You may be skilled and determined as a contractor, but you’re not invincible. Now and again, you’ll likely get sick, so what does that mean for your pay?

Well, it could vary depending on different factors like how your business runs and what contracts you have. But to ensure you get the support you need, we’ve compiled the essential information for you to know.

This guide discusses contractor sick pay, which includes:

  • Self-employed contractors
  • Limited company contractors
  • IR35 and contracts
  • Sick pay insurance
  • Healthy cash flow

Contractor sick pay

Self-employed contractors

If you’re a self-employed contractor, you don’t pay through PAYE (pay as you earn), which companies use to pay their employees income tax.

Without PAYE, you don’t have the same employment rights. You aren’t guaranteed sick pay, maternity leave, redundancy pay or protection against dismissal.

The protections you do have are:

  • Health and safety — right to a work environment that follows the Health and Safety at Work Act 1974.
  • Against discrimination — right to work without prejudice under the Equality Act 2010.
  • Contract terms — rights agreed between you (the contractor) and your clients.

If you’re a self-employed contractor, you have the legal right to be safe and avoid discrimination when you work for clients. 

But any other rights like sick pay are not a given unless that’s something you negotiate with clients in your contracts.

Limited company contractors

As a limited company contractor, you can claim up to £96.35 a week from your business as statutory sick pay (SSP). You’re only able to receive SSP for a maximum of 28 weeks.

To be eligible, you must meet specific criteria:

  • Off more than four days
  • Earn £120 a week 

As a contractor for your own company, you could count as an employee under workers’ rights set out by the UK Government.

That means your business could reclaim sick pay for COVID-19 absences. The Statutory Sick Pay Rebate Scheme will end on the 24th of March 2022, so you will only be entitled to claim up until then.

Under the COVID-19 scheme, you’re able to reclaim back up to two weeks of sick pay as an employer. You can’t reclaim the SSP for any other reason though.

IR35 and contracts

You can negotiate contractor sick pay with clients in your contracts. These are subject to rules on off-payroll working, which could lead to legal trouble.

IR35 is a set of legislation to stop companies from avoiding tax. It means that HMRC tax inspectors could investigate your employment for a client and decide that the contract in place avoids tax purposefully.

Workers, intermediaries and clients could be the target of an investigation. Essentially, they aim to determine if a worker is basically an employee or genuinely provides a service.

These rules apply if you provide services through an intermediary to the client.

An intermediary is a business that acts as a link between the client and the worker. Your own private limited company could count as an intermediary, but it could also be:

  • An individual — an external person who has set up the contract between you and a client.
  • A services company — an agency that finds you contractual work and engages with clients.

IR35 determines if you’d be an employee of the client without an intermediary. If so, you’ll pay national insurance and income tax like employees of that company.

That’s why it could affect your ability to ask for sick pay in your contracts. If you ask for the same rights as other employees of your client, an investigation could determine that you or your client is avoiding tax.

Although that may not be the case, it could put a financial strain on your business with additional taxes to pay and possible legal fees.

Sick pay insurance

You can take out specific insurance which provides you with the financial support you need if you fall ill.

While you’re unable to work, you could receive monthly payments which help you cover your costs for rent and utilities at home, for example.

Insurance provider Qdos Contractor has specific policies covering pay when you suffer from a disease, sickness or injury

You can tailor your insurance to how much you would like to receive, but the policies start at £26.31 a month.

Monthly benefits range between £1000 and £5000 for every thirty days you’re unable to work. Claims for pre-existing conditions aren’t covered, and the maximum you can claim for is a year.

Insurance could be an excellent option for you to receive sick pay. Still, you must be off work for thirty days for it to pay out, so it’s not a solution for short-term sickness.

Healthy cash flow

The only way to truly ensure that you can guarantee sick pay for yourself as a contractor is with a healthy business cash flow. That allows you to pay yourself on days you can’t work.

Preparing for those times requires you to manage your business finances well and set aside funds for rainy days. 

Cash flow is the amount of money that comes in and out of business. If it’s healthy, then it means you’re able to cover your costs and still have plenty available to use (or set aside).

It might sound easier said than done, but tools can help and a business account keeps your information in the same place.

Manage your recovery finances with Countingup

Countingup is a business account with built-in accounting software which lets you manage your money through your phone. 

Its expense categorisation feature automatically sorts your costs with HMRC approved labels. Allowing you to know what counts as business expenses for your taxes.

Speaking of tax, as a contractor, you’ll file income tax Self Assessments. Tax estimates will tell you how much to put aside each month.

Get started for free.

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