Contractual sick pay and company sick pay policies

Whether you’re a growing business or a more established employer, having a clear, well-documented sick pay policy is essential. Not only does it help manage staff absence fairly and consistently—it also builds trust and shows employees that their wellbeing matters.

While Statutory Sick Pay (SSP) is the legal minimum, you can go beyond it by offering what’s known as contractual sick pay.

If you’re considering putting together a company sick pay policy, this guide will walk you through everything you need to know—from what typical contractual sick pay looks like, to how to write your policy and communicate it with your team.

What is contractual sick pay?

Let’s start with the basics. Contractual sick pay (sometimes called enhanced or company sick pay) is any sick pay that you, as an employer, choose to offer on top of Statutory Sick Pay.

This is different from SSP, which is:

• Set by the government

• Paid at a fixed rate (£118.75 per week for 28 weeks)

• Only available to employees who meet specific criteria (like earning £125 per week)

A company sick pay policy, on the other hand, is your chance to shape how your business supports employees when they’re off sick—on your own terms. When creating your company sick pay policy, consider:

• Will you offer full pay, part pay, or a sliding scale?

• Will sick pay be available from day one, or after a qualifying period (6 months)?

• Will it reduce over time (4 weeks full pay, 4 weeks half pay)?

Just remember once those terms are written into a contract or staff handbook, they become legally binding.

Why create a company sick pay policy?

Offering contractual sick pay isn’t just about being generous, it can have a real impact on your business.

A well-thought-out company sick pay policy can:

• Improve employee morale and retention

• Reduce the risk of disputes or confusion

• Help you manage absence more effectively

• Create a consistent approach across teams

And with flexible working, remote roles, and mental health increasingly front-of-mind, more businesses are revisiting their sick pay policies to stay competitive and compassionate.

What does typical contractual sick pay look like?

What’s considered “typical” really depends on your industry, the size of your business and how generous or structured you want your company sick pay policy to be.

There’s no one-size-fits-all approach—but here are a few common examples of typical contractual sick pay structures in UK workplaces that usually work on a 12-month rolling basis:

Full pay for a fixed period

This is one of the most popular options and is often seen as a competitive perk. For example:

• Employees receive up to 4 weeks’ full pay per year if they’re off sick

• After that, they move onto SSP if eligible

This kind of setup is straightforward and easy to manage. You can adjust the timeframe depending on what’s realistic for your business. Whether that be 2 weeks, 4 weeks, 6 weeks or even 12 weeks.

Tiered sick pay

This is a more graduated approach that supports employees longer while managing costs. For example, your employees could get:

• 4 weeks of full pay

• Followed by 4 weeks of half pay

• Then SSP if eligible

This model is common in larger businesses, public sector organisations, or roles where retention and wellbeing are key.

Length of service-based entitlement

You could  reward loyalty by offering enhanced sick pay only after an employee has been with you for a set time. For example, if an employee has been with you for:

• 0-6 months they could get SSP only

• 6-12 months they could get 1-week full pay

• 1 + years they could get 4 weeks full pay and 4 weeks half pay

This staged system encourages retention and gives you time to assess employees before offering full benefits.

Annual sick pay allowance

Some businesses prefer a simpler approach, by setting a number of paid sick days per year, similar to how annual leave works. For example:

• Each employee is entitled to 10 paid sick days per calendar year, resetting every January.

• After that SSP would apply if eligible

This can work well for smaller teams. Just remember to make sure whether these days roll over or not within your contractual sick pay policy.

Discretionary sick pay

Instead of a fixed structure, some employers choose to offer contractual sick pay on a case-by-case basis. This gives you flexibility, but it can be risky without clear guidelines.

If you go down this route, it’s best to:

• Clearly define what “discretionary” means

• Set out the decision-making process (approval from HR or directors)

• Be consistent in how it’s applied

Occupational sick pay schemes

Some industries (like the NHS or education) have long-established occupational sick pay schemes built into employment terms.

These usually follow formal frameworks, for example:

• 1-month full pay and 2 months half pay in the first year of service

• Increasing year by year, up to 6 months full pay and 6 months half pay

If your industry has a recognised scheme, it’s worth checking how your contractual sick pay stacks up by comparison.

Typical contractual sick pay can take many forms. What matters most is that:

• It fits your business model and budget

• It’s written down clearly in your company sick pay policy

• Employees know what to expect—and how to access it

You don’t need to match the biggest players in your industry. A well-structured, fair sick pay policy can have a big impact on staff wellbeing and loyalty.

Now let’s get into creating the policy…

What to include in your company sick pay policy

Here’s what every effective contractual sick pay policy should cover:

What you offer

It might seem obvious, but the policy should state how much you’ll pay and for how long. Start by choosing the structure of your company sick pay scheme, then decide:

• How much you’ll pay (full/partial pay)

• For how long

• Whether it resets each year or is based on service

Be clear about who’s eligible

To keep things fair and avoid disputes, you need to define who qualifies for your company sick pay.

It’s important to note that any enhanced sick pay you offer should be available to everyone in your business. If not, you would be breaching The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. It may also be seen as indirectly discriminatory based on sex, as women tend to work more part-time or on zero-hour contracts.

Questions you should consider:

• Will employees need to complete probation before they’re eligible?

• Is there a minimum level of service required?

You can tailor your policy to your team—but whatever you choose, write it down clearly.

Define your reporting procedure

Even the best sick pay policy won’t work without a clear reporting procedure. So, make sure to outline exactly how your employees should report sickness. Whether you use absence management software or spreadsheets to record sickness, you’ll need to include within your policy:

• Who to contact (their line manager or HR)

• When to make contact (ideally before the start of the working day)

• How to make contact (phone call, not a text or email)

You should also specify when a fit note (formerly known as a sick note) from a doctor is required—after 7 days of absence by law.

And what if they don’t follow the correct process? Be upfront about the consequences and include them in your policy.  

Explain how the sick pay is calculated and paid

People will want to know how much they’re being paid and when. And including how payment for contractual sick pay is made to your employees, helps avoid confusion, conflicts or disputes later.  So, be clear about:

• How sick pay is calculated (based on average weekly earnings)

• When it’s paid (usually on the normal payday)

• Deductions (tax and National Insurance)

Address long-term and repeated absence

Nobody wants to think about someone being off for months at a time—but it’s important to plan for long-term sickness.

Your company sick pay policy should say:

• What happens when the enhanced sick pay runs out (they move to SSP or unpaid leave)

• Whether you’ll arrange return-to-work interviews or refer employees to occupational health

Also, think about frequent short-term absences. Will you monitor them? Will they trigger a formal review or support plan? You might also want to reference your broader absence management policy if you have one.

Be honest about what’s not covered

This is your chance to set exceptions, and you should be transparent about any situations where your company sick pay won’t apply, such as:

• Absence due to misconduct or unsafe behaviour

• Not following the proper absence reporting process

• Absence during probation or unauthorised time off

You should also be clear on what is covered under your contractual sick pay. If you need help determining what’s covered in line with the law, it’s best to get employment law advice.

What to do after you create your company sick pay policy?

Once you’ve nailed down the details:

• Get the policy reviewed by a legal or HR professional

• Include it in employee contracts or your staff handbook

• Make sure it’s easy for staff to access (on your intranet or HR system)

And remember to review it regularly—especially if SSP rules or your internal practices change.

Get help with your sick pay policy

Whether you’re a small business just starting out or a growing team looking to formalise things, offering contractual sick pay is a meaningful step toward building a fair, supportive workplace.

But along with creating a broader absence management policy and all the rest, you’re probably thinking when will I have the time? Enter BrightHR.

With 24/7 HR advice to help you with any question you have about sick pay to an HR document library with customisable policy templates. Not to mention, the services that will create your policies for you. BrightHR is the HR partner you’ve been waiting for.

Contact our friendly service advisors today and see how we can help you with your company sick pay policy and more.