Occupational sick pay (OSP): A guide for SMEs

1. What is occupational sick pay?
2. What’s the difference between occupational sick pay and Statutory Sick Pay?
3. What is occupational ill health?
4. Who is entitled to occupational sick pay?
5. How much is occupational sick pay?
6. How long does occupational sick pay last?
7. What happens when occupational sick pay ends?
8. Benefits of offering an occupational sick pay scheme for your employees
9. Disadvantages of offering an occupational sick pay scheme for your employees
10. Effectively manage occupational sick pay with PeopleHR

Managing sick pay in the workplace is a key consideration for any employer, especially for SMEs. There are different ways to approach sick leave, and finding the right balance between employer and employee needs is essential. While employers want to ensure that their business runs smoothly, employees also need to feel supported during times of illness. Offering occupational sick pay (OSP) can help to improve employee satisfaction and retention, but it also comes with its own challenges.

In this guide, we’ll explore what occupational sick pay is, how it compares to statutory sick pay (SSP), who is entitled to it, and what happens when occupational sick pay ends. We’ll also discuss how long does occupational sick pay last, the benefits and potential drawbacks of offering OSP, along with practical tips to manage it effectively in your workplace.

Statutory Sick Pay (SSP) is the minimum amount that an employer is legally required to pay an employee who is off work due to illness. SSP is set by the government and is paid for up to 28 weeks. It applies to employees who meet certain criteria, such as earning above the lower earnings limit.

In contrast, OSP is an additional benefit offered by employers, and it is not mandatory. Employers can decide the amount of sick pay employees receive, as well as how long it will last. OSP is usually outlined in HR policies and procedures. While employers have the flexibility to pay more than SSP, OSP must be at least the statutory minimum. Offering OSP can be an attractive benefit for employees, particularly in highly competitive job markets where retaining talent is a priority.

Occupational ill health refers to health conditions that arise as a direct result of work activities. These illnesses can be caused by factors such as long-term exposure to harmful substances, repetitive tasks, or high levels of stress. Employers may choose to offer OSP to help employees who suffer from occupational ill health, especially if the illness is related to their role.

Some of the leading causes of occupational ill health, according to the Health and Safety Executive (HSE), include:

• Musculoskeletal disorders (e.g. back pain or repetitive strain injuries)
• Stress, anxiety and depression
• Respiratory conditions (e.g. asthma or lung disease)
• Hearing loss due to noise exposure
• Skin conditions caused by exposure to chemicals

By offering OSP, employers can provide support to those affected by conditions directly related to their roles, helping them to recover without the added worry of financial strain.

Unlike SSP, which is available to all employees as long as they meet the requirements outlined by the government, OSP s at the discretion of the employer. This means that an employer has the flexibility to set their own eligibility criteria, such as length of service or job role, before offering OSP.

For example, a business might require employees to have been with the company for a certain number of months or years before they become eligible for occupational sick pay. Similarly, some employers may only offer OSP to full-time employees or those with permanent contracts.

To manage occupational sick pay effectively, it’s essential that employers establish clear criteria, which should be communicated to employees during their induction or within employee absenteeism policies. These criteria help to ensure transparency and fairness when employees request sick leave, and set clear expectations of the amount of pay they’ll receive.

So, how much is occupational sick pay?

The amount of OSP varies depending on the employer’s policy and is often specified in an employee’s contract. Generally, it’s paid in addition to Statutory Sick Pay (SSP), and businesses may choose to offer a higher rate of pay than the statutory minimum. Like SSP, OSP is considered part of an employee’s earnings and should be included in payroll and treated as taxable income.

When setting the amount for OSP employers should consider their financial capacity. While a competitive employee benefits package can help to attract and retain talent, it’s important to make sure that the amount of OSP offered is feasible and in line with the available budget. Limiting the duration of sick pay can help to control costs, especially when additional cover is needed for long-term absences.

The duration of occupational sick pay is determined by the employer. OSP may last for a fixed period, such as a set number of weeks or months, or it could be linked to the employee’s length of service. To ensure consistency and fairness, employers must outline the duration of OSP within individual employment contracts.

At a minimum, OSP must meet the requirements of SSP, which provides a maximum of 28 weeks’ sick pay. However, employers may choose to provide a more extended period of sick pay, particularly for long-term employees. Our 2024 Sick Leave Report may provide some useful insights to inform your OSP policy.

When OSP comes to an end, employees may not receive any further pay unless they are eligible for SSP or other benefits. In some cases, the employer may choose to offer additional support, such as allowing the employee to take unused holiday allowance or offering flexible working arrangements.

If OSP ends before the employee has recovered, they may be eligible for government benefits, such as Universal Credit or Employment and Support Allowance (ESA). In these cases, the employee may need to apply for benefits using the SSP1 form, which should be provided by the employer.

When employees return to work following extended sick leave, it’s important for employers to offer adequate support, including making reasonable adjustments if necessary. Holding a return to work interview can help to identify any challenges that the employee may face and facilitate a smoother transition back into their role.

While OSP offers many benefits, it also comes with certain disadvantages that employers need to consider. It’s important to weigh the potential costs and administrative burden against the positive outcomes.

Increases payroll administration

Managing OSP requires careful administration, including tracking employees’ sick leave, ensuring compliance with organisational policies, and handling the necessary payroll adjustments. This can place a considerable strain on administrative resources, particularly for SMEs with smaller HR teams. It’s essential to have a robust system in place to manage payroll processes effectively and ensure that sick pay is calculated accurately.

Costs more for your business

Providing OSP can increase costs for your business, which is a key consideration for SMEs with limited budgets. While OSP can help to retain employees and promote a healthy working environment, it’s important to ensure that the scheme is sustainable in the long term. Employers should regularly monitor key payroll metrics and consider how OSP fits within their overall strategies and available budget.

Poses the potential for misuse

Like any benefit, OSP can be subject to misuse, and employees may take advantage of the system if it’s not properly managed. This can lead to increased absenteeism and disruption in the workplace. Employers should put policies in place to prevent unauthorised absences and manage sick leave effectively to ensure that OSP remains available for those who need it.

Managing occupational sick pay efficiently is essential for maintaining fairness and supporting employees. By having clear policies and efficient processes in place, employers can provide the necessary support to their workforce while keeping administrative tasks manageable.

People HR’s cloud-based payroll software can streamline the process, helping you to track sick leave, calculate pay and manage employee benefits more effectively. With a robust system in place, you can ensure compliance with employment laws, reduce administrative burden and focus on supporting your employees.

To learn more about this, or any of our other HR and payroll solutions, contact our team for personalised advice, or explore our demo to see our software in action for yourself.