Navigating sick pay for self-employed individuals: Your essential guide
Are you self-employed and stressed about income when sick? The lack of statutory sick pay for self-employed individuals can be disheartening, but options exist to bridge this gap.
Our compact guide lays out the essential sick pay solutions tailored for the self-employed, from Employment and Support Allowance to Universal Credit. Discover how to utilise these provisions and safeguard your earnings even when illness strikes.
Overview:
Understanding sick pay options for the self-employed
As a self-employed person, you may feel that falling ill is a luxury you simply cannot afford. Unlike employed individuals, you’re not automatically entitled to statutory sick pay, which can be a significant concern when you’re unable to work.
Nonetheless, there are sick pay options at your disposal, and familiarising yourself with these can be a valuable lifeline during periods of illness.
Self-employed individuals can consider three main sick pay options, including self employed sick pay:
- Statutory Sick Pay (SSP) for company directors
- Employment and Support Allowance (ESA) for sole traders and partnerships
- Universal Credit for all self-employed individuals
We will now discuss these options in greater detail.
Statutory Sick Pay (SSP) for company directors
As a company director, you’re in a unique position. You’re not just self-employed, you’re also an employee of your own company. This unique position entitles you to claim statutory sick pay (SSP) if you meet the necessary eligibility requirements and are unable to work due to illness or injury.
Eligibility for SSP requires a minimum of four consecutive days of illness, inclusive of non-working days, and an average weekly earning of at least £123. If you’re not paid a regular salary, different rules may apply when determining your SSP eligibility.
Keep in mind, SSP becomes subject to taxation and National Insurance contributions once your total income exceeds the tax-free Personal Allowance.
Employment and Support Allowance (ESA) for sole traders and partnerships
If you’re a sole trader or part of a partnership, the New Style Employment and Support Allowance (ESA) could be a lifeline when you’re under the State Pension age and unable to work due to a health condition or disability.
Applying for ESA involves completing an ESA1 form, either online or by phone. You’ll need to provide the following information:
- Personal details
- A fit note if you’ve been unable to work for more than seven days
- Information on your health condition or disability
Income details - Bank account info for payment.
Once your application is processed, you may receive a basic assessment rate, with additional money possible if you’re placed in the support group or receive specific severe disability benefits.
Universal Credit for self-employed individuals
Universal Credit is available to all self-employed individuals, including company directors, contractors, and those working in the ‘gig economy’.
To be eligible, you must be considered ‘gainfully self-employed’. This means having self-employment as your main job or source of income, making a profit, and keeping business records.
Self employed people can claim universal credit by ensuring they meet these criteria.
During the Universal Credit application process, you must declare your self-employed status and attend a mandatory interview with a work coach who specialises in supporting self-employed claimants. You’ll also need to provide evidence of your self-employment, such as invoices, receipts, bank statements, tax returns, and a business plan.
Your Universal Credit payments are calculated with consideration to the ‘minimum income floor’, which assumes earnings at least equal to the National Minimum Wage for your hours worked. If your actual income exceeds the ‘minimum income floor’, then the higher of the two amounts is used for the monthly universal credit payment calculation.
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Assessing your National Insurance Contributions
Evaluating your National Insurance contributions is a vital step in exploring your sick pay options. To qualify for New Style Employment and Support Allowance, you need to have enough national insurance contributions over the previous 2 to 3 years.
You can check your National Insurance record through the Government’s online service using a personal tax account. This service shows the contributions you’ve paid, credits you’ve received, and any gaps in your record.
If there are gaps in your record, the online service will highlight whether voluntary contributions can be made to fill these gaps and indicate the associated costs.
Purchasing credits to make up for deficits
National Insurance credits can be purchased to fill any gaps in your National Insurance record.
These credits can help you meet the eligibility requirements for certain benefits, such as the New Style Employment and Support Allowance.
To obtain these credits, you’ll need to check your eligibility and may need to apply for them.
Balancing work and sick pay: Permitted work and restrictions
Achieving a balance between work and sick pay is essential when managing your business in times of illness.
Permitted work encompasses certain types of work that ESA recipients can engage in without losing their benefits. This proves that self-employment doesn’t have to cease during illness.
ESA recipients are allowed to work up to 16 hours a week and earn up to £152 per week, under specific conditions that permit them to carry out work while still receiving illness-related benefits.
However, you must report any work by completing a PW1 permitted work form and notify Jobcentre Plus to avoid penalties such as overpayment repayments and potential fines.
Working hours and earnings limits
For those claiming Employment and Support Allowance, there are certain rules regarding permitted work:
- Permitted work must not exceed 16 hours per week.
- The earnings from this work must not exceed £167.00 each week after tax and National Insurance has been deducted.
- There is no specific time limit for which an individual can do permitted or supported permitted work while on ESA.
Additional financial support options for the self-employed
In addition to sick pay options, other financial support mechanisms can provide supplementary assistance during periods of illness or disability. These options include income protection insurance and disability premiums, which can offer a financial safety net when you’re unable to work.
Whether it’s benefiting from grants and other benefits to cover bills during illness, or spreading the cost of tax bills into manageable instalments through HMRC’s Time to Pay service, there are many ways to secure additional financial support. We will now delve deeper into these options.
Income protection insurance
Income protection insurance provides a monthly payout to replace some lost earnings if you cannot work due to illness or injury.
This can be a lifeline for self-employed individuals who don’t have sick pay to fall back on.
Before opting for income protection insurance, it’s important to gauge your capacity to financially sustain yourself and any dependents in the absence of an income.
There are long-term insurance options that provide financial support until you can return to work or the policy ends, and short-term policies that typically cover outstanding debts during illness.
Disability premiums
Disability premiums are additional payments that can be added to benefits for individuals with a disability or health condition.
These premiums can provide extra financial support during challenging times, ensuring that you can continue to meet your living costs. To qualify for a disability premium, you must be under pension credit age and receive specific disability benefits or be registered blind.
There are different types of premiums, such as the severe disability premium and the enhanced disability premium, and eligibility for these depends on various factors.
Summary
In conclusion, navigating sick pay and additional financial support options as a self-employed individual can be a daunting task. However, with a thorough understanding of the options available, including Statutory Sick Pay, Employment and Support Allowance, Universal Credit, income protection insurance, and disability premiums, you can ensure you’re well-prepared should you fall ill. Remember, being self-employed doesn’t mean you’re alone in times of illness.
FAQs
Statutory sick pay is £109.40 per week starting from 6 April 2023, and is based on the number of days you’re off sick and the number of days you normally work each week. You may receive SSP for up to 28 weeks, starting from the fourth day you’re off sick.
No, there is no legal limit to being off sick before facing disciplinary action.
If you are self-employed and temporarily unable to work due to illness, you should check if you have made enough national insurance contributions to qualify for New Style Employment and Support Allowance (ESA). You might be able to claim New Style ESA if you can’t work or can only do limited hours due to sickness or disability, and your Statutory Sick Pay (SSP) has run out, or you don’t qualify for SSP as a self-employed individual.
To qualify for New Style ESA, you’ll need to have been an employee or self-employed and paid (or been credited with) National Insurance contributions, usually in the last 2 to 3 years. Remember that you can get New Style ESA on its own or at the same time as Universal Credit.
To claim Employment and Support Allowance, sole traders and partners in partnerships must be under State Pension age, have a health condition or disability that limits their ability to work, and have paid sufficient National Insurance contributions in the past two tax years.
Universal Credit for self-employed individuals is calculated based on the ‘minimum income floor’, which assumes earnings at least equal to the National Minimum Wage for their hours worked. This helps determine the individual’s eligibility and payment amount.
