Understanding sick pay benefits as a limited company contractor

It’s human nature to feel under the weather from time-to-time, and you may find that as a result you’re unable to work.

So when you’re contracting through your own limited company, where do you stand when it comes to Statutory Sick Pay (SSP)?

Here, exclusively for ContractorUK, I want to take a closer look, to see what the rules are surrounding sick pay when running your own business, writes Dan Mepham, managing director of SG Accounting.

So you’re sick and run a limited company (aka a personal service company)?

If as a PSC you pay yourself a salary, you’re therefore eligible for Statutory Sick Pay (SSP) at a weekly payment of £116.75 (up from £99.35 in 2023/24).

This amount is payable on the fourth day of consecutive illness for a period of up to 28 weeks.

As per a salary, tax and National Insurance will be deducted, however as an employee of your own limited company you’re effectively paying yourself your SSP. This means the following:

• Ideally you’ll always have funds in your business account to pay for 28 weeks of SSP
• If you’re able to pay yourself more than £116.75 per week, it’s worth factoring that into your illness-cover budgeting.

How do limited company directors test for sick pay eligibility?

In order to be eligible for SSP you need to:

• Be classed as an employee of your limited company
• Earn an average weekly minimum of £123
• Be unwell for at least four consecutive weekdays

It might sound crazy, but in order to provide the paper trail proving your illness, you must also tell your employer (you!) that you’re unwell and that it’s not possible for you to work.

It’s important to know also that if you’re off sick for more than seven days then you must provide yourself with a ‘fit note’ from your GP.

Still unsure whether you qualify for SSP? You can check by using the gov.uk calculator here.

Sick pay as a contractor: what role does tax and National Insurance play?

SSP payments will still be subject to tax and National Insurance, so it’s worth taking that into account when considering how much you want to pay yourself.

Talk it through with an accountant if you’re unsure, ideally before falling ill!

Financial steps to take to prepare for illness

Even the most resilient contractors fall poorly on occasion, and when running your own business it makes good sense to have the provisions in place to ensure you’re protected, financially, should you need to take any time off.

By keeping a reserve in your business bank account for such eventualities, you’re protecting yourself against the unknown.

You could even take this ‘illness buffer’ one step further, by keeping enough money set aside to pay for a substitute. This will ensure any current or running projects which your limited company is providing services for will stay on track. And positively to help demonstrate an outside IR35 position, you actively are using your ability to use a substitute if needed.

Many limited company contractors also take out income protection insurance to protect and prepare their finances against illness. All policies are different, so when shopping around it’s worth checking to see which best fits your requirements, and whether they’re able to pay out the amount you’d need and over which timeframe.

That’s about it for SSP as a contractor; what else can directors feeling unwell do?

Speak to a specialist contractor accountant to understand more about the impact SSP could have on you, and how much more you could potentially pay yourself to tide you over while you're under the weather. Your accountant may also have connections with income protection providers, and be able to suggest one or even provide a discount!