How does private sick pay work in the UK?

Private sick pay sits on top of the statutory minimum, but the two must never be confused: statutory sick pay is a legal floor, while any enhancement is a contractual choice. Getting the crossover wrong on your Full Payment Submission (FPS) risks HMRC Schedule 24 penalties, alongside late filing fines ranging from £100 to £400 per month. Under strict Real Time Information (RTI) rules, all sickness distributions require precise PAYE tax and Class 1 NICs deductions processed on or before the regular contractual payday. This requires meticulous absence management to seamlessly transition employees across tiered occupational frameworks without compliance failures.

What is statutory sick pay (SSP) and how does SSP work?

Statutory sick pay ( SSP ) is the legal minimum weekly payment employers must provide to eligible employees who are off work sick. Following the Employment Rights Act reforms effective from 6 April 2026, UK employers are legally obligated to fund and administer this baseline from the first day of an employee's absence.

Core SSP principles include:

• Day-One Right: Historical Waiting Days are completely abolished; payments trigger immediately on the first full day of sickness absence.

• No Earnings Floor: The Lower Earnings Limit ( LEL ) has been removed, extending SSP eligibility to all lower-paid and part-time workers automatically.

• Qualifying Days: Payments are disbursed only for the designated days the employee is contractually scheduled to work.

• Contractual Supremacy: Employers must administer these baseline statutory minimums unless an employee's contract establishes an immediate transition into enhanced private company schemes.

What are the qualifying conditions for statutory sick pay?

To legally qualify for statutory sick pay ( SSP ) in the 2026/27 tax year, an employee must have an active employment contract, be unfit for work due to illness for at least one full working day, and properly notify their employer within seven days or the contractually defined deadline. The historical barriers of Waiting Days and minimum earnings no longer apply. Sickness absence must fall on scheduled Qualifying Days , and self-certification is permitted for the first seven days.

⚠️ Warning: Unlawfully withholding SSP from an eligible employee or failing to process payments correctly exposes employers to state enforcement via the new Fair Work Agency, formal HMRC disputes, and potential Employment Tribunal claims for unlawful deduction of wages.

How much is statutory sick pay for the 2026/27 tax year?

For the 2026/27 tax year, the statutory weekly benefit must be calculated as the lower of 80% of the employee's average weekly earnings or the maximum flat rate of £123.25 per week. Employers are legally obligated to provide this statutory payment for a maximum duration of 28 weeks for a single continuous period of sickness or a series of linked absences separated by 8 weeks or less. If an employee returns to work partway through a week, payroll teams must evaluate how to calculate ssp rate splits based solely on the individual's specific weekly Qualifying Days .

What are the legal differences between SSP and private sick pay?

Statutory sick pay ( SSP ) is a legal mandate enforced across the UK, whereas private sick pay represents a discretionary contractual enhancement offered voluntarily by employers. While the state dictates the minimum operational requirements for statutory protection, businesses maintain full flexibility over how they structure and execute their enhanced occupational policies.

What is occupational sick pay or contractual sick pay?

Occupational sick pay ( OSP ) is an employer-funded scheme that provides sick pay above the statutory minimum, typically matching an employee's normal salary. Often referred to as contractual sick pay , these company schemes aid recruitment and retention but require precise payroll tracking to shift employees across tiers while correctly processing PAYE tax and Class 1 NICs on all enhanced earnings.

💡 Good to know: Private schemes cannot pay less than the statutory minimum. If the contractual rate drops below the 2026/27 statutory sick pay ( SSP ) baseline (the lower of 80% of average earnings or £123.25 per week), employers must automatically default to the legal floor.

Do companies have to pay sick pay beyond the legal minimum?

No UK law compels an employer to offer private sick pay beyond the legal statutory minimum; implementing an occupational framework remains entirely discretionary. However, consistently paying enhanced rates without a formal written policy risks creating an "implied term" through custom and practice. To prevent employees from legally claiming binding contractual rights at an Employment Tribunal, HR teams must explicitly document all discretionary boundaries when handling absence management within their standard contracts.

What terms must be included in a company sick pay policy?

A compliant company sick pay uk policy must explicitly detail qualification periods, payment tiers, and evidence requirements to protect the business from breach of contract claims. To build a legally sound occupational scheme, explicitly include these core uk employee contract guide terms:

• Section 1 Statement compliance: Document sickness incapacity and remuneration rules from day one under the Employment Rights Act.

• Qualifying service periods: Define if contractual sick pay access triggers immediately or after passing probation.

• Payment structures: Outline the exact duration of full or half pay before reverting to the statutory dual-calculation baseline.

• Medical evidence rules: Specify when a seven-day self-certification expires and formal fit notes become mandatory.

How does private sick pay work in the UK and how much do you get?

The amount an employee receives under private sick pay is dictated entirely by their employment contract and length of service. Occupational policies frequently feature sliding scales where compensation duration increases based on tenure, requiring payroll to manage length-of-service scaling, automated transitioning tiers, and statutory offsetting where the contractual gross amount legally absorbs the statutory baseline to prevent double payment.

How do you calculate private sick pay entitlements?

Payroll must calculate normal gross pay and apply the contractual percentage, ensuring the final figure meets the 2026/27 statutory minimum. Execute these three steps:

1. Confirm sickness conditions: Verify contractual eligibility and establish the employee's normal gross salary.

2. Offset the baseline: Calculate the statutory baseline (the lower of 80% of average earnings or £123.25 ) and deduct it from the occupational sick pay total to isolate the private enhancement.

3. Adjust for part-time hours: Apply a calculation that respects the working time regulations to scale the contractual enhancement down to match exact working patterns.

📌 Example: An employee earns £500 a week with a full-pay clause. Payroll processes the SSP baseline of £123.25 and adds an OSP top-up of £376.75 , delivering £500 gross without stacking payments.

Are private sick pay policies subject to PAYE and Class 1 NICs?

Because occupational enhancements are legally classified as standard wages rather than tax-exempt state benefits, all private sick pay is fully subject to PAYE tax and Class 1 NICs . Employers must deduct employee taxes and pay the associated employer Class 1 NICs liabilities on the entire gross amount. Furthermore, standard payroll compliance rules continue to apply: statutory deductions for student loans and automatic enrolment workplace pensions (including the minimum 3% employer contribution ) must be processed against the contractual sick pay exactly as they would during active employment.

What is an OSP payment and how is it structured?

An OSP payment is structured in tiers, typically offering full pay initially before stepping down to half pay or statutory rates. To administer these types of employee benefits accurately, businesses track allowances across a rolling 12-month period, looking back 365 days from the first day of absence. Once enhanced limits are exhausted within that window, pay drops to the statutory floor.

What does OSP mean on payslip entries?

OSP on a payslip stands for occupational sick pay , displaying the gross amount paid under a private scheme. To comply with the Employment Rights Act itemised statement requirements, payroll must split payments onto separate lines for a clear understanding whats on your payslip breakdown:

• The baseline Statutory Sick Pay (SSP) gross figure.

• The distinct occupational sick pay top-up.

• PAYE tax and Class 1 NICs entries deducted from the total sickness earnings.

How do extended absence timelines affect OSP payments?

As an absence continues, OSP payments decrease according to the contract schedule until the employee transitions to statutory rules or unpaid leave. Managing long-term sickness requires executing specific payroll downgrades:

• Transitioning payment tiers: At defined contract points, payroll reduces rates to half pay, ensuring the amount never falls below the 2026/27 statutory minimum (the lower of 80% of average earnings or £123.25 ).

• Reverting to SSP-only: When contractual sick pay allowances are exhausted, the private enhancement ceases and payroll processes only the statutory baseline up to the 28-week limit.

• Transitioning to state benefits: When statutory limits expire, employers cease pay and issue a 2026/27 SSP1 form to facilitate claims for state support.

👉 To note: For long-term absences reaching the statutory limit, employers must issue the SSP1 form on or before the beginning of the 23rd week of SSP . If entitlement ends unexpectedly early, the form must be issued within 7 days of it ending.

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