Don't Let Sickness Destroy Your Finances

How would your finances hold up if you were off work sick? Take steps now to avoid the debt spiral.

Before I began writing for The Fool, I used to work for a company that treated its employees pretty badly. Benefits were minimal, the working environment was horrid, and you were paid in full for a maximum of just four `sick' days a year.

After that, you were dumped onto Statutory Sick Pay (SSP), which - as we'll see - doesn't amount to very much. Unfortunately, this sort of approach isn't that unusual.

And it seems that the credit crunch is putting employees under pressure to stagger into work even when they're ill.

In a recent study by health plan provider HSA, 76% of HR professionals questioned said they thought employees were less likely to take time off sick now than they would have been a year ago - because of concerns about job security.

Here, I'm going to outline what sick pay you're entitled to, what you should do if your employer treats you unfairly, and how can you protect your finances against illness.

Company arrangements

If your company runs its own individual sick pay scheme, what you'll receive will depend on the terms of your contract of employment.

Your employer must provide you with a 'written statement of employment particulars' - with details of any sick pay scheme - within two months of you starting work.

Company sick pay schemes often start after a minimum probationary period (typically three months). You should then receive your normal pay during any period that you are off work due to illness, for the period specified.

Generous sick pay schemes may cover your wages for six months or even longer.

The legal minimum

If your company doesn't operate an individual sick pay scheme, it's obliged to pay you the legal minimum - Statutory Sick Pay (SSP) - if you're eligible.

The bad news is that currently, SSP is set at just £75.40 per week. And it doesn't start until the fourth day you're off sick, so you may not get paid anything at all for the first three days.

Am I eligible for SSP?

In a nutshell, you're entitled to SSP if all the following apply:

• You're sick for at least four days in a row (weekends and bank holidays are included). This is known as the `period of incapacity for work' (PIW);

• You're earning at least £90 a week on average;

• You notify your employer within the time period stated in the contract, or (if no time period is stated) no later than seven days after the first day of sickness. If you don't tell your employer straight away, they can withhold SSP for the period of the delay.

SSP lasts for a maximum of 28 weeks. If you're still unwell after this period you can apply for Employment and Support Allowance.

Find out more about SSP here.

What about mental health issues?

In theory, there's no difference between the SSP given to people with physical and mental health problems.

Sadly in practice, a stigma still exists in many workplaces towards employees with mental health issues. If you're affected by this, have a look at the information and advice provided by Mind.

What about agency workers?

Prior to October 27th 2008, there were restrictions that prevented payment of SSP to agency workers whose contracts were for three months or less.

The good news is that these have been removed, and SSP is now payable to agency workers in exactly the same way it is to other employees.

What action should I take if I get sick?

Keep your employer `in the loop' as much as possible when you become ill. Let them know as soon as possible, keep them updated and tell them when you're next seeing the doctor.

That way, they'll have no excuse to withhold sick pay, and will be less likely to suspect you're actually off waterskiing or playing squash!

If you're applying for SSP, you can contact your employer by phone or by letter (the postmark is taken as the date you informed them).

Alternatively you can complete Form SC2 - `Employee's Statement of Sickness' - which is available online or from your doctor's surgery.

You don't have to provide medical evidence when you first become sick. However, if you're off for more than a week, your employer may ask for a sick note from your doctor or hospital.

If you're treated unfairly

If your employer refuses to pay you the sick pay you're due, this is classed as an 'unlawful deduction from wages'. If you think you're being treated unfairly, get in touch with one of the following organisations:

• The Advisory, Conciliation and Arbitration Service (Acas) offers free advice on all employment rights issues.

• Your local Citizens Advice Bureau.

• Your trade union could also help you fight your case. The TUC's workSMART website has lots of information on your rights.

Insuring against disaster

SSP of £75.40 a week won't be enough to keep body and soul together. For many people, sickness is the factor which triggers a horrible downward spiral into debt.

Don't let this happen to you. If your company doesn't operate a decent sick pay scheme, make sure you have a financial back-up plan.

One option is to take out income protection insurance. This is a form of long-term sick pay which will replace some of your salary following an accident or the onset of illness.

How much it costs you will depend on a range of factors including your age, sex, health, occupation and whether or not you smoke.

You can reduce your monthly premiums by including a `waiting period' before benefits are paid. So if, for example, your company's sick pay lasts for three months, you can set the policy to starting paying out at the end of this period.

Be careful when buying protection insurance of any kind. For example, Payment Protection Insurance (PPI) and Mortgage Payment Protection Insurance (MPPI) - are usually an enormous rip-off.

Income protection insurance is typically much better value - but you can still end up paying more than you need to. In Look After Your Greatest Asset!, my Foolish colleague Cliff D'Arcy explains how to choose the right cover to suit your needs.

Emergency savings pot

Alternatively, you could `self-insure' by starting a savings pot which you can draw on if you do have to take time off work.

Try to build a `cash cushion' equal to at least three months' living expenses - and preferably six.

Illness and debt

If you find yourself sick and already in debt, get in touch with your lenders and see if they're willing to freeze interest and accept reduced payments until you're back on your feet.

If you let them know what's going on straight away, they may be more understanding than you think.

Are you facing pressure at work due to the credit crunch? Or perhaps work stress is actually making you ill?

Please post your comments here, or visit The Fool's Employment & Redundancy Issues board for non-judgmental help and advice.

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