Income protection –long term sickness absence – auto-enrolment

However secure you think you are, life can throw googlies in the way, so it’s sensible to make provision for the occasional “rainy day” by having the equivalent of three-six months’ worth of household expenses in an easy access bank account. Sometimes a rainy day goes on longer than expected, perhaps because of ill health and an employee can’t work – what happens then?

When a member of your team becomes seriously unwell or suffers an injury and is likely to be absent from work for a long-time, having income protection can provide a financial benefit and rehabilitation support to the affected employee. The income protection provides continuing income if illness or injury prevents an employee from working.
A couple of weeks ago I was contacted by a client who asked about an employee who had been off sick and now moved over to the company‘s health insurance. The health insurance provider is footing the bill for the employee’s pay while she remains unwell and the company wanted to know if it had to continue paying her pension contributions each month.

As a rule, where an employee qualifies, the benefit is paid by the scheme provider to the employer, who then passes the benefit to the employee through the PAYE tax system. The income is liable for tax and National Insurance in the normal way.
In my client’s case, the benefit is being paid to the employer by the scheme provider and being paid to the employee through the pay roll. This means it’s treated as income, so the usual rules apply.

If the employee continues to qualify for auto-enrolment the company and employee will both continue to make contributions. If her level of income falls below the qualifying level the company should tell her that she no longer qualifies to be auto-enrolled but she can continue to pay if she wishes and have employer contributions based on the reduced income she is receiving.

Knowing that they are going to receive some income during ill health incapacity is a valuable benefit for employees. It can be used by employers to help manage sickness and the associated costs. It can be of enormous benefit and comfort to sick and incapacitated employees, helping to relieve money worries at a difficult time.
PHI schemes are fairly flexible, and the company can decide on the deferred period (the waiting time before any benefit becomes payable) and the payment term – which can be to the earlier of death or retirement, or for a fixed period.

Employers can determine the level of benefit and it is usually based on a percentage of salary at the date of incapacity. Pension contributions and employer’s National Insurance contributions can also be covered, and the benefit can escalate once payments have started.