Statutory sick pay

All employers are under a legal obligation to pay a certain level of sick pay to employees who are off work through illness or injury, under the Social Security Contributions and Benefits Act 1992 and the Statutory Sick Pay (General) Regulations 1982. Statutory sick pay (SSP) is payable for up to 28 weeks, at a rate that is adjusted annually. From April 2008, the weekly rate is £75.40.

At the beginning of each tax year, the HM Revenue & Customs sends all employers a free guide to SSP (statutory sick pay ), which contains clear, detailed guidance on calculation of entitlement to and payment of SSP. The main features of the scheme are set out below:

1. In order to qualify for SSP, a person must be an employee, aged 16 or over, with average weekly earnings at or above the lower earnings limit for National Insurance contributions. This figure is adjusted each year. From April 2008, it is £90
2. In order to be entitled to SSP, the employee must be unable to work because of illness or injury for four or more calendar days in a row. This is referred to as a 'period of incapacity for work'.
3. An employee is entitled to be paid SSP for his or her 'qualifying days'. These are usually the days the employee would normally be required to be at work, but the company can agree other days with the employee, provided there is at least one qualifying day each week.
4. SSP is not payable for the first three qualifying days in a period of incapacity for work, referred to as 'waiting days'. However, where two periods of incapacity for work are separated by eight weeks or less, they are treated as one, so that there are no waiting days for the second period of absence.
5. An employer is entitled to ask employees to observe certain rules on notifying the company that they are ill, and to withhold payment of SSP if those rules are not met and there was no good cause for the delay. Employees must be told what the rules are, and there are certain limitations:
   – if notification must be in writing, it must treated as made on the day it is posted;
   – the company must accept notification made by a third party on the employee's behalf;
   – the company cannot insist on notification earlier than the end of the first qualifying day of sickness, or more than once a week; and
   – the notification need not be in the form of medical evidence or on a document supplied by the employer or a printed form.
6. An employer is obliged to pay SSP only where an employee's absence is genuinely due to incapacity, and it is the company's responsibility to decide whether the employee is genuinely ill. The company may ask for reasonable evidence of incapacity. Many employers allow employees to self-certify for the first seven days of absence (that is, simply confirm in writing the reason for their absence) but require them to provide a doctor's certificate or other medical evidence for periods of absence after that.
7. The maximum entitlement to SSP is 28 weeks in any one period of incapacity for work, or in any two linked periods. However, once an employee has been back at work for over eight weeks, he or she qualifies for a further period of up to 28 weeks' SSP.
8. SSP is treated as earnings and therefore tax and National Insurance contributions are deducted. The level of SSP that an employee receives for each qualifying day of his or her absence is the weekly rate of SSP (£75.40 from April 2008) divided by the number of qualifying days in the week.
9. Employers dealing with high levels of sickness absence may be entitled to reimbursement of the SSP they have paid out above a certain level, under the Percentage Threshold Scheme. Full details of this are given in the Revenue SSP manual.
10. Employees who are not entitled to SSP may be able to claim Incapacity Benefit. Employers must issue employees with the appropriate standard form to enable to them to transfer to Incapacity Benefit from SSP, or to claim Incapacity Benefit because they are not entitled to SSP.
11. Employers must keep a record of dates of sickness absence lasting four or more consecutive days and of the SSP payments they have made, and retain them for three years.

Company sick pay

Some employers choose to improve on the statutory minimum level of provision by offering sick pay at a higher level than SSP, or for a longer period of payment. Any terms and conditions on incapacity for work due to sickness or injury, including any provision for sick pay, must be included in the written information on main terms and conditions that employees should be given within two months of starting work (supplying the information ).

Employers who offer contractual sick pay that is at least as generous as SSP do not have to administer SSP. If an employer pays contractual sick pay, that is offset against its liability to pay SSP.

Contractual status of company sick pay 

Not all companies offer sick pay as part of employees' contractual terms - some make clear that sick pay is entirely discretionary. If sick pay is to be contractual, it can either be included in the body of the contract or it can be incorporated into the contract by reference to another document.This could be, for example, a staff handbook that gives full details of the amount and conditions of entitlement, including conditions on notification and evidence. Even if sick pay is contractual, the company may wish to stipulate that it may be withheld at the company's discretion in certain circumstances, such as where it has grounds for believing that the employee is not genuinely ill. Even if an employer has discretion as to whether it pays sick pay, it is under an implied contractual obligation to exercise that discretion rationally.

Importantly, if an employee is entitled under his or her contract to be paid sick pay or some other sickness benefit for a certain period, the company may be acting in breach of contract if it dismisses the employee for sickness absence before the benefit is exhausted. It is lawful to dismiss only if the employee's contract makes clear that the company has the right to terminate the contract, whether because of sickness absence or for other reasons, before the sickness benefit has been exhausted.

Drawing up schemes

When drawing up a sick pay scheme, an employer will need to make policy decisions on the following questions:

• Should an employee be required to have a certain period of service before qualifying for company sick pay?
• Should any categories of employees be excluded? If the company decides to exclude certain categories of employees, it should check whether this has a disproportionate impact on a particular sex, racial or religious group or a group of individuals of a paricular sexual orientation in the workforce, or excludes part-timers or those working on fixed-term contracts. If it does, then it must be able to objectively justify its decision to exclude those categories, in order to avoid falling foul of the law on  discrimination on grounds of sex, race, religion or sexual orientation ( sex discrimination )( discrimination on the grounds of race, religion or sexual orientation ), or part-time work (part-time workers regulations ) or fixed-term status ( fixed term contracts ).
• What rules should there be for notifying sickness absence and providing evidence of incapacity for work?
• Should the first days of sickness absence be viewed as 'waiting days' for which the employee does not qualify for sick pay and if so, how many?
• At what level should company sick pay be set, and for what period should it be payable? Should sick pay be reduced after a certain period? If a maximum length of payment is to be set, should that be per calendar year or on a rolling-year basis?
• If the employee is ill while on holiday, should this be viewed as sick leave or count towards his or her holiday entitlement?

When deciding how to approach these issues, the company needs to bear in mind that it is relieved from the obligation to administer SSP only if the rules of its contractual scheme are at least as generous as those governing SSP.

An employee's right to 4.8 weeks' paid holiday under the Working Time Regulations 1998 is unaffected by the fact that he or she may be off work sick for part of the year. If, however, the employee is off sick for the entire year, he or she is not entitled to holiday pay for that year.

Long-term sickness benefits

Some employers offer permanent health insurance, ill-health early retirement or other benefits to cover the possibility that employees may have long-term sickness. It is important to note that, if an employee is contractually entitled to this type of benefit, the company may be acting in breach of contract if it dismisses the employee for sickness absence before he or she qualifies for the benefit or exhausts his or her entitlement to it. A dismissal in these circumstances is lawful only if the benefit is not contractual, or if the employee's contract clearly indicates that the benefit does not affect the company's right to terminate the employee's contract for sickness absence at any time. It is also important to ensure that the circumstances in which the benefits are payable are covered by any policy the employer has taken out with an insurance company to meet the cost of the benefits.

Due to an exception in the age discrimination legislation, if an employer arranges life assurance cover for employees who take early retirement on grounds of ill health, it is not unlawful for that cover to end when the employees reach their normal retirement age or, if they have no normal retirement age, when they reach 65.

Disabled employees

Some benefits for ill health, including ill-health early retirement, are contained in employers' pension schemes. Discrimination against disabled employees in relation to pension scheme benefits is unlawful, under the Disability Discrimination Act 1995.

Employers may arrange with insurance companies to provide their workforce with insurance-based employment benefits, including benefits payable for long-term ill health. In certain circumstances, it is lawful for these insurers to treat disabled employees less favourably than others, such as by refusing to provide them with cover or only offering restricted cover. The insurer must, however, be able to show that the treatment is based on reliable information. This information must be actuarial or statistical data or a medical report that is relevant to the assessment of the risk to be insured. The insurer is also required to prove that it is reasonable to treat the disabled person less favourably in the light of that information and 'any other relevant factors'.