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Ministry of Defence: Can it Cope?

The dear old Ministry of Defence doesn’t half get it in the neck. A significant amount of ‘news’ and comment about it tends to focus on a belief that it is a very badly run government department. Pick up or read the Daily Mail, Telegraph or Guardian and you will quickly see what I mean.

But I have to make confession dear readers. I have a very soft spot for the MOD which is borne out of the 36 or so years I spent working there and I think when you work in an organisation for that length of time you do get a more considered and felt understanding of what make the place tick.

It has been something of a political football for pretty much most of my time there and no more so then now with its funding problems in the very demanding economic time that we are living through at present. Now anyone who has been a Civil Servant in say the last 30 or 40  years will tell you that they have always had funding issues because that is how Government and especially HM Treasury operate. Governments of all colours want departments to do 'more with less'.

The MOD has certainly been no different and it has suffered from what has seemed to its staff (both military and civilian) to have been almost continual change ('change fatigue') and persistent introduction of new reforms. Pretty much since it was formally established as a separate department of state in 1964 (prior to that it was split into the War Office (Army), the Admiralty (Royal Navy) and the Air Ministry (the RAF) there have been demands for cuts, reorganisations and efficiency. There would be regular spending restrictions to allow the government of the day to fund its activities (or find money for tax cuts if you are really a cynic!), moves to make budgets more accountable, defence cost studies for the ‘Peace Dividend’ in the 1990’s, Strategic Defence Reviews and 'Streamlining' exercises et al which takes us up to where we are now.

The new Defence Secretary Phillip Hammond announced this week that he believes that the MOD has now balanced the books- observers will be very sceptical of this assertion but what strikes me is that a major part of the strategy to address the ‘black hole’ in the MOD’s accounts have been and will continue to be, quite major staff reductions. Although of course you have to acknowledge that the MOD has to play its part in the general public sector reductions during this austere time, the level of personnel cuts that are happening and are being proposed are severe indeed.

Indeed, it was reported back in February -job cuts may leave the MOD lacking staff- that the reductions may be so severe that it the National Audit Office (NAO)'s view was that “without real changes to ways of working, cutting headcount is likely to result in the department either doing less with fewer people or trying to do the same with greater risk”

I think at the last count the MOD is committed to reducing its military numbers by 29,000 – a 17% reduction on current numbers and 25,000 civilians – a 35% reduction on current strength and with the MOD civil service strength at around 71,000 it is already a 18% reduction compared to 2010.

Overall, the planned reductions suggest that the current MOD manning of around 241,000 people could go as low as 187,000 by 2015 – a reduction of 54,000 people or a 22% decrease.

I think that any organisation would be ‘challenged’ to meet its demands, its outputs with those kind of reductions unless there is a very radical shift in either a) what it will do – i.e. less or b) how it does it, which is very much the NAO observation/concern.

My sense is that the MOD will really suffer trying to ‘do more with less’ -most of the 'fat' has now gone in my opinion and that the task it is being set will ultimately be beyond it .  If the Government is serious in keeping within the new budget constraints then it will need to accept that the department will indeed have to do less or I can foresee the newspapers revisiting the pledge that the MOD’s budget is in balance once more….

Rank and Fire Civil Servants: Is the Government right?

Oh dear, Frances Maude seems to be at it again. Early in his reign as Cabinet Office Minister, he was asked at the annual ‘Civil Service Live’ conference by an audience member whether “Civil Servants were the new Miners?”. Now as any effective politician, Frances Maude was able to sidestep that suggestion, but many civil servants have felt that they have been in the central firing line of the Coalition Government from early on.

Certainly, my experience within the civil service would support that view and they came into power with a very clear idea of how they would reform the Civil Service, from public sector pension reform to employment rights. For example, one of the first steps they took was to abolish the Civil Service Appeal Board that used to consider claims of unfair dismissal from civil servants – a prize that successive governments had been keen on.

The current campaign Worst civil servants to be sacked highlighted in the Daily Telegraph appears to be an attempt to try and ‘rank’ all 434,000 civil servants with the aim to make it easier to sack under-performing staff.

In particular, Frances Maude argues: “What we need to end up with is the way performance management is done in most organisations, which is to force managers to do rankings, to rate people in order of performance. Otherwise, the temptation always is for everybody to be ‘above average’. We need to force managers to rank. This will take time. There has been no incentive for managers to take tough decisions and have difficult conversations. That can change and it is one of the issues we will be addressing in our civil service reform plans”.

The difficulty here is that no evidence is produced of the numbers of underperforming civil servants that justify such a radical rethink. It seems that this proposal may be down more to the current political difficulties of the government where the Prime Minister has faced criticism that it is the civil servants that have in ‘Yes Minister’ fashion frustrated them in their policy plans, and the activism of some trade unions. It is for example very noticeable that the article on the need for reform referred to suggestions that the civil service could somehow cope with a 90% cut in its numbers – quite laughable in my opinion but this might just be a shot across the bows for the trade unions in case they plan to stand in the way of these reform plans. In any case, it seems that the Cabinet Office is determined to bring forward plans to rank civil servants.

Now at the moment, civil servants are assessed in slightly different ways across government and there is an aspiration for a centralised system of appraisals but this idea of ranking could well herald even more bureaucracy to assess where in the ranking the near half a million individuals should sit.

In terms of trying to encourage managers to have that ‘difficult conversation’ with staff who may be underperforming, trying to change behaviours will require addressing some key areas of resistance:

  • Quite often, managers don’t take action with staff because the HR processes are not straight forward, they are worried about the impact of employment law legislation (which they have limited knowledge of) and there has been a 50% cut of HR staff in the civil service through its ‘Next Generation HR’ (NGHR)  programme (nicknamed by some HR practioners as ‘No Generation HR’) with most departments using some kind of share service centre approach and a number of managers not feeling confident of how to take action to improve performance through this kind of ‘impersonal’ service;
  • It’s not uncommon for some managers to take the view that with the reductions of staff they have already had to contend with (civil service numbers have been cut by 43,000 or 9% in the last 12 months alone) that they would far rather have underperforming staff as opposed to no staff i.e. that if they sack staff they know that they probably will not be allowed to recruit replacements;
  • There is no getting away from the fact that the civil service tends to take a far more cautious and risk-averse approach to managing its staff compared to the private sector, where they are more inclined to take the chance that someone will not make a claim of unfair dismissal at an employment tribunal or at least be prepared to pay someone off which does not require the use of taxpayers money- something that is always in the forefront of civil servants minds.

My sense overall is that the government will strive ahead without addressing these cultural issues because they are very impatient for change but that will just lead to the planned reform having limited impact because managers will be reluctant to accept the need to take firm action with staff because of the factors above. This is unlikely to help anyone - government or staff where the root causes of the problem really do need to be addressed. However, it will be interesting to say what the government's strategy and plan to change things will be.

Employers: How to get your Staff Back to Work

Almost hidden away with other news last week was the Fitness to work review which the Government released and which could have important relevance for small and medium size employers in trying to address absence issues amongst their workforce.

The Government introduced the ‘Fitness for work’ (or ‘fit note’) form in April 2010 that replaced the more traditionally ‘sick note’ that GPs provided when someone had been, or was likely to be, unfit for work for more than 7 days. Under the new note system, the emphasis was more on what a GP felt an individual could do, rather than confirm that they were generally unfit to go to work. The note would provide advice to the employer and individual to support people in returning to or staying in work.

At the same time, a number of ‘Fit for Work Services’ pilots were introduced across the country with the aim of supporting small and medium size enterprises to improve absence management of its employees who were at an early stage of sick absence and where there was not an Occupational Health (OH) service provided by the company, and the issued report makes an initial conclusion as to the schemes success –or otherwise.

The main conclusions of the report were on the whole quite positive. That was despite lower take up of the service then planned and difficulty in gaining access to GPs to explain the service and to encourage them to consider the scheme and refer their patients. The headline figures though were encouraging: 74% of people referred to the pilot service returned to work within the first 12 month period, with 18% still absent from work and a further 8% now unemployed.

What seemed to work well was that people would in the main initially be referred to a OH professional either by telephone or in person who would assess the individual and then agree an action plan of steps to take to allow the person to return to work. The support provided to the employee ranged from ways to improve their health (diet, lifestyle, ergonomics etc), to address mental health issues (getting financial advice if debt was a contributing factor to say stress/depression) to arranging a phased return to work with the employer.

The pilot service is being extended to March 2013 but the conclusion from the report’s co-author author Jim Hillage is that in the current economic climate it is not likely that the scheme will be rolled out nationally and will require support from elsewhere. It is felt that the way forward may be to find a way for GPs to work directly with employers in order to help their staff return to work as soon as possible..

What this all suggests is that some form of OH intervention for employees absent from work is clearly necessary and that the 11 pilots held across the UK indicates that they are successful, with three quarters of people returning to, or staying at, their workplace. The issue though will be funding. Larger employees generally speaking tend to have their own OH service so this will not interest them. But for the small and medium size enterprise where regular or long term absence can really bear down on productivity and cost they are unlikely to be able to afford such a service.

The way forward would seem to be for employers to engage with local GPs in order to commission some kind of OH service to help individuals get back to work promptly but the challenge would seem to be to get those GPs even engaged in this kind of initiative and that will require a good deal of effort.

Employers: The Cost of Putting Staff 'On Payroll'

The current political storm about the number of senior civil servants who are not being paid ‘on payroll’ but are remunerated by either service companies or employment agencies – Civil Servants ordered to justify off payroll arrangements is one that in all of its furore is being widely and seriously misunderstood. The revelation that over 2,000 government employees who have been paid more than £58,200 through these alternate arrangements have got the Government, MPs and interested bodies such as the Taxpayers’ Alliance very hot under the collar and demanding that these arrangements must come to an end. However, whilst it seems clear that these individuals benefit from reduced taxation by being engaged via service companies, little consideration seems to have been given that one of the reasons these arrangements have continued is that they are significantly cheaper and offer better value for money for employers- in this case the Government which means you and me as taxpayers.

By being engaged (rather than being employed) through this arrangement, it does mean that the employer does not have to pay other the employer’s National Insurance Contribution (NIC) nor pension contributions. In addition, it is unlikely that holiday or sick pay is paid either. If you look at a worked example of employing these people by putting them on the payrolls it can be seen that an employer would almost certainly be far worse off:

  • Fee paid via service company arrangement: £58,200
  • Salary paid on payroll: £58,200
  • Employer’s NIC (13.8%): £ 8,032
  • Employers pension contribution (15%): £8,730
  • Total cost per person £74,962

This suggests that for each of the 2,000 people engaged via service companies or other agencies that the additional cost of putting them ‘on payroll’ could be as much as £16,762 or a total of £33 million, and this is almost certainly an under estimate as it assumes that the average fee paid is £58,200 and the pension contribution is based on an average figure paid by a number of large private sector companies, when for the public sector it is likely to be much higher. In addition, as an employee these individuals would also be liable for redundancy payments if their services were no longer required whilst being engaged through a service contract would probably not require any termination payments as the contract would just not be extended and be cancelled on its expiry. It’s true that these individuals would almost certainly then have to pay the full tax liability rather than at the corporation tax level but the potential additional cost to the government and tax payer would substantially out weigh that, which is why, I suspect, the HM Treasury solution to this issue is to seek assurances from individuals that they are paying the same amount of national insurance and income tax as an employee or face the consequences of contracts being cancelled or host government departments being ‘fined’. The lesson that employers can take from this is that whilst there is a reputational issue about some people enjoying tax benefits, the cost of ensuring that all ‘staff’ pay the same income tax is likely to hit their bottom line and profits.