Ill-health costs the economy over 100 billion pounds a year, more than the entire annual budget of the NHS, according to a report.
Dame Carol Black, national director for health and work, said the annual economic cost of sickness absence is equivalent to the entire gross domestic product of Portugal.
Benefit costs, additional health costs and forgone taxes make up the bulk of the bill, at more than 60 billion pounds.
The rest is made up of the cost of the care given by family and friends, that to employers of having someone absent from work and other associated costs.
Black proposed a number of reforms, including replacing outdated doctors' paper-based sick notes with an electronic "fit note", stating what people can do, instead of what they cannot.
"Taken together, the evidence provides a clear and compelling case. In short, we cannot go on as we are," she said.
"I hope this review will lay the foundations for urgent and comprehensive reform.
"But there are difficult and challenging messages for everyone, whether they are politicians, healthcare professionals, employers, unions or individuals."
The report said work-related health support in the early stages of sickness, including mental health conditions, was concentrated among a few large employers, leaving most people without support.
Black said people could "all too easily find themselves on a downward spiral into long-term sickness and a life on benefits", and recommended a new pilot scheme that aims to make work-related health support available to all.
If successful, it should be extended to those on incapacity and other out-of-work benefits.
Shadow Work and Pensions Secretary Chris Grayling said: "This blueprint for reform shows there are things that should have been done years ago.
"We cannot carry on spending billions of pounds every year and still failing to tackle the problems we face."
