Understanding statutory sick pay

You can opt out of the statutory sick pay (SSP) scheme if you have an occupational sick pay scheme that offers employees daily rates that are the same or better than SSP.

However, employees still have an underlying entitlement to SSP for the first 28 weeks in a period of incapacity for work (PIW).

Deciding on the terms of an occupational sick pay (OSP) scheme

A scheme run by an employer is usually known as an OSP scheme.

As an employer, you may wish to pay employees more than the statutory minimum. In this case, you will need to decide on the terms and conditions of the scheme.

It is up to you to decide whether or not you want your OSP scheme to be contractual. If you do make it contractual, you should include the details in each employee's contract and/or the company handbook.

However, even where there are no details of this in the employee's contract/company handbook, and you make enhanced payments over a period of time, the employee could regard this entitlement as contractual through custom and practice.

See Labour Relations Agency (LRA) guidance on preparing a written statement of main terms and conditions of employment.

What you need to do

With any OSP scheme, you should:

• decide if either all employees qualify or only those with a minimum period of service - ensure any indirect discrimination can be objectively justified
• decide on the maximum rate of OSP you will allow - many employers pay full basic pay for a certain period of time - you can 'top up' SSP to whatever amount you wish to pay
• decide how long your highest level of pay will last, before either stopping or reducing these payments, eg from full pay to half pay
• ensure that OSP does not exceed normal pay - it must also not be less than SSP - any payment can be inclusive of SSP
• pay SSP during any periods that OSP is not payable during the first 28 weeks in a PIW
• issue form SPP1 if a person has been sick for 28 weeks - even if OSP continues to be paid

Record-keeping under an OSP scheme

There is no longer a need to keep records of SSP paid but records that could be required by HMRC are absences from work. You can choose how to keep these records. HMRC may need to see these if there is a dispute over payment.

You will also need to keep sufficient records to complete form SSP1, so that your employee may claim employment and support allowance if necessary. This might happen if they had received their maximum 28 weeks' SSP or run out of their entitlement to OSP and were not entitled to SSP from you.