Occupational sick pay (OSP) is a company-funded scheme that provides employees with sick pay above the statutory minimum when they are unable to work due to illness or injury. In the UK, the statutory baseline is Statutory Sick Pay (SSP), but many employers offer OSP as part of their benefits package to attract and retain talent.
OSP bridges the gap between what the law requires and what employees need to maintain financial stability during illness. For HR teams, designing an OSP scheme requires balancing employee wellbeing against cost control.
Key Takeaways
- Occupational sick pay is employer-funded sick pay that supplements or replaces the UK’s statutory sick pay (SSP).
- SSP is £116.75 per week (2025/26 rate) and is only payable from the fourth day of absence; OSP typically starts from day one.
- Enhanced sick pay schemes improve retention, reduce stress-related absences, and strengthen employer branding.
- A well-documented OSP policy should define eligibility, duration, pay rate, and how it interacts with other benefits.
What Is Occupational Sick Pay?
Occupational sick pay is any sick pay offered by an employer that exceeds the statutory minimum. It is a contractual benefit — meaning it is defined in the employment contract or company policy, not in legislation.
In the UK, SSP is governed by the Social Security Contributions and Benefits Act 1992. Employers are legally required to pay SSP to eligible employees who are off sick for four or more consecutive days. OSP sits on top of or instead of this statutory floor.
How OSP Differs from SSP
| Feature | SSP (Statutory Sick Pay) | OSP (Occupational Sick Pay) |
|---|---|---|
| Legal basis | Social Security Contributions and Benefits Act 1992 | Employer’s contract or policy |
| Pay rate | £116.75 per week (2025/26) | Varies — often full or partial salary |
| Waiting period | 3 qualifying days (days 1-3 unpaid) | Typically no waiting period |
| Maximum duration | 28 weeks | Varies — often 6-12 months |
| Eligibility | Employees earning above the Lower Earnings Limit | Defined by employer (often all permanent employees) |
| Tax treatment | Subject to income tax and National Insurance | Subject to income tax and National Insurance |
| Employer recovery | Can recover SSP if contracted out of SS Scheme | Cannot recover — fully employer-funded |
The core difference: SSP is a legal floor that every eligible UK employer must meet. OSP is a discretionary benefit that companies choose to offer because it makes them a better employer.
How OSP Works in Practice
A typical OSP scheme follows this structure:
Day One Coverage
Unlike SSP, which only begins on the fourth day of absence, OSP usually kicks in from day one. This eliminates the “waiting period gap” where employees receive no pay for the first three days of illness. For employees living paycheck to paycheck, this difference is significant.
Pay Rate
Employers set the OSP rate. Common structures include:
- Full pay for a fixed period (e.g., 100% of salary for 3 months, then 50% for a further 3 months)
- Percentage-based tiers that reduce over time
- Flat-rate OSP above SSP (e.g., SSP plus a top-up to reach 75% of normal pay)
Duration
Most OSP schemes cap the maximum period of enhanced pay. A common framework:
| Absence Period | Pay Rate |
|---|---|
| Days 1–3 (waiting period) | Full pay (or reduced percentage) |
| Weeks 1–13 | Full pay |
| Weeks 14–26 | 50% of pay |
| After 26 weeks | SSP only, or long-term disability assessment |
Interaction with Other Leave
OSPs should clarify how they interact with annual leave, sabbaticals, and long-term absence policies. Employees on OSP typically continue to accrue annual leave and pension contributions during the absence.
Why Offer Occupational Sick Pay?
The business case for OSP is well-documented:
- Retention. Employees with access to OSP return to work faster. A CIPD Health and Wellbeing at Work report found that organisations with enhanced sick pay schemes see lower voluntary turnover.
- Reduced presenteeism. When employees face financial pressure to return before recovery, they perform poorly and risk relapse. OSP allows proper recovery.
- Employer branding. In competitive labour markets, a generous OSP scheme differentiates employers. It is one of the most valued employee benefits in surveys.
- Mental health. Financial stress during illness compounds mental health challenges. OSP reduces this burden, supporting long-term employee wellbeing.
Designing Your OSP Policy
A comprehensive OSP policy should address:
- Eligibility. Which employees qualify? Common criteria include a minimum service period (e.g., 6 months) or probation completion.
- Qualifying conditions. What counts as “occupational” illness? Most schemes cover any illness or injury, not just work-related ones.
- Notification requirements. How should employees report sickness absence and what documentation is required?
- Medical evidence. When does the employer require a fit note or occupational health assessment?
- PHI (Permanent Health Insurance). Should long-term absences transition to a group income protection policy?
Cost Considerations
OSP is fully employer-funded — you cannot recover the cost from HMRC like you can with SSP for contracted-out employers. The annual cost per employee depends on the scheme design, but budgeting typically accounts for 1–3% of total payroll. Actuarial data from group income protection providers can help estimate costs.
Frequently Asked Questions
Is occupational sick pay a legal requirement in the UK?
No. Employers are only legally required to pay Statutory Sick Pay (SSP) to eligible employees. Occupational sick pay is a contractual benefit offered at the employer’s discretion, though many companies include it in employment contracts once established.
Can an employer recover occupational sick pay from HMRC?
No. Unlike SSP, which some employers can recover through the statutory payments scheme (reducing their National Insurance liability), OSP is entirely employer-funded with no government reimbursement.
Does occupational sick pay apply to agency workers?
Typically, no. OSP is a contractual benefit offered to direct employees. Agency workers are entitled to SSP if they meet the eligibility criteria, but OSP schemes generally exclude them unless the agency or employer specifically extends coverage.
What happens when occupational sick pay runs out?
When the OSP period ends, employees may transition to SSP if they still qualify (SSP is payable for up to 28 weeks total). Some employers also offer group income protection (permanent health insurance) for longer-term absences, or may begin a formal capability process if recovery is uncertain.
Can employees claim both SSP and occupational sick pay?
Yes. OSP is designed to supplement SSP. Where an employer pays full salary during illness, the SSP portion is implicitly included in the salary payment. The employer can choose to “contract out” of SSP by paying an equivalent or higher amount through the OSP scheme.
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