Employers oppose change in sickness cash benefit system

In July 2009, a new system of sickness cash benefits was introduced, in order to cut the state budget during the recession. The employer organisations opposed the new system at its approval stage in the summer. In October, the Estonian Employers’ Confederation consulted with the Chancellor of Justice arguing that the new system contradicts the constitution. The chancellor agreed, although no considerable changes have been made in the regulations so far.

Background

In order to adopt the euro as the national currency from 1 January 2011, the Estonian government aims to fulfil the Maastricht criteria. To achieve this, the government seeks to improve the country’s budgetary position through extensive cuts in public spending (EE0902049I and EE0907029I). One measure to reduce the government budget was introducing a change in the sickness cash benefit system. The idea was to share the sickness benefit payment burden between employers and the Estonian Health Insurance Fund (Eesti Haigekassa) to ease the financial responsibilities of the fund and increase employers’ motivation to improve employees’ working conditions, and health and safety at work. As a result of this change, the government expected to save EEK 350 million (about €22.4 million as at 11 December 2009) in 2009, taking into account that the new system was introduced in July. In the future, it expects to save about EEK 700 million a year (€44.7 million).

According to the new system, the period not covered by sickness benefits increased from two to three days. Sickness benefits for the subsequent five days of illness are cut by 10 percentage points compared with the old system and are paid by the employer at a rate of 70% of the average wage of the employee. The Health Insurance Fund will start paying sickness benefits only from the ninth day of illness.

Reactions to new system

The Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) strongly opposed the changes in financing sickness benefits, as according to them it will considerably shift the responsibility and expenses from the state to employees and employers, and will require an estimated further investment of EEK 500 million (€32 million) from the employers. Employers made several proposals to ease the effects of the new financial obligations put on them, such as tax exemptions on benefits and lowering the rate of sickness benefits to 50% of the average wage ( EE0902049I). They also continue to demand that the investments made to improve employees’ health should be released from fringe benefit tax, as it would significantly broaden employers’ opportunities to improve employees’ working environment and health at work.

The Estonian Trade Union Confederation (Eesti Ametiühingute Keskliit, EAKL) has not opposed the new system, but highlighted the importance of thoroughly analysing the possible effects of the new system prior to its implementation in order to prevent any possible conflicts or contradictions in new regulations.

According to the Chair of the fraction of the Social Democratic Party (Sotsiaaldemokraatlik Erakond, SDE) in the Parliament of Estonia (Riigikogu), Eiki Nestor, the change is a step in a positive direction, as employers would be more motivated and interested to prevent employees’ sickness absences due to their responsibility to pay sickness benefits for five days.

However, the Estonian Patient Advocacy Association (Eesti Patsientide Esindusühing, EPE) thought that the system may lead to serious consequences in the future as more people, especially persons with lower income, would be attending work while sick, in order not to suffer any loss of pay. The Estonian Health Foundation (Eesti Tervise Fond) agreed by saying that, because employers are forced to pay sickness benefits, workers will be afraid to take sick leave out of fear of losing their jobs. The 2009 half-year report of the Health Insurance Fund has shown that, as a result of the changes introduced, sickness absence has decreased considerably – by 57% in the period July–September compared with the same period in 2008.

Opinion of Chancellor of Justice

ETTK declared that the new system contradicts the Estonian constitution and addressed its concerns to the Chancellor of Justice (Õiguskantsler), Indrek Teder, in October 2009. According to the employers, the new system does not regulate clearly who is eligible for sickness benefits from employers and what rights employers have in the case of reasonable doubt over sickness leave validity. Mr Teder agreed with the employers’ complaints and subsequently addressed the Minister of Social Affairs, Hanno Pevkur. Although no changes have been introduced to the legislation so far, the minister admitted problems in the new system and pointed out the need for more thorough analysis.

Liina Osila and Kirsti Nurmela, PRAXIS Centre for Policy Studies

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