Statutory Sick Pay – How Income Protection Can Help

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By Crispin O'Toole-Bateman

on Thursday 12 September 2019

Stethoscope next to calculator

What is statutory sick pay (SSP)?

When it comes to taking time off because you feel ill, a lot can depend on your employment. Some people enjoy the luxury of a work-initiated sick pay scheme, often so comprehensive that a few days off here and there means nothing to their monthly salary and everything ticks on just the same.

Others, however, and increasingly the majority, are faced with the horrible choice of forcing themselves to work while their body is screaming at them to stay in bed, or simply not getting paid.

With many household budgets already stretched to the maximum, a day or two off sick can mean a significant tightening of the belt – a more serious illness that lasts weeks or even months would be completely financially debilitating.

Statutory sick pay is the government’s way of doing something to mitigate the situation. Under the SSP scheme, all employers must cover their employees for a basic standard of living if they are ill and unable to work. Conceptually, it’s a good idea, but in reality it often falls short.

How much is statutory sick pay

The statutory sick pay (2019) entitlement for people working full time is £92.05 per week. If it doesn’t sound like a lot, that’s because it’s not!

£92.05 per week is £18.41 per working day, and SSP pay is calculated pro-rata, which means if you only do sixteen hours a week you’re likely to see less than half of that! Ninety quid a week isn’t going to cover even the most basic bills, let alone handle food, rent or a mortgage and any of the other expenses that form day-to-day life in the UK.

And if you have a family to look after, the SSP amount starts to look even more ineffective.

The small print in the statutory sick pay scheme

If the money itself is enough to make stat sick pay look less than adequate, once you start looking into the finer points of the system, it becomes really rather shocking:

Who pays statutory sick pay?

UK sick pay is the responsibility of the employer – so they pay. That sounds great, after all, it means everything is already in place to pay you and the money isn’t coming out of your tax or national insurance. Changes that were made in 2014 mean that they can’t claim the money back, so it really does come from your employer.

But what happens if you don’t have an employer? Simply put there is no SSP for self-employed people, so if you’re a sole trader then you just have to go on unpaid. No government help, no clawing back anything from your national insurance contributions. Nothing.

Great!

The first three days

The next condition of SSP is that they don’t have to pay sick pay for the first three days. This means if your illness is just a minor cold or a sprained ankle that stops you getting to work, then you’re on your own.

The idea of ‘pulling a sickie’ by calling the boss and putting on your best rough voice might get you out of having to turn up, but it’s not going to get you a paid day in front of the TV.

Sometimes called a ‘waiting period’, the first three days are simply lost and without a replacement workplace sick pay scheme, you won’t see any money at all.

28 weeks later

The statutory sick pay entitlement for 2019 lasts for 28 weeks – a little over six months. After this time your employer is no longer under any obligation to provide you with the £92.05 per week.

Do I qualify for SSP?

There is the chance that you don’t! Having already eliminated the self-employed, there’s a further stipulation that you must earn over £115 per week. And for many, that’s sadly not the case.

Statutory sick pay if you are part-time

As mentioned previously, SSP is paid pro-rata, so if you only work part time you will only get a percentage of the £92.05 each week.

Can’t afford to stay off work? Why living off sick pay is impossible for most

Unless you have planned in advance, you may find yourself struggling with only the statutory sick pay entitlement. £92.05 represents an annual salary of less than £5,000 per year.

With the current average income for a full time working adult in the UK a little more than £35k a year, it’s easy to see how losing 85% of your income is going to cause problems!

Unfortunately, unless your company sick pay scheme provides more than their minimal legal obligation, there’s little you can do about it.

It’s important to plan ahead if you are going to need more than SSP.

How do I get more money than the SSP allowance?

Income protection insurance is the answer, but what is it and how does it work?

Introducing income protection insurance (IP)

Income protection is a personal insurance policy that is completely independent of your employer and SSP. With an IP policy, you can set your own terms on a level of cover that is designed specifically for you.

Unlike some other forms of insurance such as critical illness cover or life insurance itself, income protection insurance doesn’t pay out a lump sum but instead replaces your regular monthly salary, making sure there is money in the bank to cover your expenses in the normal way.

How much is income protection?

Income protection is tied to your salary and is typically set to pay 65% of your gross monthly income. As a form of insurance, IP is tax-free so 65% is often a lot closer to your full cleared monthly funds than the numbers might suggest, though it won’t ever provide as much as you would do going to work – ultimately, that would be a system rife for misuse.

Income protection doesn’t interfere with your statutory sick pay either, allowing you to claim both during the first 28 weeks of your illness.

How much real money in the bank will you have?

Example one: £26,000 p.a.

In the current 2019/20 tax year, take home pay on £26,000 p.a. without taking a pension into account (or other outgoings such as student loan repayments) equals £1767.99.

  • 65% of the gross monthly income is: £1408.34
  • Statutory sick pay: approx. £398.88
  • Total combined income: £1,807.22

With both income protection and SSP, being sick could result in an actual increase in money by almost £40 per month! Without SSP, the IP alone leaves a minor deficit of £359.65.

Example two: £55,000 p.a.

  • Monthly take home pay after tax and NI: £3,369.45
  • 65% of gross monthly income: £2,979.17
  • SSP: £398.88
  • Total combined income: £3,378.05 (an increase of £8.60!)
  • Deficit without SSP: £390.28

If income protection is combined with SSP, the final amounts are often an improvement on end money in the bank compared to a regular salary, and even once the SSP runs out, income protection at 65% provides close to enough to cover your monthly bills and other outgoings as usual.

Greater than 65% protection

We have used 65% as the example for this article as it is the standard term offered by most insurers, but it is possible to get IP for 70% or greater amounts. If you need a higher level of income protection, let our advisors know!

When you need more time to recover – flexible terms on income protection

Income protection insurance is a product that is designed to suit your needs and can have the terms adjusted to fit. Two of the main variables worth considering are:

  • Waiting period
  • Length of cover

The waiting period is the number of days (or weeks, even months) before the income protection is applied. The longer the waiting period, the cheaper your premiums for paying the insurance will be.

Setting the waiting period is personal and our advisors will be able to help you work out what is right for you, but here are some common reasons to set different lengths of waiting period:

  • You cannot afford to go a day without pay: if this is the case, then you will want a waiting period of zero days, or just a single day. As this type of income protection is more likely to be called upon, it is also the most expensive.
  • You have a company sick-pay scheme: if your company provides a more comprehensive plan above and beyond statutory sick pay, then it often make sense to delay any income protection until the end of that period. Often this is three months, six months or even a year. Offsetting your income protection by this length of time will greatly reduce your premiums.
  • You have savings you are willing to use for the first month or two: many people have set aside savings to cover themselves for periods without work, which can include illness. The reduced cost of your income protection is often worthwhile if you are willing to use your savings should the situation arise.
  • You are willing to survive on SSP until it ends: this rarer scenario would see you placing a waiting period of 28 weeks on your income protection.

The length of cover, or term, of your income protection will also determine your premium costs. Many IP schemes are set to a single year, while others have a ‘rest of life’ term to look after you if you never return to work again.

We recommend selecting the number of years to balance between the cost of your premium and your need for financial support.

Income protection for the self-employed

Unlike SSP, income protection is available for everyone no matter their type of employment. If you are self-employed then income protection offers the best possible cover for any unforeseen periods of illness or injury.

Because the self-employed often have fluctuating salaries or difficulty proving their income, income protection insurance for self-employed people is somewhat flexible, allowing you to set your own level of cover (within reason). Obviously, greater levels of cover will be more expensive and should be properly considered.

Is it worth getting income protection insurance? Help from Unite Life

At Unite Life, we offer a full range of financial security insurance packages, from income protection through to life insurance.

We know that full cover involves looking at the specific family situation and choosing options to suit. Our advisors will talk with you and help you choose not only a suitable income protection deal, but options for critical illness cover (to provide in the case of a serious injury or life-changing illness) and life insurance.

Why not fill in our contact form today, or give us a call and speak to one of our advisors directly? Our advice comes freely and without obligation!

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