Employers face several universal truths. One is that different employees take wildly differing amounts of sickness leave. Although some employees will only call in sick in extreme cases of infirmity, the amount of sick leave taken by others depends on their susceptibility to hypochondriasis as much as to any other condition. The best policy is always to assume honesty on the part of employees, but such trust can be misplaced and so employers often have a difficult task when deciding how to treat discretionary performance bonuses in cases where employees have been absent from work due to illness. Should bonuses remain unchanged, be pro-rated or fall away completely once absence reaches a certain level? Careful consideration should be given to this, as getting it wrong can have a detrimental effect on staff morale, or even result in a discrimination or constructive dismissal claim. Although a lot will depend on the precise wording of the relevant bonus scheme and historical practice, this article will explore in general terms the advantages and disadvantages of the different approaches.
1. Making no adjustment to bonuses regardless of the level of absence
Where a business operates a discretionary performance-related bonus scheme, it can cause friction amongst employees if some among their number consistently take more days of sickness leave than others and it has no bearing on the level of bonus they receive. How should this potentially morale-threatening situation be handled? Making no adjustment for absence could cause resentment amongst staff and, notwithstanding the implied mutual duty of trust and confidence between employer and employee, may result in an increased average level of sickness absence across the board as even the more scrupulous of employees decide that, in view of the fact that another day off sick will not affect their bonus, their cold is in fact impairing their ability to do a day’s work after all.
2. Pro-rating bonuses as a result of absences
Pro-rating discretionary performance bonuses can be problematic. First, it assumes a directly proportional relationship between performance and time spent in the office, which is not necessarily the case.
Secondly, pro-rating could be seen effectively to be turning illness into a punishable offence, which is a route that many businesses instinctively may not want to go down due to the impact it would be likely to have on morale. It could also result in an increase in constructive dismissal claims if employees resign and try to argue that the introduction of a pro-rating policy constitutes a breach of the implied duty of trust and confidence.
Thirdly, there is the issue of how to pro-rate. If there are 260 working days in a year, a performance bonus could be reduced by 1/260th for each sick day taken, but should pro-rating start to apply as soon as one sick day is taken or only once an employee exceeds a particular number of sick days (for example the average amongst all employees in the business)? If a threshold is adopted, should it be announced to the employees? Strictly speaking, there is no need to tell employees, and doing so may well only serve to approximate the existing average number of sick days taken to the newly announced threshold, as employees either treat the days below the threshold as freebie “duvet days” or, conversely, drag themselves into work (notwithstanding their highly contagious disease) so as to not exceed the threshold. While this may be seen by some HR professionals as a useful, if somewhat Machiavellian, method of reducing sickness absence, it could increase sickness in the workplace and result in unhappy and unproductive employees.
It should be noted that adopting any sort of blanket pro-rating policy brings with it considerable risks, not least the threat of a disability discrimination claim if an employee has a disability that results in an increased number of sick days. Employers must make reasonable adjustments to the working environment if they know (or should know) about an employee’s disability, for example by looking at how many sick days can be attributed to the disability and then discounting them from the total number taken. This is not always a simple calculation.
3. Removing bonuses completely once a certain threshold is reached
The most draconian option is to remove an employee’s bonus altogether once a certain number of sick days have been taken. This approach, however, is likely to merely amplify all the problems associated with pro-rating, and should only be considered in extreme cases.
Conclusion
There is no right or wrong answer as to how to handle the relationship between discretionary performance bonuses and sickness absence. The policy that any business with an existing bonus scheme adopts will to a great extent be informed by the wording of the scheme and historical practice. Businesses that intend to implement a discretionary performance bonus scheme for the first time should consider carefully the effect that each of the above approaches might have on their workforce and the business in general. While one of them must be adopted, none are without risk.
