Illness is inevitable. People get sick. Between the flu and other medical issues, your employees might not be able to work. If your employees get sick, they might have to take a sick day.
There are two basic types of sick time: unpaid sick leave and paid sick leave. So, what is sick pay?
What is sick pay?
Sick pay (sometimes called paid sick leave or paid sick days) is any paid time off you give employees while they are absent from work due to illness, injury, or disability. Sick pay is an attractive benefit that you can offer to employees. There is no federal law requiring businesses to provide sick pay.
Some states and major cities are considering or have passed their own laws regarding paid sick leave.
- In 2014, Connecticut became the first state to enact a mandatory sick pay law. Nonexempt service workers in Connecticut can accrue up to 40 hours of paid sick leave annually.
- A California sick pay law gives employees who work at least 30 days in a year three days of sick pay entitlement.
- New York City has its own sick leave law, which requires employers with five or more employees to offer up to 40 hours of paid sick leave to employees who have logged 80+ hours in a calendar year.
How much sick pay do employees receive?
There are many different ways to compensate employees for paid sick leave. Of course, if your state or city has sick pay laws, you must follow those laws.
You could pay your employees their regular hourly wage for any sick leave they use. For example, you pay Amber $10 per hour. If Amber uses eight hours of sick time, you would owe her $80 in sick pay before deductions ($10 X 8 hours).
You could pay your employees minimum wage for the sick time they use. Let’s say James earns $10 per hour. But, you use the current federal minimum wage of $7.25 per hour to calculate sick pay. James uses eight hours of sick time. Because you pay minimum wage for sick time, not the employee’s hourly wage, you would owe James $58 in sick pay before deductions ($7.25 X 8 hours).
You could choose to pay your employees a percentage of their hourly wages when you calculate their sick pay. For instance, Lisa earns $10 per hour. She uses eight hours of sick leave. When you calculate sick pay, you only give employees 50% of their regular hourly wages. You would owe Lisa $40 in sick pay before deductions ($10 / .5 X 8 hours).
If you choose to provide your employees with sick pay, be sure to include your compensation method in your sick pay policy. You should put your sick pay policy in your employee handbook so employees can easily find it.
You can also use a third party to pay for sick leave. Third-party sick pay might come from an insurance company. If you want to use third-party sick pay, your business needs to be covered by the third party so employees can receive their sick pay.
You can make paid sick leave available to your employees at the beginning of the year. You can also require employees to accrue sick leave. For example, employees can earn one hour of sick leave for every 40 hours they work. If an employee needs to take sick leave but has not accrued enough time, the sick leave would be unpaid.
What is not considered sick pay?
There are some medical expenditures that a business may make to an employee that are not considered sick pay. These payments include the following:
- Worker’s compensation payments for any injury that occurred on the job or any illness the employee contracted due to the work environment.
- Any disability retirement payment.
- Medical expense payments made under a medical plan or for medical insurance.
- Any payments made that are not related to an employee’s attendance or absence.
Paid time off (PTO)
Some employers bundle employee vacation and sick leave together into a category called paid time off. This system is particularly useful for employees who rarely take time off due to illness or who rarely take vacations. With a small business PTO policy, employees are given (or accrue) time off that can be used any way they want—for illness, vacation, or any other personal reason.
Cashing out sick days
You can allow employees to cash out unused sick days for the actual amount of money they would have received if they used the sick leave. Cashing out sick pay might occur when an employee is retiring, leaving the company, or at the end of the year.
Patriot’s online time and attendance software for small business can help you keep track of employees’ sick time. Employees can enter their sick time themselves, and the hours are automatically deducted from their total available sick time. That means you have one less task to worry about, and the time and attendance integrates with Patriot’s payroll system software. Try it for free now!
This article was updated from its original publication date of 1/8/2015.