Pension and PHI

We know that we should make provision for one of life’s “rainy days” by having the equivalent of three-six months’ worth of household expenses in an easy access bank account. But if the rainy day is protracted by ill health and an employee can’t work – what then?

If an employee suffers an injury or becomes seriously unwell and is likely to be absent from work on a long-term basis, having income protection can provide a financial benefit and rehabilitation support. The income protection provides continuing income if illness or injury prevents an employee from working, or if he or she has to work reduced hours for a prolonged period.

This week a client contacted me to ask about an employee who had been off sick and now moved over to the company‘s health insurance. The health insurance provider is footing the bill for the employee’s pay while she remains unwell and the company wanted to know if it had to continue paying her pension contributions each month.

Generally, once an employee qualifies, the benefit is paid by the scheme provider to the employer, who then passes the benefit to the employee through the PAYE tax system. The income is liable for tax and National Insurance in the normal way.

In this case the benefit is being paid by the scheme provider and being paid to the employee through the pay roll. This means it’s treated as income, so the usual rules apply.

If the employee continues to qualify for auto-enrolment the company will both continue to make contributions. If her level of income falls below the qualifying level the company should tell her that she no longer qualifies to be auto-enrolled but she can continue to pay if she wishes and have employer contributions based on the reduced income she is receiving.

Income protection is a valuable benefit for both employers and employees. It can be used by employers to help manage sickness and the associated costs. It can be of enormous benefit and comfort to sick and incapacitated employees, helping to relieve money worries at a difficult time.

Such schemes can be fairly flexible, and the company can decide on the deferred period (the waiting time before any benefit becomes payable) and the payment term – which can be to the earlier of death or retirement, or for a fixed period.

The level of benefit is also determined by the employer and is usually based on a percentage of salary at the date of incapacity. Pension contributions and employer’s National Insurance contributions can also be covered, and the benefit can escalate once payments have started.

If you’re an employer with HR queries and problems, get in touch!

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DISCLAIMER

Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

Copyright © 2019 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.