A bakery opens at five. On a Tuesday in February one of the two people who can work the ovens texts at half past three to say she has been up all night being sick. The owner is in the car by four, works a fourteen-hour day, and by the following Monday has a chest infection himself.
The statutory sick pay for that week is a small number. The cost of that week is the owner's Tuesday, a wholesale order that went out short, and a café customer who has started ringing someone else.
Who qualifies is a narrower test than people assume
Statutory sick pay is payable to employees who are absent from work due to incapacity. Historically there have been three gates: the employee must earn at least the Lower Earnings Limit on average, the absence must last at least four consecutive days including non-working days, which is a period of incapacity for work, and the first three qualifying days are waiting days for which nothing is payable.
The weekly rate was £118.75 from 6 April 2025, payable for up to twenty-eight weeks in any period of incapacity. Both the rate and the Lower Earnings Limit are reviewed each April, so treat those as dated figures.
The Employment Rights Act 2025 changes two of those gates. The waiting days are removed, so statutory sick pay becomes payable from the first day of absence, and the lower earnings limit test is removed, so lower-paid employees qualify. For those below a certain earnings level, the amount becomes a percentage of normal weekly earnings rather than the flat rate. Implementation has been staged, so check where the commencement has reached before you set your policy.
Two smaller points matter in practice. Agency workers and casual staff can qualify depending on the contract and the earnings, so do not assume they are outside it. And a linked period rule treats separate absences within eight weeks of each other as one period of incapacity, which prevents waiting days being reapplied each time and also means the twenty-eight week clock does not reset.
Evidence is simpler than most employers think. An employee can self-certify for the first seven days. Beyond that you can ask for a fit note from a healthcare professional. You cannot require a note for the first week, and you should not be asking a GP to provide one.
You pay it, and you cannot get it back
This is the part that surprises people who have read older guidance. The Percentage Threshold Scheme, which allowed small employers to recover statutory sick pay above a certain proportion of their National Insurance liability, was abolished in April 2014. Since then, statutory sick pay has been an unrecoverable cost of employing people.
A rebate for very small employers has been discussed repeatedly in consultations. Unless and until something is actually legislated and commenced, budget on the basis that every pound of sick pay is a pound of yours.
It is still not the main cost. For a firm of six, the wage replacement is small relative to the cover: the overtime you pay someone else, the agency shift, the job you push to next week and the customer who notices. Those costs do not appear in any payroll report, which is why they are rarely managed.
An occupational scheme is a choice about who you attract
You can pay more than the statutory minimum. An occupational or contractual sick pay scheme typically pays full pay for a defined number of weeks, then half pay, then drops to statutory. It is entirely a matter of contract, so what you write is what you owe.
The argument for having one is recruitment and behaviour. A firm that pays nothing above the statutory rate has employees who come in ill, because they cannot afford not to, and in a food business or a care setting that is a worse outcome than the absence. It also loses candidates to employers who offer something.
The argument against is obvious and is mostly about small numbers. In a firm of five, one person with a long-term condition can consume the entire budget for the benefit.
If you offer a scheme, be specific in the contract. State the entitlement in weeks, state whether it is a rolling twelve-month period or a fixed leave year, state that payment is discretionary in defined circumstances if that is what you mean, and state that any occupational payment is inclusive of rather than on top of statutory sick pay. Then apply it consistently, because applying it generously to one person and strictly to another is how a discrimination claim starts.
Long absence is a management problem, not a payroll one
Twenty-eight weeks is a long time. Most small employers handle the first fortnight adequately and then go quiet, largely out of embarrassment, and the silence is what makes everything afterwards harder.
Keep in contact, at an agreed frequency and by an agreed method. It is not harassment to ask how someone is and whether they have a sense of when they might return, provided it is done proportionately. What is unwise is the opposite: an employee who hears nothing for three months reasonably concludes that they have been written off.
Where the absence is long or the condition is complex, an occupational health referral is the single most useful thing you can buy. It gives you a medical opinion on capability, likely return, and what adjustments would help, which you need both to manage the situation and to defend any decision later.
Adjustments matter legally as well as practically. Where an employee's condition amounts to a disability under the Equality Act 2010, you have a duty to make reasonable adjustments, and a phased return, altered hours, changed duties or modified equipment are the usual ones. A long-term or recurring condition can meet the definition even where the employee has never used the word disability.
Dismissal on grounds of capability after long absence is possible, and it is lawful only if you have done the work first: consultation, medical evidence, consideration of adjustments and alternative roles, and a genuine decision that you can no longer sustain the absence. ACAS guidance on managing absence is the practical reference and tribunals will expect you to have followed something like it.
Where this shows up in the game
Business Baron does not simulate absence as a line on a payslip. When somebody is off, the shift still has to be covered, and you choose between overtime, an agency, doing it yourself, or letting the output drop. Staff have lives that produce absence, and a business that runs with no slack discovers how thin it is the first time two people are ill in the same week. The February when everybody has the same cough is in the free game too.