Contractors, sick pay and COVID-19: What you need to know

As the COVID-19 pandemic continues to sweep across the country, it’s clear that all types of workers have been affected in one way or another. Often, it’s presumed contractors suffering from an illness will not receive any income for the time that they’re unable to work. However, you may be eligible to help, depending which business structure you use.

There is some financial support available for those contractors working through an umbrella company in the event of sickness, while agency workers can also qualify for Statutory Sick Pay if certain conditions are met.

For those working through a limited company, the burden of paying sick leave usually rests solely with the personal service company.

But, with new legislation introduced by the government as a result of the coronavirus outbreak, there have been several changes that contractors, freelancers and limited company owners should be aware of. Here, Joanne Harris, Technical Commercial Manager at Nixon Williams, explains more:

Personal Service Company (PSC) workers

If you are working through a Personal Service Company (PSC) and are employed by your company, you are entitled to receive Statutory Sick Pay (SSP).

Under current rules, an employee is entitled to receive £94.25 per week in SSP if they are too ill to work. However, this is paid by the employer for up to 28 weeks and not the government, with no mechanism for claiming this money back.

If you are the sole director of a limited company, this means there is little point in reducing your normal salary and dividend payments.

PSCs and SSP relating to coronavirus

However, with the new changes brought in because of the coronavirus outbreak, if you are an employee of your PSC and you pay yourself a salary of at least £118 per week, then it is now likely you will be able to reclaim the costs of up to two weeks SSP per employee. This only applies if the absence is due to coronavirus.

At present, it is unclear how this scheme will work as there is no process in place to allow the refund of SSP. We do know that it applies from day one of sickness, and whilst you must  keep records of absence and payments of SSP, you do not need to provide a GP fit note.

The government has committed to work with the business community to ensure the repayment mechanism is set up as soon as possible, so there should be more details announced soon and these resources pages on the Nixon Williams website will be kept up to date as soon as more information is released.

PSCs paying a salary of less than £118

If you pay yourself a salary below £118 per week, you may be able to claim Employment Support Allowance (ESA) or Universal Credit.

You should check your National Insurance contributions to see if you could be considered for ESA. You can apply for this if you have a health condition or disability that affects how much you’re able to work over a long timeframe. You can apply on the HMRC website directly for this.

Universal Credit can also be claimed by completing an application on the HMRC website. This is designed to provide a monthly payment to help with living costs for those on a low income or who find themselves out of work.

Payment typically comes through around 5 weeks after applying if successful, but it is possible to ask for an advance on this at the application stage if the money is needed more quickly.

Umbrella company workers

If you are employed by an umbrella company, you will be entitled to SSP as any other employee. To qualify for this, your weekly income must exceed £118 and you need to have been sick for four consecutive days before you will be eligible to receive SSP. If you meet these requirements, you could receive £94.25 per week, for up to a maximum of 28 weeks. 

Anyone working as an umbrella employee will also be eligible to claim for SSP if they have symptoms relating to coronavirus.

Again, the Government has enacted emergency legislation which means that you will  receive SSP from day one of sickness if your absence relates to COVID-19. You can also claim SSP if you need to self-isolate due to yourself or a member of your household having coronavirus.

Sole traders and the self-employed

If you are self-employed or a sole trader, then typically you would not be able to claim any form of SSP.

However, the coronavirus self-employed income support scheme was recently introduced by the government to provide support to the self-employed and to sole traders who have suffered a loss of income due to COVID-19.

To be eligible, half of all of your income must come from self-employment and workers must have submitted a tax return for 2018/19. If you have not submitted a tax return for 2018/19 as you only started trading in 19/20, you will not be able to make a claim under this scheme.

Other conditions include that each applicant must have recorded a trading profit of less than £50,000 for 2018/19, or an average trading profit of less than £50,000 for the tax year 2016/17, 2017/18 and 2018/19.

Those who do qualify could benefit from a government grant for 80 per cent of monthly trading profits, up to £2,500 a month for three months.

This will be in the form of a taxable grant and come as a lump sum payment, which the government hopes will be paid in June 2020. HMRC will contact you by the middle of May if you are eligible for the scheme and invite you to make a claim online.  Anyone falling into this category is not required to take any action yet.