Occupational Sick Pay: Employer's Guide

Occupational sick pay is voluntary but common. Understanding how to design and manage a scheme helps you balance employee support with business needs.

What Is Occupational Sick Pay?

Definition

Occupational sick pay (company sick pay) is:

• Pay provided during sickness absence
• Above and beyond SSP
• Usually full or partial salary
• For a defined period

Not Required by Law

No legal obligation to provide it. SSP is the statutory minimum.

Why Employers Offer It

• Attract and retain staff
• Support employee wellbeing
• Reduce financial stress during illness
• Encourage honest absence reporting
• Industry norm in many sectors

Designing a Scheme

Key Decisions

1. Eligibility:

• From day one or after probation?
• All employees or certain grades?
• Full-time and part-time?

2. Amount:

• Full pay or percentage?
• Same throughout or reducing?

3. Duration:

• How many weeks/months?
• Different periods for different service lengths?

4. Conditions:

• Following absence procedures?
• Medical evidence?
• Not caused by own negligence?

Typical Scheme Structures

Simple scheme:

• X weeks full pay, then X weeks half pay, then SSP only

Service-related scheme:

Service	Full Pay	Half Pay
Under 1 year	2 weeks	2 weeks
1-2 years	4 weeks	4 weeks
2-5 years	8 weeks	8 weeks
5+ years	12 weeks	12 weeks

Rolling period:

• Maximum entitlement in any 12-month period
• Prevents long-term absence using full entitlement

Contractual vs Discretionary

Contractual:

• Included in contract
• Employee has legal right to it
• Cannot change without agreement

Discretionary:

• In policy, not contract
• Can withhold in certain circumstances
• More flexibility for employer

Make status clear: State whether scheme is contractual or discretionary.

Relationship with SSP

SSP Offsetting

Most schemes offset SSP against occupational sick pay:

Example:

• Company sick pay: £600/week
• SSP: £116.75/week
• Employee receives: £600 total (not £716.75)
• You pay: £483.25 + £116.75 SSP

SSP on Top

Some schemes pay company sick pay plus SSP:

• Less common
• More generous
• Check your scheme wording

After Company Sick Pay Ends

Once entitlement exhausted:

• Employee drops to SSP only (if eligible)
• Or unpaid leave (if SSP exhausted)

Conditions and Exclusions

Common Conditions

Notification:

• Must follow absence reporting procedure
• Notify by specified time

Certification:

• Self-certification for first 7 days
• Fit note after 7 days
• May require medical evidence earlier for company sick pay

Cooperation:

• Attend occupational health if requested
• Engage with return to work support

Permitted Exclusions

You can exclude company sick pay for:

• Sickness caused by own misconduct
• Sickness during notice period (check carefully)
• Failure to follow procedures
• Cosmetic surgery (chosen not medical)
• Sports injuries (some schemes)

Problematic Exclusions

Be careful excluding:

• Pregnancy-related illness (discrimination risk)
• Disability-related absence (reasonable adjustments)
• Work-related illness (may be negligence claim)

Administering the Scheme

Tracking Entitlement

Track:

• Days taken
• Days remaining
• Rolling period (if applicable)
• Service level changes

Communication

Tell employees:

• Their entitlement
• How it's calculated
• When approaching limit
• When moving to SSP only

Documentation

Keep records of:

• Scheme rules
• Individual entitlements used
• Reasons for any withholding
• Communications with employee

Withholding Occupational Sick Pay

When You Might Withhold

If scheme allows, consider withholding for:

• Non-compliance with absence procedures
• Failure to provide certification
• Sickness caused by gross misconduct
• Abuse of the scheme

Process

Before withholding:

• Check scheme wording permits it
• Follow any specified process
• Consider individual circumstances
• Document your reasoning
• Communicate decision clearly

Risks

Withholding may lead to:

• Grievance
• Breach of contract claim (if contractual)
• Discrimination claim (if protected characteristic involved)
• Damage to employee relations

Occupational Sick Pay and Long-Term Absence

Phased Exhaustion

Typical pattern:

1. Full pay for X weeks
2. Half pay for X weeks
3. SSP only
4. Unpaid (if SSP ends)

Planning for Long-Term Cases

When entitlement is running out:

• Communicate early
• Discuss prognosis
• Consider permanent health insurance (if provided)
• Explore capability procedures if no return likely

Link to Capability Process

Long-term absence may eventually lead to:

• Capability consideration
• Medical termination
• Ill-health retirement (if pension scheme provides)

Changing Your Scheme

If Discretionary

• Consult with employees
• Give reasonable notice
• Explain reasons
• Confirm changes in writing
• Update policy documents

If Contractual

Cannot change without agreement:

• Consult and negotiate
• Offer something in return
• Get signed agreement
• Or follow formal change process (risks claims)

Reducing Generosity

Consider:

• Impact on morale
• Recruitment/retention effects
• Legal risks
• Transitional arrangements
• Communication approach

Cost Management

Monitoring Costs

Track:

• Total sick pay costs
• Trends over time
• Comparison with industry
• By department/team

Reducing Costs

Prevention:

• Wellbeing programmes
• Ergonomic assessments
• Stress management
• Flu vaccinations

Management:

• Early intervention
• Return to work support
• Occupational health involvement
• Phased returns

Scheme design:

• Waiting days
• Rolling periods
• Pro-rated entitlement

Tax Treatment

For Employer

Occupational sick pay is:

• Tax-deductible business expense
• Subject to employer NI
• Same as normal wages

For Employee

Occupational sick pay is:

• Subject to PAYE
• Subject to employee NI
• Same as normal wages

No special tax treatment compared to normal pay.

Common Scenarios

Scenario 1: Long-Term Employee, Multiple Absences

Employee has had three separate absences totalling 10 weeks in rolling year.

If scheme uses rolling period: Calculate remaining entitlement based on 12-month rolling period.

Action: Communicate remaining entitlement, monitor pattern.

Scenario 2: Absence During Probation

New employee sick during probation, scheme says no company sick pay in first 6 months.

Action: Pay SSP only. Ensure this was communicated at hire.

Scenario 3: Failure to Provide Fit Note

Employee off 3 weeks, hasn't provided fit note despite requests.

Action: If scheme requires certification, can withhold company sick pay for uncertified period. Write explaining requirement.

Scenario 4: Sickness Caused by Injury at Work

Employee injured due to employer's negligence.

Consideration: Paying sick pay doesn't admit liability, but consider:

• Employee may have personal injury claim
• Withholding may damage relationship
• May be recovered in any claim settlement

Checklist

Designing a Scheme

• Decide eligibility criteria
• Set payment levels and durations
• Determine conditions and exclusions
• Clarify contractual or discretionary status
• Consider SSP relationship
• Draft clear policy

Operating the Scheme

• Track individual entitlements
• Monitor absence patterns
• Communicate entitlement status
• Process payments correctly
• Keep records
• Handle withholding fairly

Reviewing the Scheme

• Analyse costs regularly
• Benchmark against market
• Consider scheme changes carefully
• Consult before changing
• Update documentation