What is sick pay?

Sick pay refers to the compensation provided to employees when they are unable to work due to illness or injury. It is a form of paid leave that ensures employees can take time off to recover without losing income. Sick pay is typically part of an employee's overall benefits package and can be structured as paid time off (PTO), a specific sick leave policy, or a combination of both.

Employers may offer sick pay in different ways—either as a separate benefit, such as "sick days," or as part of a broader PTO policy that combines vacation and sick leave. Sick pay is important for maintaining employee well-being, ensuring compliance with labor laws, and promoting a healthy work environment. Homebase’s payroll software can help businesses manage sick pay by tracking leave balances, ensuring accurate pay calculations, and streamlining the approval process for time off.

Why sick pay matters for employers

Offering sick pay is a key benefit that can have both operational and ethical implications. Here’s why it matters for employers:

1. Promotes employee health and productivity

Allowing employees to take paid time off when they’re sick helps prevent the spread of illness in the workplace and supports recovery. When employees can take the necessary time to recover, they are more likely to return to work feeling better and perform at their best.

2. Increases employee satisfaction and retention

Sick pay is an attractive benefit that contributes to employee job satisfaction. When employees know they have paid time off to use in case of illness, it reduces stress and helps with work-life balance. This can lead to better employee retention, as workers are less likely to leave a job that offers comprehensive benefits.

3. Ensures legal compliance

In some states and localities, paid sick leave is mandated by law. Employers are required to provide a certain amount of sick leave to their employees. Offering sick pay ensures compliance with these laws and helps avoid legal penalties.

4. Fosters a responsible work culture

Providing sick pay encourages employees to take time off when they’re unwell rather than coming to work while sick and potentially infecting others. It promotes a healthier work environment and shows employees that their well-being is a priority.

How sick pay works

Sick pay can be offered in various forms, depending on the company’s policies and local regulations. Here’s how it generally works:

1. Accrued sick pay

In an accrual system, employees earn sick pay over time, based on the number of hours they work. For example, an employee might accrue one hour of sick pay for every 30 hours worked. When the employee is sick, they can use their accrued sick hours to cover the time they miss.

2. Sick days

Some employers offer a fixed number of paid sick days each year. For example, an employee might receive five paid sick days annually. These days can be used as needed for illness, medical appointments, or other health-related issues. If the employee does not use all of their sick days, they may or may not be carried over to the next year, depending on the company's policy.

3. Paid time off (PTO) system

In some companies, sick pay is combined with vacation days and personal leave under a PTO system. Employees have a set number of PTO days each year, which they can use for any reason, including illness. While this offers flexibility, it can also lead to employees being hesitant to use their PTO for sick days, especially if they are concerned about running out of time for vacations or personal needs.

4. State-mandated sick leave

Some states, cities, or countries require employers to provide paid sick leave by law. For example, California mandates that employees accrue sick leave at a rate of one hour for every 30 hours worked. These laws often specify how sick leave must be tracked, how much sick leave must be provided, and whether unused sick days can be carried over or paid out.

5. Short-term disability

In cases of longer-term illness or injury, short-term disability insurance may kick in after a certain waiting period. This benefit typically covers a portion of an employee’s salary while they are unable to work for an extended period, often due to serious illness or surgery.

Legal and compliance considerations

Employers must be aware of both federal and state laws regarding sick pay to ensure compliance and avoid penalties. Here are important legal considerations:

• State and local laws: In some states and cities, paid sick leave is required by law. For example, California, New York, and several other states and municipalities mandate that employers provide paid sick leave. These laws often require employers to offer a minimum amount of sick leave, track it accurately, and allow employees to use it when needed.
  
  
• The Family and Medical Leave Act (FMLA): FMLA provides job protection for eligible employees who need to take time off for their own illness or to care for a family member. However, FMLA is unpaid, unless the employer allows the employee to use paid sick leave or PTO during this time. Employers should be clear on how sick pay interacts with FMLA.
  
  
• Sick pay and overtime: For non-exempt employees, sick pay must be considered part of their regular rate when calculating overtime pay. For example, if an employee earns $20 per hour and works 40 hours in a week, but takes a sick day, the sick pay should be included in the total compensation for calculating overtime pay for that week.
  
  
• Sick leave documentation: Employers may require employees to provide a doctor's note or other documentation for extended sick leave. Be mindful of privacy laws, such as the Health Insurance Portability and Accountability Act (HIPAA), when requesting medical information from employees.
  

Real-world example

Consider a retail company that offers 10 paid sick days per year to its employees. Employees accrue one sick day per month, which can be used for any illness or medical appointment. If an employee is sick and needs to take a day off, they use one of their accrued sick days. If the employee does not use all 10 days in a year, they can carry over up to 5 unused sick days to the next year. The company ensures that sick leave is tracked and that employees receive their regular pay for the days they take off.

This system not only ensures that employees are compensated during their illness but also allows the company to maintain a healthy and productive workforce by enabling employees to recover without worrying about lost wages.

Common mistakes to avoid

1. Not tracking sick leave accurately
Inaccurate tracking of sick pay can lead to under- or over-compensation, or confusion regarding leave balances. It’s important for businesses to have an efficient system for monitoring sick days and accruals.

2. Failing to comply with state and local laws
Many states have specific regulations about sick pay, including the amount of sick leave employees are entitled to and how it should be tracked. Failing to comply with these regulations can lead to penalties and legal disputes.

3. Limiting sick leave usage
While businesses can set policies for how sick leave is used, it’s important to allow employees to use their sick leave when necessary. Limiting sick leave usage or making it difficult for employees to access it can lead to dissatisfaction, decreased productivity, and potential legal claims.

4. Not providing clear communication
Employees need to understand how sick pay works, how many days they’re entitled to, and how they can request time off. Lack of communication about sick leave policies can create confusion and frustration.

How Homebase helps with sick pay

Homebase simplifies the management of sick pay by automating the tracking of sick leave accruals, usage, and pay calculations. With Homebase, employees can easily request sick days, while employers can ensure accurate tracking and compliance with local laws.

With Homebase, you can:

• Track sick pay accruals automatically
  
  
• Ensure employees are paid for sick days accurately and on time
  
  
• Set clear policies for sick pay usage and carryover
  
  
• Stay compliant with local sick leave regulations
  

Explore Homebase Payroll to automate sick pay tracking, streamline the approval process, and ensure that your employees are supported when they need it most.