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Sick Pay – Six Things to Remember

Sick Pay – Six Things to Remember

1.Statutory Sick Pay is distinct from Contractual Sick Pay

It may seem like it is stating the obvious to note that Statutory Sick Pay (SSP) is distinct from Contractual Sick Pay (CSP) but employers can still get confused. In essence, SSP is a statutory construct and so the rules governing eligibility and entitlement are strictly prescribed. On the other hand, whilst many employers use the same eligibility and entitlement criteria for CSP as for SSP, CSP can be offered on whatever terms the employer chooses.

Crucially, an employer should state that CSP comprises SSP together with employee pay; if the employer omits to be clear about this, there is a risk that he may contractually oblige himself to pay CSP in addition to SSP. An employer should consider whether CSP comprises just basic pay or other benefits and entitlements on top. If the latter, how are these calculated if they depend on performance (e.g. habitual overtime or performance related bonus)?

How do you draft a CSP clause?

A useful starting point when drafting a CSP clause is to ensure that it applies the same eligibility and entitlement criteria as for SSP and then consider whether more or less generous provision is required. For example, what about the three waiting days before SSP becomes payable? On the other hand you may wish to stipulate that CSP is not payable during disciplinary proceedings.


2.Fit notes: how ‘fit’ is your employee?

Since April 2010 sickness certificates have been replaced with statements of fitness for work (‘fit notes’). In the first sic months of incapacity a Fit note cannot exceed three months in duration. The key point about Fit Notes is that a GP can state that an employee ‘may’ be fit for work and the GP can use a tick box option to indicate adjustments for the employer to make to facilitate a return to work. These may include, for example, returning to work gradually, working different hours, performing different duties or tasks or having support to complete some duties. If the employee has been off sick for four weeks or more his GP or employer can refer him to Fit for Work, the government backed scheme which will help develop a Return to Work plan: This is tailored to the employee’s needs and can be an alternative way of getting the employee back to work.

How should you use Fit Notes?

Fit Notes are evidence of incapacity for work for the purposes of SSP and employers should use them for eligibility to CSP, where it is offered. Where advice is given in a Fit Note an employer should consider whether the duty to consider reasonable adjustments in the context of a protected ‘disability’ is engaged. Failure to comply with any suggestions in such a context may lead to a finding of discrimination on the basis of failure to make reasonable adjustments.

3.Permanent Health Insurance schemes

Some employers provide sick pay schemes for employees on top of SSP. A scheme might typically pay a percentage of salary during sickness absence and the liability is covered by a Permanent Health Insurance (PHI) policy. The employee’s entitlement to this benefit arises under the contract not under statute so it is important that the eligibility and entitlement terms are drafted carefully. As the insurance company will not be party to the employment contract it is important that any PHI policies tie in precisely with the employer’s contractual liability to pay sick pay under employment contracts; otherwise the employer will have to fund the liability himself.

A word of warning on termination

Employers should ensure that they retain the right to dismiss an employee for any reason (including for long term sickness absence) irrespective of any entitlement to PHI sick pay. This should be spelled out clearly in the employment contract so that an employee cannot argue that by dismissing him, the employer has an obligation to continue paying benefits.

Another issue to consider is whether a company pension scheme contains ill health retirement benefits. In such a case, employees on long-term sickness absence should be considered for ill health retirement before the employer terminates employment (First West Yorkshire Ltd v Haigh UKEAT/0246/07).

4.What if my employee falls ill on holiday?

The first point to note is that employees who are absent on holiday or for work purposes are not any longer disqualified from the right to claim SSP.However, the three waiting days before SSP becomes payable may mean that many employees do not end up claiming SSP. An employer may wish to require further evidence of incapacity before CSP is payable, in particular specifying that the illness would need to incapacitate the employee from carrying out his job.

SSP is not payable however during a period in which the employee is entitled to statutory maternity pay or maternity allowance. If a woman falls ill during a period of unpaid additional maternity leave, she may be entitled to claim SSP if she was employed when the incapacity started and if she satisfies the qualifying conditions.

A worker who is sick whilst on holiday may not wish to continue his holiday. This is a complex area of law, which is outside the ambit of this note on SSP. In broad terms, if a worker chooses, he may take the holiday at another time, even if this means carrying it forward into another leave year. This right will only apply to statutory holiday, limited to 5.6 weeks in the UK.

How to limit abuse

As stated above, CSP should be stated to be payable on certain prescribed conditions if the employee elects to re-schedule his holiday. It is always important to ensure that the employer acts sensitively so as to maintain the trust between him and his employee. It is wise to make clear in any disciplinary procedure that abuse of the sick pay and sickness absence policies will lead to disciplinary sanctions (including, in serious cases, dismissal).

5.Unusual circumstances: when is SSP payable?

In certain cases, it may not be clear whether SSP is payable. For example:

  • Unpaid leave: if an employee is on unpaid leave, he is not normally required to be available for work. Therefore there will be no qualifying days for SSP under the Social Security Contributions and Benefits Act 1992 (SSCBA)
  • TUPE 2006: continuity of employment for the purpose of being entitled to SSP is not broken in the event of a TUPE transfer
  • Insolvency: in the event of insolvency, SSP must be paid by the employer up to the date of insolvency; thereafter it will be paid by HMRC unless the employees’ contracts have ended in which case the obligation to pay SSP ceases.

6.What is a day of incapacity for work?

In order to claim SSP, a day of incapacity for work is a day on which an employee is incapable by reason of some specific disease or bodily or mental disablement of doing work which he can reasonably be expected to do under that contract (SSCBA). If the employee has carried out work on a working day and then falls ill, that day does not count as a day of incapacity. If no work at all is done, then it may count as a day of incapacity for SSP purposes.

More information

The Article complements the Emplaw Sickness, illness and accidents: key card and our detailed guide on Pay during Sickness

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