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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
, see all updates

Class 1 NICs : Earnings of employees and office holders : Sick pay from a trust fund, stamp fund or insured sick pay scheme

Trust funds, stamp funds and insured sick pay schemes are ways in which employers and/or employees can provide for periods when the employee is absent from work through illness or injury.

Payments into the fund or scheme

Include in gross pay for NICs purposes any payment into such a fund or scheme which is made by the:

  • employee where the employer deducts the employee’s contribution to the fund from the employee’s pay
  • employer where the employee has entered into the contract with the fund or scheme to provide sickness cover.

Exclude from gross pay for Class 1 NICs purposes any payments made into such a scheme by the employer where it is the employer who has entered into the contract with the fund or scheme.

Payments made from the fund or scheme

Section 4(1)(b) of the Social Security Contributions and Benefits Act 1992 treats as earnings for NICs purposes any sickness payment made to or for the benefit of an employee:

  • if it is paid as a result of arrangements made by the employer, and
  • the employer is responsible for making payments towards the provision of the sickness payment.

You should include in gross pay for NICs purposes any payment from a fund or scheme if:

  • the sick pay is for a period of illness/injury which occurred before the contract of service has ended, and
  • the employer contributes to the scheme.

If both the employer and the employee contribute to the scheme, include in the employee’s gross pay only that part of the sick pay which relates to the employer’s contribution to the scheme. For example, if the employer contributes £20 per month and the employee contributes £10 per month, there will be a liability for Class 1 NICs on only two-thirds of any resulting sick pay.

Do not include in gross pay for NICs purposes any payment from such a fund or scheme if :

  • the sick pay is for a period of illness/injury after the contract of service has ended, or
  • only the employee contributes to the scheme

The sick pay will normally be paid through the employer to enable them to make any NICs deductions if there is a liability. If the employee receives the sick pay direct from the administrator of the scheme you should send the papers, together with a full report, to your Technical Support Manager for advice.