The effects of introducing sick pay by employment agencies

This report investigates the effects of a sick payment obligation for employment agencies. When agencies must continue to pay their sick temporary workers the last earned wages for two weeks, this results in higher operating and absenteeism costs. Also, agencies will increasingly proceed to risk selection. This translates into a higher unemployment rate among temporary workers.

When temporary workers must be accompanied by two bodies (UWV and the agency), there is duplication of efforts that leads to higher implementation costs. Also the expertise of UWV is less well utilized in the guidance of sick employees.

At payment of 91% of final salary the absenteeism costs rise by at least 1.4% or € 3 million. This is the net effect of the higher expenses due to higher benefits, lower expenses because the measure provides an incentive to employment agencies to reduce absenteeism and higher expenses due to the higher benefit that gives temporary workers an incentive to stay home.

Employment agencies say in interviews that they will apply a higher risk selection when they have to continue paying the wages of ill workers. This is possible because they can ask references for applicants risk of absenteeism. In the past, companies also became more stringent in risk selection of employees when they were confronted with sick pay under an obligation.

An increase in operating costs and absenteeism costs increases the costs of placing temporary workers. This leads to a decrease in employment. In addition, risk selection leads to a decrease in the employment of temporary workers. Based on the existing literature is not possible to express the decrease in employment in number of jobs.