If an employee becomes sick or injures themselves too severely to work, Group Income Protection will provide them with a monthly income to supplement their lost earnings while they are in recovery.
An employee is entitled to Statutory Sick Pay if they are under a contract of service with you and are sick for at least 4 days in a row. This includes weekends, bank holidays and days that they do not normally work.
As long as their earnings are at least £116 a week (2019/20), they are entitled to the standard rate for statutory sick pay at £94.25 a week (2019/20) for 28 weeks.
Thereafter, if they’re still ill, they move on to Employment and Support Allowance or ESA, as well as potentially a range of other state benefits to supplement their income.
Providers can treat ESA differently so it is important check the policy terms as it can be deducted off of the gross figure paid out on the Group Income Protection scheme.
While these benefits may offer short-term financial support, this limited level of cover would leave many in financial difficulty should they be off work for a considerable time period.
Employers who want to further support their employees will often supplement the SSP with some form of occupational sick pay.
Providing a Group Sick Pay Insurance scheme for your employees not only provides them with the financial support they vitally need when suffering a long term illness. It can also connect them with valuable advice services – known as employee assistance programs (EAPs) – that will help them through their recovery and speed up their return to work.
As the policy is owned and paid for by the employer, any benefits that are claimed will be paid to the organisation rather than directly to the employee in need.
The benefit will first need to be processed through PAYE, as if it is part of an employee’s salary, and after this it is the responsibility of the employer to pay the benefit to the employee.
There are a range of factors which affect the cost of your premiums, some relating specifically to your organisation and others relating to the level of cover.
Most insurers will allow you to protect between 50%-80% of gross salary.
When choosing the appropriate level of cover for your employees you will have a policy Free Cover Limit. If the level of cover an employee receives would exceed this limit, they will be obligated to provide details of their medical history.
When this happens, the cost of their policy may be increased if they have pre-existing conditions or certain health problems may be excluded. This tends to only affect the highest-paid individuals within an organisation – in reality, it’s rare to exceed the free cover limit.
In order to claim benefits from a Group Income Protection scheme, an employee will need to be ill or injured and out of work for a period longer than the chosen deferred period.
The deferred period is the time from which an employee is initially off work to the time when the insurer starts paying out a claim. It is often set at between 13 and 52 weeks, although shorter and longer deferred periods are available depending on your insurer.
The deferred period is often aligned with occupational sick pay because employees cannot claim sick pay and Group Income Protection benefits at the same time. Choosing a longer deferred period will lower the premiums.
As a benefit, Income Protection payment gets paid gross to the employer, who then deducts Tax and National Insurance from the payment.
Due to the benefit still being processed through PAYE, there is an option on the policy to cover employer National Insurance and employer pension contributions if required.
Your employees’ ability to claim benefits from a Group Sickness Insurance plan is determined first and foremost by the definition of incapacity used by the insurer.
The right definition of incapacity will ensure that employees can claim when poor health prevents them form working in their specific role, whereas another definition of incapacity may require them to take on a different occupation before they can make a claim.
Beware as some insurers also offer a combined definition of incapacity.
This means that for a set number of months while employees are receiving benefits Own Occupation cover will be used and then Suited or Any Occupation Cover will be used if they still have not recovered by the end of this period.
Head of Employee Benefits at Drewberry
There are a range of factors that will affect the cost of your company sickness insurance policy. While it is possible for you to reduce premiums by making decisions about the level of cover to provide, there are some factors that cannot be controlled.
The level of cover is a key factor when it comes to the cost of your premiums. The greater the percentage of an employee’s salary which is covered the greater the premiums.
There are options available to vary the cover, including covering 50% of the employee’s salary and allowing them to individually purchase cover up to 80% of their income.
Alternatively, you could look at providing varying levels of cover for different grades of employees within the organisation.
Also, given that the benefit paid is a proportion of employees’ salaries, if you have a large number of high-earning employees your premiums will be higher because they’ll be receiving a larger benefit should they claim.
As with any protection policy, age can be factor into the cost. We all know that the older we become the more aches and pains we tend to suffer and the more likely we are to be off work for a considerable period of time.
As such, if your workforce is made up of older workers, the premiums are likely to be higher compared to a company with a younger workforce.
With Income Protection, you can choose to pay benefits if someone is off work for a set period (often 1, 2 or 5 years) or indefinitely, until that person’s retirement age.
The longer benefit payment period you choose, the higher the cost of premiums.
The size of your company and the number of people that you would like to cover with your Income Protection Insurance scheme will always affect the cost of your policy.
This said, note that some insurers may offer a discount for larger group schemes – speak to one of our experts to see if your company is large enough to qualify.
Different occupations can pose different health risks for employees that may make them more likely to claim on your company policy.
Some industries are more susceptible to stress and mental health conditions while others tend to have more physical risks.
The more likely it is that employees will be injured at work or need to take some time off, the more you will need to pay in premiums.
Another factor that will impact the cost of premiums is where an employee is based permanently for work, or if they frequently travel to certain places as part of their job.
Such places include high-risk countries with areas of internal/political conflict etc. Living in or travelling to such countries will increase the cost of premiums.
Business Income Protection is not taxed in the same way as Personal Income Protection taken out individually.
A personal policy is paid for using your wages, which is income after you have paid tax and National Insurance. This detail means you can claim your Income Protection benefits completely tax-free.
However, as Group Income Protection is paid for by the employer and employers can reclaim corporation tax on premiums for a policy, the benefit is typically taxable on a claim.
Generally, Group Sickness Insurance is not usually treated as a taxable P11D benefit in kind for most employees in most instances. (While there may be an exception for those with a ‘proprietorial interest’ in the company, this is a complicated matter that it’s best to consult an expert about.)
Income Protection benefits intended for the employee are first paid out as a salary continuance to the employer.
The employer then transfers this payout to the employee in need via the PAYE system. It is during this process that the insurance benefit will be taxed in the same way as the employee’s standard income.
When it comes to taxation of Group Income Protection, the best course of action is to check with your accountant to determine how premiums will be treated for tax purposes.
It’s not as easy to compare Group Income Protection policies as it is to compare some other types of protection insurance. This is because the price is highly dependant on the group you’re covering and the policy options you choose.
With our expertise in the group insurance industry and your knowledge of your organisation, together we can design the most appropriate cover for your employees and ensure the most competitive premium from the leading insurers across the UK market.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
If you are looking to implement a Company Income Protection scheme or review an existing arrangement then we are in a great position to help you.
Simply pop us a call on 02084327333 or email email@example.com.
Employee Benefits Expert at Drewberry
I had the pleasure of dealing with Jake Mills in organising my insurance. Jake was fantastic to deal with — his patience and understanding really helped.