Private Sickness Insurance for Employers

Private sickness insurance is increasingly raised in discussions between employees, HR teams and business owners. While employers are familiar with statutory sick pay and any contractual sick pay schemes they operate, questions about private sickness insurance create a different type of challenge. These policies sit outside the employer’s direct obligations yet frequently intersect with workplace processes, particularly when an employee is considering long-term absence or wants clarity about how their income would be protected. For HR and company decision-makers, the difficulty lies in understanding the legal boundary between employment guidance and regulated financial advice, which is tightly controlled under the UK financial services regime, while ensuring employees receive accurate and responsible information based on factual explanations rather than recommendations.

What this article is about:
This article explains what private sickness insurance is, how it typically works and why employees raise it with HR or business owners. It outlines what employers can communicate safely without providing regulated financial advice, and how to manage staff enquiries in a compliant and supportive way while avoiding financial promotions or product recommendations. It also examines how private sickness insurance interacts with statutory sick pay, contractual sick pay and wider absence management processes. Finally, it provides guidance on whether employers should consider offering group income protection policies, how these benefits integrate with employment contracts and HR practices, and the contractual, tax and equality issues that employers must factor into their decisions.

Employees often approach HR because they are unsure whether their rights under workplace sick pay schemes overlap with private insurance or because they want confirmation that absence due to illness will not lead to financial hardship. A clear structure for responding to these enquiries protects both the organisation and its managers from misunderstandings and ensures employees receive factual, legally accurate information without HR straying into FCA-regulated advice. The introduction of group benefits, such as income protection, also raises questions about equality, affordability and long-term risk management for employers seeking to strengthen their benefits packages. This article provides the framework employers need to handle these issues confidently and lawfully, including the limits of the employer’s role when employees hold their own policies or are covered by a group scheme.

Section A: Understanding Private Sickness Insurance

Private sickness insurance is a common source of confusion among employees, particularly where workplace sick pay arrangements differ between roles or have recently changed. HR teams and business owners often find themselves fielding questions about what these policies cover, how they relate to statutory or contractual sick pay and whether employers have any responsibility toward staff who hold them. This section provides the core legal and practical context employers need when responding to these enquiries.

Private sickness insurance is typically another term for income protection insurance. These policies are designed to pay a proportion of an individual’s income if they are unable to work due to illness or injury for a prolonged period. While statutory sick pay and contractual sick pay usually cover short-term absence, income protection policies are triggered only after a defined period, often referred to as a deferred period. This period can range from weeks to several months, depending on the policy. Private sickness insurance therefore sits alongside, rather than within, an employer’s statutory obligations, and the existence of a private policy does not reduce or remove the employer’s duty to pay Statutory Sick Pay (SSP) to eligible employees.

Because employees often struggle to distinguish between workplace sick pay and personal insurance products, HR professionals need a clear understanding of the relevant differences. Statutory sick pay is regulated by the government and employers must pay it to eligible employees for up to 28 weeks. Contractual sick pay, if offered, is set out in the employment contract or staff handbook and varies by organisation. Private sickness insurance, by contrast, is a personal financial product purchased by the individual or, in some cases, provided by the employer as a benefit through a group insurance scheme. It is not governed by employment law in the way that workplace sick pay schemes are, but instead falls under the UK financial services regime and the insurer’s terms and conditions.

Many private policies include standard exclusions, such as pre-existing medical conditions, self-inflicted injuries or conditions that do not meet the insurer’s evidence requirements. The level of cover also varies widely. A typical income protection policy might cover 50–70% of the employee’s salary, often on a long-term basis, though exact benefit amounts depend on the policy terms and HMRC rules at the time of claim. Policies may pay out until the individual returns to work, reaches the end of the benefit term or reaches a specified age, such as 60 or 65.

Employees often approach HR for help understanding these terms, especially when they anticipate a period of extended sickness absence. HR teams must therefore be clear about what information they can relay without crossing into regulated financial advice, which is strictly controlled by the Financial Conduct Authority (FCA). While HR can explain factual differences between statutory, contractual and private provisions, they cannot advise on the suitability of a product, compare one policy against another or encourage an employee to buy, cancel or amend a policy. Any statement that might reasonably be seen as recommending a particular insurance product or provider, or promoting insurance generally, risks straying into regulated advice or financial promotion and should be avoided. The detailed regulatory boundaries are explored further in the next section, but the starting point is that HR should stick to neutral, factual explanations only.

Section A Summary:
Private sickness insurance, often known as income protection, is a personal or group insurance product that provides longer-term income replacement and sits alongside, rather than within, statutory and contractual sick pay. SSP remains a statutory entitlement that must still be paid if the employee is eligible, regardless of any private policy. Policies vary significantly in coverage, exclusions and benefit triggers, and are governed by financial services rules rather than employment law. HR can explain the factual differences between workplace schemes and private insurance but must avoid recommendations, comparisons or promotions that could amount to regulated financial advice or financial promotion under FCA rules.

Section B: Employer Responsibilities and Boundaries

Employee enquiries about private sickness insurance often arise at points of uncertainty, such as the onset of long-term illness, a reduction in earnings or a change in workplace sick pay arrangements. HR teams and business owners must handle these conversations with precision. This section sets out what employers are, and are not, responsible for when employees ask about private sickness insurance, and how to stay within legal and regulatory boundaries.

Employers in the UK have no legal duty to provide private sickness insurance to staff. Statutory Sick Pay (SSP) is the only mandatory entitlement, unless the employment contract sets out a contractual sick pay scheme. If an organisation chooses to offer a group income protection benefit, it does so voluntarily. In those circumstances, obligations arise only to the extent that the benefit has been expressly or implicitly incorporated into the employment contract. Where the scheme is contractual, the employer must administer it in accordance with its terms and must ensure the wording makes clear that all benefits remain subject to insurer acceptance. If the scheme is placed in a handbook and described as non-contractual, the wording must be precise to avoid inadvertently creating rights through custom and practice.

A frequent area of risk is the line between factual information and regulated financial advice. The Financial Conduct Authority (FCA) strictly controls any activity that might influence an employee’s decision to purchase, amend or rely on a financial product. HR can explain what SSP is, how the employer’s contractual sick pay scheme works and that private sickness insurance is a personal policy unrelated to statutory obligations. However, HR must not recommend that an employee purchase a particular insurance product, comment on whether a policy offers good value or assist with policy comparisons. Even well-intentioned guidance can constitute regulated financial advice or a financial promotion if it appears to endorse a specific product or provider. The safest approach is to provide employees with factual, neutral information and signpost them to their insurer, broker or an independent financial adviser for anything beyond that.

Employee requests for help usually fall into three categories: understanding how private insurance interacts with workplace sick pay; concerns about income during long-term illness; or questions about employer-provided group income protection where such a scheme exists. In each situation, HR must keep their role tightly defined. For personal policies, HR should direct the employee to their insurer or broker, emphasising that only the policy provider can explain the terms or determine whether a claim may be valid. HR should provide factual employment information, such as absence dates or pay records, but must avoid interpreting policy clauses or indicating whether the employee is likely to qualify for benefits.

Where employers offer group income protection, HR can outline the process for accessing the benefit, including any requirement for medical evidence, occupational health involvement or liaison with the insurer. This must be done by reference to the insurer’s policy documentation. The employer’s role is facilitatory and administrative, not adjudicative: the insurer decides eligibility for benefits, not the employer. HR should avoid giving employees assurances about claim outcomes, as these decisions sit solely with the insurer and typically require specialist medical and functional assessments.

Some employees expect employers to help them make a claim on their private policies. Employers have no obligation to do so. The employer’s duty is limited to providing routine factual information. Any requests for medical information should only be fulfilled with explicit written consent from the employee, in line with UK GDPR and the Data Protection Act 2018. Employers should not release medical notes, occupational health reports or capability assessments unless the employee has provided clear and specific consent for that information to be shared with the insurer.

Section B Summary:
Employers are not required to provide private sickness insurance and have no responsibilities toward employees’ personal policies beyond supplying factual employment information. HR must avoid regulated financial advice and financial promotions and keep all explanations factual and policy-based. Where a group scheme exists, the employer must administer it strictly in line with the policy wording and make clear that all benefits depend on insurer approval. The employer’s role is administrative rather than decision-making, and data protection obligations apply when sharing information with insurers. Staying within these boundaries ensures legal compliance and mitigates financial and regulatory risk.

Section C: Offering Private Sickness Insurance as an Employer Benefit

Many employers consider offering private sickness insurance, usually in the form of group income protection, as part of a wider benefits package. When implemented correctly, it can support workforce stability, encourage retention and reduce the financial strain on employees during extended periods of absence. However, introducing such a benefit carries legal, contractual and administrative implications that HR and business owners must understand clearly. This section explains how group income protection works, what employers need to know before offering it and how to integrate it effectively into absence management processes.

Group income protection policies provide a long-term income replacement benefit to eligible employees if they are unable to work due to illness or injury beyond a defined waiting period. Unlike personal income protection policies, group schemes are purchased by the employer and cover all eligible employees or specific groups, depending on organisational structure. The employer pays the premiums, and the insurer pays the benefit either to the employer or directly to the employee depending on the policy design. Employers should note that premiums paid for group income protection are usually treated as an allowable business expense and are generally not a taxable benefit for employees. However, any payments the employee receives under the insurance policy (whether routed through payroll or paid by the insurer) are typically treated as taxable income, as they represent continued earnings.

Before offering group income protection, employers must ensure they understand the key policy terms. The deferred period determines how long an employee must be absent before benefits begin. This should align with the employer’s contractual sick pay arrangements to avoid gaps or overlaps. Employers should also review eligibility criteria, medical evidence requirements, limitations on pre-existing conditions and the duration and structure of payouts. Some policies include rehabilitation support, occupational health referrals or return-to-work programmes, which can help employers manage long-term absence more effectively. Where a policy offsets payments against contractual sick pay, HR must understand how the insurer treats such payments to avoid double compensation or misalignment between contract and policy.

Introducing group income protection involves contractual considerations. If the benefit is described in employment contracts, it becomes a contractual entitlement, and removing or altering it later would require consultation and employee agreement. Many employers instead describe the benefit in a handbook, with clear wording stating that the benefit is discretionary and subject to insurer acceptance, thereby preserving flexibility to adjust or withdraw the scheme in future. Careful drafting is essential to avoid creating implied contractual terms through custom and practice, particularly where a benefit has been consistently applied without qualification over time.

From an HR operational perspective, group income protection needs to be integrated with absence management processes. This includes keeping accurate records of sickness absence, ensuring timely liaison with the insurer, securing medical evidence (with explicit employee consent) and coordinating occupational health input. Employees must understand what is required for a claim to progress and the employer’s role in supporting but not determining eligibility. Clear communication reduces misunderstandings, ensures compliance with UK GDPR when sharing health information and provides a consistent structure for managing longer-term absence. Employers should also ensure capability decisions remain independent of insurer determinations; although insurer assessments may inform occupational health advice, they must not replace the employer’s own evaluation under the Equality Act 2010.

Section C Summary:
Group income protection can enhance an employer’s benefits offering, but it requires careful legal and administrative management. Employers must understand deferred periods, coverage levels, medical evidence requirements and how the policy interacts with contractual sick pay. Contractual wording must be precise to avoid inadvertently creating binding entitlements beyond the insurer’s terms, and data protection rules must be followed when sharing medical information. Integrating the policy into absence management processes ensures consistent, fair and lawful administration, while maintaining clear separation between insurer decisions and the employer’s responsibilities under employment and equality law.

Section D: HR Processes and Risk Management

When employees raise questions about private sickness insurance, HR teams must respond with clarity, consistency and legal accuracy. This final section sets out the key HR processes to follow when handling enquiries, how to support employees who rely on private or group income protection during sickness absence and the discrimination risks employers must guard against when dealing with health-related conversations.

The first priority is ensuring that responses to employee enquiries remain factual and consistent. HR should establish a standard approach that sets out what can be discussed and what the employee must obtain directly from their insurer. This avoids disputes and prevents well-intentioned advice from straying into regulated activity under the Financial Services and Markets Act 2000 and associated FCA rules. HR can explain statutory and contractual sick pay provisions, summarise high-level differences between workplace sick pay and private insurance and confirm whether the organisation operates a group income protection scheme. However, HR must not comment on the suitability, quality or likely performance of any insurance product. Anything that could be interpreted as encouraging an employee to buy or rely on a particular insurance arrangement risks constituting a financial promotion.

Where an employee is absent long-term and either holds a personal policy or is covered under a group income protection scheme, careful coordination is required. The employer’s role is limited but important: maintaining accurate absence records, providing routine employment information when requested and, where relevant, supporting the insurer’s evidence requirements. This may involve obtaining occupational health assessments, confirming restrictions or liaising with line managers to document functional capability. All sharing of medical information must be based on explicit, written employee consent under the UK GDPR and Data Protection Act 2018. Employers must avoid giving assurances that a claim will succeed, as eligibility is determined solely by the insurer based on its policy terms and medical assessments.

There are also legal risks around equality and discrimination. Conversations about insurance often arise from concerns about long-term health conditions, some of which may meet the definition of disability under the Equality Act 2010. Employers must ensure that handling enquiries or supporting insurance claims does not result in unfavourable treatment. Decisions around workplace adjustments, attendance management triggers or capability procedures must not be influenced by whether an employee does or does not have private insurance. Similarly, employers must avoid implying that employees should obtain private insurance or that holding insurance improves job security, which could give rise to discrimination or constructive dismissal risks. Capability and attendance decisions must be based on objective evidence and occupational health advice, not insurer assessments or assumptions about insurance coverage.

Supporting employees who rely on group income protection requires particular care. These policies often include rehabilitation provisions, workplace adjustments and review points set by the insurer. HR should coordinate these processes in a structured way, ensuring communication with the employee remains transparent and aligned with the organisation’s absence policy. Employers should ensure that insurer-driven recommendations are considered alongside, but not substituted for, the employer’s own obligations under employment law, including the duty to make reasonable adjustments. When used correctly, these schemes can help facilitate earlier returns to work or provide a clear structure for managing extended absence without creating inconsistencies between insurance processes and employment procedures.

Section D Summary:
Effective HR management of private sickness insurance enquiries depends on factual communication, consistent processes and awareness of regulatory, contractual and equality boundaries. HR must avoid providing regulated financial advice or financial promotions, manage medical evidence carefully in accordance with data protection law and ensure sickness absence processes remain fair and legally compliant. Whether dealing with personal policies or group schemes, the employer’s role is to support lawful processes, not to influence insurance decisions or allow insurance status to affect employment outcomes.

FAQs

Do employers have to help an employee claim on their private sickness insurance?
No. Private sickness insurance is a personal financial product. Employers have no legal duty to help an employee make a claim. The employer’s only responsibility is to provide routine factual employment information, such as confirmation of pay, absence dates or job title. Any detailed claim-related questions must be directed to the insurer or broker. Employers must also ensure that no medical information is released without explicit written consent under data protection law.

Can HR explain the terms of a private sickness insurance policy?
HR can provide neutral, factual context about workplace sick pay and the general concept of income protection, but they cannot interpret or explain the detailed terms of a personal policy. Doing so risks crossing into regulated financial advice or financial promotion under FCA rules. Employees should be directed to their insurer or an independent financial adviser for explanations of coverage, exclusions and benefits.

Is private sickness insurance the same as statutory or contractual sick pay?
No. Statutory Sick Pay is a minimum legal entitlement and contractual sick pay is defined by the employer’s policies or contracts. Private sickness insurance is a separate personal arrangement designed to provide longer-term income replacement. None of these entitlements cancel or reduce the others, although some insurance policies may offset payments depending on their terms.

Can an employer require an employee to take out private sickness insurance?
No. Employers cannot require employees to buy private sickness insurance. Suggesting or encouraging that certain employees should obtain insurance can create legal and equality risks. Employers may offer group income protection as a benefit, but eligibility and participation must follow the insurer’s terms and any contractual commitments.

Is private sickness insurance a taxable benefit?
Personal private sickness insurance that an employee buys themselves is not a taxable benefit. Where an employer provides group income protection, the premiums are usually treated as a business expense and not taxable for employees. However, any benefit payments made to the employee under the policy are typically treated as taxable income. Employers should consult HMRC guidance where necessary.

Conclusion

Private sickness insurance is a growing area of employee enquiry, particularly as individuals become more aware of the financial risks associated with long-term absence. For employers and HR professionals, the key is maintaining a clear distinction between statutory rights, contractual obligations and personal insurance arrangements. Employers are only responsible for statutory sick pay unless they have contractually agreed to provide enhanced sick pay or group income protection. Any private policy held by an employee is a personal matter, and HR must avoid providing regulated financial advice or engaging in financial promotions when responding to questions.

Understanding how group income protection schemes operate can help employers strengthen their benefits offering, but these schemes must be managed carefully. Policy wording, contractual implications, eligibility criteria, tax treatment and interactions with absence management processes all require clarity. By keeping communication factual, consistent and within regulatory limits, HR can support employees appropriately without exposing the organisation to contractual, regulatory or equality-based risk.

Handled correctly, private sickness insurance enquiries provide an opportunity to reinforce good practice in absence management and demonstrate the organisation’s commitment to employee wellbeing. Ensuring compliance with employment law, FCA rules, tax obligations and data protection requirements remains essential throughout.

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