Employer sick pay schemes: a guide for UK firms
Statutory Sick Pay is paid at £123.25 a week for the 2026-27 tax year, and from 6 April 2026 every employee qualifies from the first day of sickness regardless of how much they earn (gov.uk). An employer sick pay scheme sits on top of that legal minimum, and the one rule that never bends is that a scheme can pay more than SSP but never less (gov.uk).
Employer schemes are also called company, contractual or occupational sick pay, and they are an optional benefit rather than a statutory obligation (acas.org.uk). This guide explains how such a scheme is structured, how it interacts with SSP through offsetting, what it cannot do, and the cost an employer carries when an employee is off sick.
Key takeaways
- An employer sick pay scheme can be more generous than SSP but can never fall below the statutory minimum.
- Company sick pay must be set out in the written terms of employment.
- SSP usually counts as part of occupational sick pay, so the two are not paid on top of each other in full.
- A common structure is full pay for a set period, then half pay, then statutory minimum or unpaid.
- SSP cannot be recovered from HMRC, so the employer carries the full cost of sickness absence.
Statutory sick pay is the legal floor
Every scheme starts from the statutory baseline. SSP is payable for qualifying days within a period of incapacity for work of four or more consecutive days, for a maximum of 28 weeks (gov.uk). For 2026-27 the amount is the lower of 80% of average weekly earnings or £123.25 a week (gov.uk).
An employer cannot contract out of this floor. Any scheme that paid less than the statutory entitlement would simply be topped up to the SSP minimum, because SSP is a legal right for eligible employees (acas.org.uk). Most modern UK payroll software calculates the statutory figure on every absence so the employer can see the floor before applying any enhancement.
What changed from 6 April 2026
Two reforms, set out in detail in the 2026 SSP reform changes, widened the base that every scheme builds on. The three waiting days were abolished, so SSP is now payable from the first qualifying day rather than the fourth (gov.uk). The lower earnings limit was removed as an eligibility test, which the government estimated would bring around 1.3 million lower-paid workers into SSP for the first time (gov.uk).
For employers that already run a generous scheme, the day-one change matters most, because short absences that previously fell entirely within unpaid waiting days now attract payment from the start (acas.org.uk). Lower-paid and variable-hours staff who were previously excluded are now in scope of both SSP and any scheme layered on top (gov.uk).
What an employer sick pay scheme adds
An occupational scheme typically pays an employee their normal wage, or a defined percentage of it, for a set period of sickness before entitlement steps down (acas.org.uk). The employer decides the rate and the duration, provided the result never drops below the statutory entitlement (gov.uk).
Many schemes also impose a qualifying period of service, such as completion of a probationary period, before enhanced pay applies (acas.org.uk). During any gap before the scheme engages, the employee still receives SSP if eligible, because the statutory right does not depend on length of service (gov.uk).
Putting the scheme in the contract
Company sick pay must be recorded in the written terms of employment so the employee knows the rate, the duration and the conditions (gov.uk). The employer can also set how absence must be reported, with self-certification accepted for the first seven calendar days and a fit note required beyond that (gov.uk).
Clear documentation protects both sides. It tells the employee what they will receive, and it gives the small business payroll administrator a precise rule to apply rather than a discretionary decision on each absence (acas.org.uk).
How occupational sick pay and SSP fit together
The two payments are not stacked at full value. Where an employee is eligible for SSP, the SSP usually counts towards the occupational sick pay rather than being paid in addition to it (acas.org.uk). In practice the payslip shows the enhanced pay, then an offset line that removes the SSP portion, then the SSP added back, so the totals reconcile (gov.uk).
A typical stepped structure makes the interaction clear. The figures below are illustrative of a common scheme shape, not a statutory requirement.
| Stage of absence | Scheme pays | SSP role |
|---|---|---|
| Weeks 1 to 4 | Full normal pay | SSP absorbed within full pay |
| Weeks 5 to 8 | Half normal pay | SSP absorbed within half pay where it fits |
| After scheme ends | Statutory minimum only | SSP paid alone until 28-week cap |
An accountant payroll platform handling several employers will model each client's stepped scheme separately, because the offset point differs with the contract terms (acas.org.uk).
The cost an employer carries
SSP is the only statutory payment an employer cannot recover from HMRC (gov.uk). Small employers who qualify for Small Employers' Relief can reclaim most statutory family payments, but the relief specifically excludes SSP, so sickness absence is funded entirely by the employer (gov.uk).
That makes the cost of an enhanced scheme a deliberate budgeting decision. Every week of full pay during sickness is borne by the business with no statutory offset, on top of the unrecoverable SSP underneath it (gov.uk). Employers embedding payroll into wider systems through an HMRC-recognised payroll API can surface the true sickness cost per pay run rather than discovering it at month-end (gov.uk).
Conclusion
An employer sick pay scheme is the layer of generosity a business chooses to add above a statutory floor it cannot lower. Its value comes from clear contractual terms, a defined step-down structure, and an offset mechanism that keeps SSP and enhanced pay reconciled rather than doubled.
With day-one SSP and the earnings threshold both gone, the statutory base now reaches more staff and more short absences than before. Employers reviewing their schemes are weighing the recruitment and retention case for enhanced pay against a sickness cost that, for SSP at least, can never be reclaimed.
Frequently asked questions
Is an employer required to offer a company sick pay scheme?
No. An occupational or company sick pay scheme is an optional benefit. The only legal obligation is to pay Statutory Sick Pay to eligible employees, which an employer can never reduce or contract out of (gov.uk).
Does occupational sick pay get paid on top of SSP?
Usually not at full value. Where an employee qualifies for SSP, the SSP normally counts as part of the occupational sick pay rather than being added separately, so the employee receives the higher contractual rate with SSP absorbed within it (acas.org.uk).
Can an employer recover sick pay costs from HMRC?
Statutory Sick Pay cannot be recovered from HMRC under current rules, unlike statutory family payments where Small Employers' Relief may apply. The employer therefore carries the full cost of SSP and any enhanced scheme on top of it (gov.uk).
Where must company sick pay terms be written down?
Company sick pay entitlement must be included in the written terms of employment, which set out the rate, the duration and any service condition before enhanced pay applies (gov.uk).
