When you are the director of a small company, you are also considered an employee for many purposes. As such, you have employment rights – a fact that many find it easy to forget. One of these is entitlement to Statutory Sick Pay (SSP), though many directors do not consider it to be worth exercising this right.
Claiming Statutory Sick Pay
Many directors are unaware that they are entitled to take SSP. Many seem to follow the assumption that as they own the business rather than being employed by it in the traditional sense, they are not entitled to take sick pay if they are ill. However, for this purpose a director is still considered an employee, and is entitled to take SSP.
Taking Statutory Sick Pay
Any earnings you get from your business count for the purposes of SSP. This includes director’s fees, dividends, and wages for other work done within the company.
It is possible to take an approach of substitution, using SSP in place of a portion of your normal pay. For example, if you are entitled to £350 worth of SSP, you can cut your wage by £350 and use SSP to make up the difference. However, while this approach is allowed by the rules, directors will find there is no point in using it. The cost to the company and the money you receive remain unchanged, and your income is treated in exactly the same way for tax and National Insurance Purposes. While these rules have their place, for directors they are effectively a red herring.
Is There Any Point in Directors Taking Statutory Sick Pay?
Many directors conclude that as Statutory Sick Pay comes out of company funds, there is no point in taking it. It will simply reduce profits and, as shareholders, they will therefore lose out on the value of their assets elsewhere. While this conclusion usually makes sense on the surface, it is often not strictly true when you examine the big picture.
Mainly, the reason that SSP may ultimately result in a net gain on your part is that your company may very well be entitled to claim some of the money back from the government. The compensation available has become less generous over the years since SSP was introduced, but is still enough that many directors and businesses will ultimately be better off than if SSP was not taken. Companies with lower wage bills may be entitled to claim back all or part of the SSP paid out, including to directors, through reduced PAYE payments. If there is no PAYE paid or not enough to reclaim the entitlement, a written request can be submitted to HMRC instead.
If a company pays a total amount of SSP in a given month that is more than 13% of National Insurance payments made in the same period, it can reclaim the difference. For example, a company might pay £1000 in National Insurance and £200 as SSP. 13% of £1000 is £130. Subtracting this from the SSP paid out leaves £70 which can be reclaimed.