These changes form part of a broader shift in social policy and in the relationship between government and the social partners concerning social security. The much-contested reform of the Sickness Benefits Act, which came into force in 1996, now makes employers generally responsible for continued payment of wages for one year of sickness.

Over the last 10 years, Dutch social security law has changed dramatically. The changes relate to matters concerning government policy geared more towards activating jobless people, the allocation of responsibilities between government and social partners, and to efforts directed at curbing the continuing growth in the volume of benefits. Recently, several financial incentives were introduced in an attempt to limit the demand for sickness and disability benefits, and to promote responsible behaviour from the parties involved.

Background

Until recently in the Netherlands, compensation for loss of income for employees due to sickness or disability was almost completely provided for by legally guaranteed benefits. The regulations in force from 1967 to 1985 can be outlined as follows.

For the first 52 weeks of sickness, an employee could lay claim to a sickness benefit on the basis of the Sickness Benefits Act (Ziektewet, ZW). Benefit amounted to 80% of wages. For most employees, this was supplemented to the level of full pay by employers on the basis of collective agreements. If the period of sickness exceeded 52 weeks, disability laws came into operation. Irrespective of the cause of disability, the employee's resultant loss in earnings capacity was largely compensated, originally (and unlike the regulations governing unemployment benefits) without imposition of a time limit.

Administrative responsibility was borne jointly by the industrial insurance associations and semi-public employers' and employees' organisations. The social partners were represented in terms of administrative supervision and social security jurisdiction as well.

From the mid-1970s, reducing absence from work due to illness began to attract increasing political attention. Full compensation for pay lost due to sickness, as then applied to most employees, came to be seen as a provision which failed to foster a sense of responsibility amongst employees. However, an initial step to introduce qualifying days, or days on which employees were not entitled to receive pay, taken by the government at the time, was avidly opposed by the unions.

As a result of changing economic circumstances and the ensuing economic recession at the start of the 1980s, social security payments grew so rapidly that they soon became a political issue. The volume of payments in the Netherlands shot up even more because "disability", with its relatively favourable conditions, developed into an alternative redundancy route favoured by employees and employers alike. Initially, the issue was tackled by reducing the level of benefit payments (down to 75% in 1985, and 70% in 1986).

From the second half of the 1980s onwards, interest in a more rigorous approach based on financial incentives grew. Gradually "administering" these incentives was supposed to induce employers and employees to behave more responsibly and therefore to lead to a reduction in the volume of payments. The rationale was that if employers were confronted more directly with the costs of absence due to illness, they would be more apt to pay attention to issues relating to health and safety policy. Likewise, employees confronted with a partial loss of income in cases of sickness would tend to report sick less frequently.

In 1989, during tripartite consultations on possible measures to be taken, employers' organisations pushed for a sector-wide approach, while unions and government voiced a preference for measures directly affecting individual employers.

In 1992, differentiation of premia was introduced at an individual employer level based on the Disability Volume Reduction Act (Wet Terugdringing Arbeidsongeschiktheidsvolume, TAV). Companies with a sickness rate that departs significantly from the sector average have to pay either higher or lower premia accordingly. Partly because of the administrative discretion left to the industrial insurance associations, the consequences of this measure have in fact been quite limited.

In 1994, the Sickness Absence Reduction Act (Wet Terugdringing Ziekteverzuim, Wet-TZ) (1993 Bulletin of Acts, Orders and Decrees, 750) introduced a further increase in the financial involvement of employers. The Wet-TZ makes employers directly responsible for continued payment of wages during the first six weeks of sickness affecting an employee. A number of exceptions exist to prevent any unintended harshness of the measure: for small companies, the term is not six, but two weeks; and if an employer unjustly refuses to pay, an employee may still claim benefits from the industrial insurance association. The Ministry of Social Affairs and Employment claims that this Act has prompted a decrease in absence of 16%.

Bolder step

On 1 March 1996, the Act Extending the Period of Continued Payment of Wages during Sickness (Wet uitbreiding loondoorbetaling bij ziekte, WULBZ) (1996 Bulletin of Acts, Orders and Decrees, 134) came into force. This Act takes a somewhat bolder step in the same direction. The employer now bears complete financial responsibility for the continued payment of wages in cases of sickness. Whilst the employment contract lasts, the employer is now obliged to pay 70% of an employee's wage (and no less than the minimum wage level) during the first 52 weeks of sickness. Hence, for all intents and purposes and for most employees, the ZW has now been brushed aside.

In contrast to the former phase, small companies are no longer spared. The smaller the company, the greater the risk in terms of lasting sickness. However, employers are entitled to take out insurance against the risk of continued wage payment. In practice, 75% of all small companies have done just that.

The ZW does however remain intact as a "safety net" for pregnancy and childbirth, bankruptcy of an employer, sick unemployed people and ex-employees.

Commentary

Objections against the WULBZ have been raised by both employers (especially smaller operations) and employees alike. Employers point to the substantial financial consequences that the risk of sickness may have, especially for small companies. Small employers and employees also resist the "privatisation" implied by the WULBZ: the consequences of sickness are now a matter only between employers and employees. Disputes between them are now more likely and will have to be settled by the civil law courts; the industrial insurance associations can no longer act as mediators.

Employees' organisations fear an adverse effect in that companies hiring people will focus on potential health risks, thereby making it much more difficult for people with a medical history to find work again or even for the first time. It is not unthinkable that the measure will in fact thwart government efforts to channel partly disabled workers back onto the labour market. The Government is now attempting to compensate for this through offering inducements to employers which take on people with health problems (including wage supplements, wage cost subsidies and trial placements).

Finally, the WULBZ supposedly encourages employers to hire more of their staff on the basis of temporary contracts or through temporary employment agencies, thus restricting or eliminating the risk of continued payment in the case of sickness. (R Knegt, HSI)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Aggiungi un commento