At some point during your career as a limited company director, you may be unable to work due to short-term or long-term illness or injury. Unfortunately, sick pay options for directors are not always as generous as those available to employees. This is why it is important to plan ahead and prepare for such eventualities.
In this blog, we look at sick pay for company directors in detail, including Statutory Sick Pay, Employment and Support Allowance, Universal Credit, and the types of income protection insurance you should consider.
Are company directors entitled to Statutory Sick Pay (SSP)?
Company directors are classed as office holders and treated as employees for tax purposes. This means that they are entitled to claim Statutory Sick Pay (SSP) from their company if they are unable to work due to illness or injury.
To qualify for SSP, a director must satisfy the following conditions:
- have been ill for at least four consecutive days (this includes bank holidays, weekends, and non-working days)
- paid weekly average earnings of at least £123 (this includes wages and dividends)
From 6 April 2024, the rate of Statutory Sick Pay is £116.75 per week for a maximum of 28 weeks. However, the exact amount that a director is paid depends on their employment contract.
SSP is subject to Income Tax and National Insurance if the recipient’s total annual income is in excess of the tax-free Personal Allowance. This is £12,570 for the 2024/25 tax year.
Payments of SSP usually start from the fourth day of illness. The first three days are known as ‘waiting days’. You can only claim sick pay for the waiting days if you have already received SSP within the last eight weeks.
In this situation, the waiting days from the previous absence are ‘linked’ to the new SSP period, even if the reasons for the absences are unrelated.
GOV.UK provides an SSP calculator that you can use to check whether or not you are eligible and how much you can claim. However, different rules for calculating SSP entitlement apply to directors who are not paid contractually by a regular salary.
Can my company reclaim SSP from the government?
Previously, ‘small’ employers were able to reclaim some of the Statutory Sick Pay they paid to their employees and directors. However, this was abolished from 6 April 2014.
For a period of time, the Coronavirus Statutory Sick Pay Rebate Scheme allowed small employers to recover the SSP they paid to employees for Coronavirus-related absences. This scheme closed on 17 March 2022.
Whilst paying SSP to directors may not be an issue for larger companies, it is unlikely to be viable for small companies. This is especially true if you are the sole director and employee of your own company.
The rate of SSP is also unlikely to be sufficient to sustain your personal financial obligations, so it’s crucial to put measures in place to protect your income if you become ill. We discuss this later in the post
Can company directors claim Employment and Support Allowance (ESA)?
Employment and Support Allowance (ESA) is a state benefit that provides financial support to people who are struggling to work due to illness or disability. It is available to employees (including directors) and the self employed.
To be eligible for ESA, you must:
- be under the State Pension age
- have a health condition or disability that affects how much you can work
- not be currently claiming Statutory Sick Pay, Statutory Maternity Pay, or Jobseekers’ Allowance
- have paid enough National Insurance contributions (NIC) in the last two to three years – National Insurance credits count toward this
Payments are made directly into your bank account every two weeks.
How much ESA can I get?
The amount of Employment and Support Allowance you receive depends on a variety of factors, including your age, household income and savings, the stage of your ESA application, and whether you are able to return to work.
You will normally receive the ‘assessment rate’ for 13 weeks while your ESA claim is being assessed. The rate you receive will be:
- up to £71.70 a week if you are below the age of 25
- up to £90.50 a week if you are aged 25 or over
If your claim takes longer than 13 weeks to be assessed, you will continue to receive the ‘assessment rate’ until a decision is made or your ESA is due to end. If you are owed more money after 13 weeks, your payments will be backdated to make up for any shortfall.
It is possible to continue working while claiming ESA, provided that you work less than 16 hours per week and do not earn more than £183.50 per week.
How to claim Employment and Support Allowance
You can make a claim for Employment and Support Allowance online. To do so, you will need to provide the following information:
- name, address, and contact details
- date of birth
- National Insurance number
- details of your illness or disability
- GP surgery details
- A fit note (aka a ‘sick note’ or a ‘statement of fitness for work’) if you have not been able to work for more than seven consecutive days due to a health condition or disability
- details of your income, if you are working
- the date on which your SSP ends, if applicable
- bank or building society account number and sort code
Your application will be assessed by the Department for Work and Pensions (DWP) and you will be contacted within 10 days. If you are eligible for ESA, you will need to attend a telephone appointment with a work coach from your local Jobcentre Plus office.
Depending on the nature of your claim, you may have to undergo a Work Capability Assessment to determine whether your illness or disability has an impact on how much you can work.
Can directors claim Universal Credit?
If you are unwell for an extended period of time, you may also be eligible for Universal Credit (UC). This is a monthly payment to help you with living costs if you are unable to work, are on a low income, or are unemployed.
The amount of UC you receive depends on your household’s income. Therefore, if you have a partner, their income and savings will also be taken into consideration.
Each month, you will get a standard allowance, based on your age and living arrangements:
- single and under 25 – you will get £311.68
- single and 25 or over – you will get £393.45
- live with your partner and you are both under 25 – you will get £489.23 (for you both)
- live with your partner and you are both over 25 – you will get £617.60 (for you both)
The standard allowance may be topped up with £416.19 per month for illness or disability, and additional money to help toward housing costs. If you have children, you will get an extra amount for your first and second child and help with childcare costs.
To claim Universal Credit, you must:
- live in the UK
- be at least 18 years old – there are some exceptions if you are 16 or 17
- be under the State Pension age
- have £16,000 or less in money, savings, and investments
You can use a benefits calculator to find out if you’re eligible and how much you will get.
Income protection options for directors
Statutory Sick Pay, Employment and Support Allowance, and Universal Credit are unlikely to provide enough income to cover your bills and living costs. Therefore, it would be wise to consider other options in the event of your being unable to work.
Many larger organisations set up Group Income Protection (GIP) schemes to provide income to their directors and employees if they cannot work for an extended period due to ill health or injury.
If you are a director of a small company, better options for protecting your own income include:
- Accident, sickness, and unemployment insurance
- Critical illness cover
- Payment Protection Insurance (PPI)
- Mortgage payment protection insurance
These types of income protection insurance policies will provide you with a monthly income or cover specific payments (e.g. your mortgage or loans) if you become ill or have an accident that leaves you unable to work.
However, there is usually a ‘deferred period’ (a fixed period of time) before the insurance payments begin after making a claim.
For this reason, it is best to also have access to savings that you can use to support yourself until your insurance pays out or you are able to return to work.
Consider setting aside a sum of money each month and putting it in a rainy day account. This will ensure you have immediate access to emergency funds if you can’t work for a period of time.
In summary
Running your own company can be a tough gig. If you are unable to work for even a short amount of time, it can have a significant impact on business operations and your own personal finances.
Unlike employees, directors of small companies cannot rely on Statutory Sick Pay, nor is Employment and Support Allowance sufficient to cover household bills and basic living costs.
As a company director, you do have the option of applying for Universal Credit, which may be enough to see you through illness or injury in the short term.
Therefore, aside from having access to ‘rainy day’ savings, the best way to protect yourself is to take out some form of income protection insurance.
If you have any questions about this topic or anything related to limited company formation, please leave a comment below.
