Statutory or Contractual Sick Pay?

4th October 2017

Statutory or Contractual Sick Pay?

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According to the office for National Statistics, an estimated 137.3 million working days were lost due to sickness or injury in the UK in 2016. This is equivalent to 4.3 days per worker. In our experience the average of 4.3 is only an average and we find that for many employers, it is more likely to be one single employee taking 15 days a year whilst his colleagues only have one or two.

How to deal with sickness absences is an issue that every employer will have to deal with and it starts with the contract of employment.

The only employer’s obligation when dealing with sick pay is to pay statutory sick pay (SSP) for those employees eligible to it (for more on eligibility see here). SSP is paid to employees when illness prevents them from working their normal hours or days, in the exact same way as wages. The current rate is £89.35 per week from the fourth calendar day of absence, for up to 28 weeks.

Many employer offer a contractual entitlement which is more generous than the statutory minimum. Contractual sick pay usually comes in the form of full salary maintained for X number of working days in any 12 months followed by 50% of salary for X number of working days in the same period of 12 months. Typically, this contractual entitlement will increase with length of service with SSP only during the probationary period or the first year. There is no norm for the length of sickness covered by full pay, in larger employers the maximum can often be three months full pay followed by three months half pay.

Each system has its advantages and its drawbacks.

SSP is cheap but harsh: Most employees do not “throw sickies” in order to be paid SSP, especially as under the SSP scheme the first three calendar days are unpaid. However, paying SSP only, is often too harsh when managing your workforce. People who are excepted to work regular overtime for no pay could feel legitimately let down if they receive no pay on the few days a year they are genuinely off sick.

Discretionary Sick Pay is flexible but open to challenges: Many employers will actually maintain full salary, and not bother with payroll deductions when dealing with irregular absences. They will only pay SSP when they have a doubt about whether the sickness in genuine or to employees whom they consider as not pulling their weight. In technical term operating in this manner is called “paying SSP save at the discretion of the employer”. Operating in this manner works well when dealing with a small workforce. It will start causing issues when the business grows. The main risk in operating SSP save at the discretion of the employer is discrimination claims. If a single mum is not in the eyes of her employer pulling her weight and finds out that her male colleagues are receiving full pay when absent, she may have a claim.

Paying SSP save at the discretion of the employer, renders the defense to a discrimination claim rather tricky: The employer will need to be able to demonstrate that the exercise of the discretion is not discriminatory. As company sick pay can be the solution to this issue, entitlement to sick pay is defined by strict rules applying equally to all.

Contractual Sick Pay gives certainty but is expensive and may lead to abuse: One of the main issues with contractual sick pay is that it may be abused. Some employee will consider Company Sick Pay as Holiday Pay and “take” their entitlement each year. Company Sick Pay is also an issue when dealing with disputes. It is extremely common for employees raising a grievance for bullying or having to face a disciplinary or performance procedure to be signed off sick for work related stress. We find that the best cure to work related stress in those circumstance is SSP. They have little incentive to deal with the issue whilst they receive full pay. Apart from the cost, Company Sick Pay in those circumstances create delay which affect the smooth running of Disciplinary or Grievance Procedures.

Conditional Contractual Sick Pay?

An employer can be creative with their contractual sick pay. You could have a rule that states that Company Sick Pay only applies after the third day of absence, you could exclude the one off Friday or Monday absence from Company Sick Pay, you could exclude the right to payment of Company Sick Pay when a disciplinary investigation is on going, etc.. This will not work for all organisations. A working relationship is based on trust and having this type of clause does affect your company culture.

As can be seen above, there is no ideal solution, this is what you need to think about when drafting or reviewing your contracts of employment. As usual discussing it with your employment lawyer will help you find the solution which is right for you.

For more specific information about sick pay please call either Amanda Galashan or Julie Calleux at Employease on 0845 123 3741, or email us at [email protected]. This note does not constitute legal advice on any particular situation you may have.

© Employease: The Employment Practice Ltd 2017




Company registered in England Reg No: 2931940

Registered Office: 40 Woodford Avenue, Gants Hill, Essex IG2 6XQ

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