Statutory sick pay vs income protection

What is statutory sick pay?

To deal with the challenges of paid sick leave uk governments have tried various solutions. Statutory sick pay (SSP) was introduced in 1983, to replace state sickness benefits. It shifted the financial burden of long-term sick leave away from the state by placing a legal duty on employers to pay their employees a minimum level of sick pay. It provides very modest support and those who are receiving SSP might be able to supplement it with state benefits, although the scope of this is very limited.

Long-term sickness is a growing problem for the UK’s workforce and economy. The latest figures show that the number of people off work for health reasons has risen to 2.8 million, the highest on record. Some of those people are self-employed and not eligible for SSP. For those who are, the money they receive often falls far short of what they need.

How much is statutory sick pay?

The current rate of statutory sick pay is £116.75 per week. The amount you actually get depends on the number of days you normally work in a week and how many of those days you are off sick. These are called qualifying days. For example, if you usually work for 3 days a week and you’re unable to work for 4 weeks, you won’t be paid for the whole time you’re ill. You’ll be paid for 3 working days in every week, which is 12 days.

Who gets it and for how long?

To qualify for SSP you need to:

• Be working for an employer, full-time, part-time or on contract, and earning at least £123 per week
• Be unable to work because of sickness for at least 4 days in a row
• Have told your employer either within the time stated in your employment contract or within 7 days.

The definition of sickness includes mental illness that is severe enough to prevent you from doing your job. Whatever the illness, your employer will need it confirmed in writing by a doctor or other healthcare professional, although for the first 7 days you may be able to certify yourself as unfit for work.

Your employer has to pay you the statutory minimum while you’re unable to work for up to 28 weeks. After that they can stop paying and you may have to apply for long term sick pay state benefits like universal credit.

Can employers do more?

SSP imposes a statutory minimum that employers must pay. Many employers choose to offer their employees more and this should be made clear in your contract of employment. The most generous packages may give you all the support you need while you recover, but it’s important to know exactly what your contract provides so you can make plans to top it up if you need to.

What is income protection insurance?

Income protection insures you against losing your income if illness or injury stops you from working. Since it can replace a significant proportion of your income, the benefits of income protection are likely to give you more support than SSP.

How it works

If you’re considering income protection insurance you need to take out a policy while you’re fit and working. If you wait until you’re already on sick leave you won’t be able to get cover.

Most income protection policies will pay you up to 65% of your gross income, although some, like Eleos, offer a maximum of 70%. You get your payments in monthly instalments until you’re fit to go back to work or you reach the end of the period for which your policy covers you..

As long as you continue paying the premiums to keep your policy active, you can claim as many times as you need to.

Unlike SSP, income protection insurance is available to anyone who works for a living, both employees and the self-employed.

How long it lasts

An important feature of income protection policies is the benefit period. This is the maximum time you’ll be able to carry on receiving payments while you’re off sick under one claim. The most common benefit periods are 1, 2 and 5 years. They’re only relevant if your illness or injury keeps you out of work for longer than the benefit period. If that happens your payments will stop, so when you take out a policy you need to choose a benefit period you think is realistic. Having a longer benefit period will cost more.

SSP and income protection together

Fortunately, it’s not a case of either-or. SSP is very modest, so it could be a good idea to take out income protection insurance as well. Even if your employer is more generous with their sick pay, you can use your policy to top it up or carry on getting paid after your SSP ends.

Let’s take two examples of how SSP and income protection can work together.

Rachel’s gross pay is £2500 a month and she takes home £2000. Her employer pays the statutory minimum sick pay.

• She is injured and it’s six months before she recovers enough to go back to work.Her employer pays her £116.75 every week for the 26 weeks she’s off work. That’s £500.36 per month.
• She has an income protection policy that will pay her 70% of her gross salary, which is £1750.
• SSP doesn’t affect the amount she can receive from an income protection policy so she will receive both.

David’s gross pay is £2500 a month and he takes home £2000. His employer continues to pay its employees their full salary if they’re off sick, but only for 8 weeks.

David has an income protection policy but he knows he’ll be covered for 8 weeks. When he takes out his income protection policy he chooses a waiting period of 8 weeks (this is the time between claiming and receiving your first benefit payment).

Let’s say he gets ill or injured and is off work for 16 weeks. For the first 8 weeks he receives full pay from his employer. Then it stops. At that point his income protection kicks in and for the next 8 weeks until he’s back at work, he receives 70% of his income, which is £1750.

Three considerations are important in arranging income protection insurance to work in tandem with SSP:

Level of cover

An income protection insurance policy could offer you as much as 70% of your gross salary. That can be very useful if you’re only entitled to SSP. But it may also be worth having it in place if your employer offers you more generous sick pay. Unlike SSP, money you receive from an employer’s own scheme will be deducted by your insurer from the amount they pay you. However, if payments from the employer’s scheme end sooner than your insurance benefit period, you can then rely on your policy to keep paying you. You should think about this when choosing your level of cover.

Length of cover

When deciding how long you’ll want your insurance benefit payments to last, check whether your employer offers sick pay that’s more generous than SSP. If so, find out how long they’ll keep paying you. You can set up your insurance to pay you after your employer’s scheme ends.

Setting the waiting period

Some people can only manage for a few weeks on SSP without their normal income, so they’re likely to choose a short waiting period. If your employer offers more generous sick pay you can choose a waiting period that lasts for as long as your employer pays you and time it so the waiting period ends at that point. Your income protection policy will then take over.

Group income protection

Personal income protection policies are straightforward. Group schemes can be more complicated. An employer can simply pay you when you’re off sick, at your full rate or a reduced one. Alternatively they can fund your sick leave with group income protection insurance. The policy is owned by the employer and the insurer pays them the benefit when an employee is off sick. The employer then pays the employee, but the money will be taxed the same as earnings. Group policies tend to pay out for long periods, but it’s always worth checking exactly how long the cover will last so you can make your own arrangements if it seems sensible

Conclusion

Statutory sick pay certainly looks like a good idea, but in practice it’s rarely sufficient to support someone who has lost their earnings. Used wisely, income protection insurance can make up for many of the shortcomings of SSP.

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