In December last year, CIPD produced a report called What Should an Effective Sick Pay System Look Like?

https://www.cipd.co.uk/knowledge/fundamentals/relations/absence/sick-pay-recommendations#gref

It's basically discussing the government SSP scheme and making recommendations for improvement, but pages 17 to 22 provide information on schemes run by employers (Occupational Sick Pay Schemes), including a section on 'how to design and implement an effective OSP scheme'.  This could be a useful starting point.

In a previous company there was a neat but simple system.
Staff default position was to pay unless instructed not to by the MD.
Hourly paid started with a default of no pay unless:
The rules for longer serving employees kicked in (and no reason not to
or not paid unless instructed by the MD to do so.

I would start with a small basic entitlement with discretion to pay more. Very few people get beyond 10 days in a year.

Other than echoing Caroline's advice and direction to the CIPD's work on the subject (very interesting too), I would say that the vital aspect of implementing an OSP scheme is to clearly define at the outset what it is for.

Having worked in the public and charity sectors quite a lot over the decades, I have too often seen workplace OSP schemes where no thought has been given to purpose beyond placating the unions. Whereas, if you clearly define the object of OSP, a great deal more can flow from that.

For example, if you see it as ultimately a retention scheme, you can start to define more precisely who does and who does not qualify based on the degree to which you are inclined to retain particular categories of staff. Of course, one must be intensely cautious of letting this stray into indirect discrimination. But, for example, you can begin to say that staff within the first three/six/twelve months of employment might not qualify. Or that staff with no realistic prospect of a timely return to work (having ticked a number of boxes to reach this conclusion) might not qualify. You can also build in a great deal of discretionary leeway (again, with one eye firmly upon the risks of illegal discrimination) such that, for example, staff in certain key roles might be permitted longer periods of recuperation before a return to work is considered unrealistic, or employees in posts identified as operationally critical might be permitted to qualify for OSP from day one or after an abbreviated qualification period.

If, however, it is seen primarily as a health and safety scheme (keep sick people out of the workplace to avoid spreading infections) then staff with musculoskeletal injury or mental illness may not qualify.

Or if you combine retention with health and safety, staff with infectious conditions may qualify for OSP for a fixed period (say, no more than a week) even if they would otherwise not qualify.

In reply to Peter Stanway:

Thanks Peter.
Would a company need to set up an income protection scheme to implement this? Do you know how a company would financially be protected by CSP? Sorry, I've come from a global organization therefore was never involved in these things before. My new company in basically a start up (no one has been in HR in the UK since 2015). Many thanks

In reply to Robey:

Thanks Rob. Yes I agree a process needs to be in place around this. However for now I need to understand the process from a financial burden to the business. Do we need an insurance, etc. I believe this will be available for banded employees (not junior, or probationary). I've just been asked to explore the initial process in the first instance.
:-)

In reply to Laura:

Ah – now I understand your initial reference to PHI.

Occupational Sick Pay Schemes aren’t like pensions or PHI.  You can’t (as far as I know) buy one in from a provider who will cover the risks on an insurance basis, giving you certainty about the costs to your organisation. 

Organisations design, operate and pay for their own schemes.  If you’re considering OSP, you can look back at absence patterns over, say, the last five years and model what it would have cost you to provide normal pay rather than SSP during those absences.  Then you can start to model more nuanced approaches.   What if we had paid for up to six weeks of absence in any 12 months?  What if we had only made that available after a year’s service?  What if we had paid less – say up to two weeks – for those with shorter service, but more – say up to eight weeks – for longer-served employees?  And so on and so on.

This will give you an idea of what, if anything, you can afford to pay.  It’s only a general idea, however.  The availability of sick pay may change absence patterns, so it might prove more expensive than the historic figures suggest.

If you want to go ahead, you can think about how you would manage the scheme (which will involve some extra work for HR and Payroll) and what structures you would need in terms of reporting, certification, etc.  The CIPD document could come in useful at that stage.

Two points relating to costs don’t emerge from the CIPD guidance.  The first is that – fairly obviously – you don’t pay OSP in addition to SSP.  If you are giving normal full pay to a person who is off sick, that covers the SSP requirement.  The second is that many organisations give full pay for a period, dropping to half pay for a further period before ceasing altogether, allowing them to support employees for longer while controlling costs. 

If you are introducing sick pay for the first time, be sure to make it clear that the new arrangements are non-contractual and may change from time to time.  You will probably need to ‘tweak’ the rules – and maybe the entitlements – with experience of the actual costs, any impact on absence levels, and how easy it is to administer. 

It doesn’t have to be complicated, as Peter says, but you do need to be careful not to start out with a proposition that proves expensive to maintain but can’t be easily unwound.  Many schemes give the employer considerable discretion over payments.  As long as discretion is exercised reasonably (e.g. not in a way that is unlawfully discriminatory or reflecting a manager’s own personal likes and dislikes), it can be useful in managing the scheme and administering it sensitively and fairly.