This week the experts, Adam Partington and Esther Smith advise on whether to give a pay increase to an employee on sick pay.
The question: Sickness and pay increases
I have an employee on long term sick, the SSP has long ended and we are approaching our financial end of year.
The other staff will be given a pay increase in line with inflation – does this apply to the sick member of staff?
Will I have to include this in any redundancy pay if their contract is terminated?
Do I need to pay them the holiday pay due for this year or carry it over?
Legal advice:
Adam Partington, solicitor, Speechly Bircham
In relation to the pay increase, the general position is that, unless an employee’s contract of employment specifically gives the employee the right to a pay increase then it is at the employer’s discretion. You will therefore need to check the employee’s contract.
However, you do need to be wary. If the employee is on long term sick then there is a chance they could be disabled within the meaning of the Equality Act 2010. Withholding a pay increase in these circumstances may amount to direct discrimination by reason of their disability and the employee could bring a claim before an Employment Tribunal.
An employee with a minimum of two year’s service is entitled to statutory redundancy pay which is calculated according to a formula which takes into account the employee’s age, length of service and the amount of a week’s pay which is currently capped at £400 per week, which may mean that any salary increase has no impact.
If relevant, the figure for salary used in the calculation would be the employee’s pay at the end of their notice period following dismissal.
You should also check whether the employee has a contractual right to redundancy pay as this may go beyond the statutory minimum they are entitled to.
It is also worth considering whether in fact a redundancy situation has arisen. Dismissing an employee on long term sick may be more likely to be by reason of capability. To help to defend against any unfair dismissal claim you would need to follow a fair procedure and you should take specific legal advice on how to go about this.
You also need to make sure the employee is not disabled as this could result in a claim for direct disability discrimination or for a failure to make reasonable adjustments. If you did dismiss for capability rather than redundancy then the employee would not be entitled to a redundancy payment.
In relation to holiday pay, it is important to differentiate between statutory holiday pay, which is the minimum amount of paid holiday an employee is entitled to and any contractual holiday pay which an employee may be entitled to, over and above their statutory entitlement.
The basic position is that payment in lieu of untaken statutory holiday is not permissible except on termination of the employment. Employees on long term sick can, however, take statutory holiday and be paid for it. One option, therefore, is to try and agree with the absent employee to take their holiday in the current leave year.
If this cannot be agreed, or if you choose not to do so, then the legal position is uncertain as to whether you have to permit the employee to carry it over into the subsequent holiday year. The safe option would be to permit the employee to carry it over.
If you refuse the carry over then there is a risk that the employee could bring a claim for payment of any untaken statutory holiday from previous leave years, either whilst still in employment or after their employment contract comes to an end. It may also be sufficient grounds for an employee to resign and claim constructive dismissal.
Regarding contractual holiday, the employee will only be entitled to carry it over or be paid for it in lieu in this holiday year if their contract allows for it and so you would need to check this.
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Esther Smith, partner, Thomas Eggar
If the employee is on long term sickness the employee may well be qualified as disabled, and therefore not to give them a pay rise (even if it has no immediate effect on them) may amount to an act of discrimination.
However, you may be able to justify treating this employee differently from those who have been working, due to the fact that the pay rise is to reward their work over recent months.
On the assumption that, given the current climate, you are not awarding massive pay increases to his colleagues, I would suggest that you give the pay rise, as it takes no effect if they are on nil pay, and removes the risk of any challenge.
If this employee is subsequently dismissed by reason of redundancy their notice pay and statutory redundancy pay will be calculated on the basis of their increased salary.
Depending on their earnings and assuming you do not have an enhanced redundancy scheme in operation, the pay rise may make no difference to their statutory redundancy pay due to the cap on a week’s pay when calculating statutory redundancy pay (the current cap is £400 gross per week).
Finally, on the holiday pay issue, if you terminate his employment he will be entitled to be paid in lieu of accrued holiday pay.
However, if you are not terminating, and you pass the end of the holiday year, if the employee does not request to take a period of holiday I would not suggest you offer to pay them in lieu.
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.
