Sick pay is the part of an employment package that nobody examines until it is needed. It is also, measured in money, one of the largest differences between working in one country and another. A long illness in the Netherlands is a manageable financial event. The same illness in a country with no statutory provision is not.
Who carries the cost
Three models exist, and they allocate the burden differently between employer, state and employee.
- Employer liability. The Netherlands is the extreme case, with employers required to continue paying a substantial share of salary for up to two years, together with reintegration obligations. Germany requires six weeks at full pay before the health insurance fund takes over.
- State insurance. Most of Scandinavia, France, Italy and Spain pay sickness benefit through the social insurance system after a short employer period or a waiting period.
- Statutory minimum plus employer discretion. The United Kingdom and Ireland set a low statutory floor and leave the rest to contract. What you actually receive depends almost entirely on your employer's policy.
What to ask about in an offer
Because the statutory floor varies so much, the question that matters is what the employer adds on top of it. In the UK and Ireland this is the single most valuable and least discussed contract term.
- How many weeks at full pay, and how many at half pay.
- Whether entitlement increases with service, which is the usual pattern.
- Whether there is a waiting period before occupational sick pay starts.
- Whether income protection insurance is provided, which typically pays a percentage of salary after a deferral period of three or six months and is the real safety net for long illness.
- Whether pension contributions continue during sick leave.
How sick pay is taxed
Employer paid sick pay is salary and is taxed as salary, including social contributions, in essentially every system. State sickness benefit is more varied.
- German Krankengeld is not directly taxed but is included under the Progressionsvorbehalt, raising the rate on other income for the year.
- UK Statutory Sick Pay is taxable and subject to National Insurance, because it is paid through payroll.
- Scandinavian sickness benefits are ordinary taxable income.
- Payments from a private income protection policy are usually taxable where the employer paid the premium and tax free where you paid it from taxed income. This is a genuinely important distinction and it is frequently not explained.
The Dutch system deserves its own note
Two years of employer funded sick pay is unique in scale, and it changes hiring behaviour. Dutch employers carry substantial insurance against it, they take the reintegration obligation seriously because the state can extend the liability if they do not, and probationary periods and fixed term contracts are used more cautiously than elsewhere.
For an employee it is an unusually strong protection. For anyone comparing a Dutch offer with one elsewhere, it is a real part of the package that will never appear in a salary comparison.
Related: Finland Tax Card