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Business8 min read·Updated July 2026

Group income protection: the employer's guide

When an employee is off sick for months rather than weeks, statutory sick pay barely touches the sides. Group income protection keeps their salary flowing — and gives you professional help getting them back.

Written by Speedwell Health · Reviewed by an FCA-regulated adviser
The short answer

Group income protection (GIP) is an employer-funded policy that pays an employee typically 50–75% of salary if long-term illness or injury stops them working, usually after a waiting period of 13–26 weeks. It generally costs around 0.25–1% of payroll, premiums are normally tax-deductible, and most policies bundle rehabilitation and early-intervention support.

Key takeaways
  • GIP typically replaces 50–75% of salary during long-term absence — SSP is roughly £120 a week.
  • Premiums generally run at 0.25–1% of payroll, and are normally deductible for corporation tax.
  • Mental ill health accounts for 41% of long-term absence; GIP rehab services target exactly that.

What group income protection is

Group income protection is an insurance policy a company takes out on its employees' incomes. If someone is too ill or injured to work beyond a chosen waiting period — the 'deferred period', typically 13, 26 or 52 weeks — the insurer pays a benefit, usually 50–75% of salary, which the employer passes on through payroll. Payments generally continue until the employee recovers and returns, reaches a set limit (some policies cap payment at two or five years), or hits retirement age.

It answers a question most employers only face when it's too late: what do we actually do when a valued employee is signed off for six months? Statutory sick pay is around £120 a week and runs out after 28 weeks. Without a policy, you're choosing between funding full pay indefinitely from your own cash flow or watching a loyal employee's income collapse while they're seriously ill.

Rule of thumb: group income protection typically costs around 0.25–1% of payroll — for a £500,000 payroll, that's roughly £1,250–£5,000 a year to insure every covered salary against long-term illness.

What it costs — and what moves the price

GIP is priced as a percentage of the payroll you're covering, and for most schemes it lands between 0.25% and 1%. Where you sit in that range depends on your team's ages, occupations, the benefit level, how long payments can run, and the deferred period you choose.

Design choiceCheaper endMore expensive end
Benefit level50% of salary75% of salary
Deferred period26 or 52 weeks13 weeks
Payment durationLimited term (2–5 years)To retirement age
WorkforceOffice-based, youngerManual, older

A common small-company design — 50–60% of salary, 26-week deferred period, five-year limited payment term — keeps costs towards the bottom of the range while still covering the scenarios that genuinely threaten household finances. Aligning the deferred period with your existing sick pay policy (so company sick pay hands over to the insurer) avoids paying for weeks you'd have covered anyway.

The part employers underrate: rehab and early intervention

The payout is only half the product. Group income protection insurers have a direct financial interest in getting your employee better and back to work — so most policies include vocational rehabilitation and early-intervention services at no extra cost. That typically means access to case managers, physiotherapy and mental health support that kicks in during the deferred period, often from the first weeks of absence, before any claim is paid.

This matters because mental ill health accounts for 41% of long-term absence, and musculoskeletal problems make up much of the rest — both respond well to early, structured support. Many insurers also bundle an employee assistance programme (EAP) covering the whole workforce: confidential counselling, legal and financial helplines, and manager support lines, whether or not anyone ever claims.

Worth knowing: to use early intervention properly, you need to tell the insurer about long absences promptly — many ask to be notified within the first few weeks. A GIP policy nobody remembers to invoke is just an expensive payout mechanism.

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Tax: how GIP premiums and benefits are treated

The tax treatment of a standard employer-paid scheme is unusually clean. Premiums are generally an allowable business expense for corporation tax, and — unlike private medical insurance — employer-paid GIP premiums are not normally treated as a taxable benefit in kind for employees, so there's usually no P11D entry and no employee tax while the policy simply sits there.

The tax arrives if a claim is paid. The insurer pays the benefit to the company, which passes it to the employee through payroll — so it's taxed via PAYE like normal salary, with income tax and National Insurance deducted as usual. That's why benefit levels are set at 50–75% rather than 100%: after tax, a 60–75% gross benefit typically lands reasonably close to the employee's usual take-home pay.

Tax rules have exceptions and change over time, so confirm treatment with your accountant — the same advice we give on medical insurance deductibility.

GIP vs statutory sick pay: the gap it fills

The state safety net does less than most people assume. Statutory sick pay is roughly £120 a week — under £6,300 a year — and stops entirely after 28 weeks. For an employee on £35,000, that's a drop of over 80% in income at the exact moment they're facing a serious illness. UK employees average 9.4 sick days a year, and while most absences are short, the long ones are the ones that break household finances and cost employers most of the ~£103bn annual absence bill.

  • Weeks 1–28. SSP pays around £120/week; many employers top up with company sick pay for a limited period.
  • Week 28 onwards. SSP ends. Without GIP, the employee is down to state benefits; with it, 50–75% of salary continues.
  • Throughout. GIP rehab and case management work on the return to work — something SSP does nothing to help with.
Key stat: SSP tops out at about £3,300 per spell of illness, then stops entirely. Group income protection replacing 60% of a £35,000 salary pays roughly £21,000 a year for as long as the incapacity lasts — more than six times SSP, with no 28-week cliff.

Setting up a scheme

Group income protection schemes typically start from two or three employees, and most small groups are set up on a 'free cover limit' basis: everyone is covered up to a generous salary threshold with no medical questions at all, and only very high earners above the limit need individual underwriting. Setup usually takes one to two weeks.

The design decisions — benefit level, deferred period, payment duration, which employees are eligible — make bigger price differences than the choice of insurer, so it's worth comparing a few designs side by side. We compare group income protection alongside company health insurance and group life cover, so you can see what a full benefits package costs before committing to any of it.

Frequently asked questions

What percentage of salary does group income protection pay?

Typically 50–75% of gross salary, with 50–60% the most common design. The benefit is deliberately less than full pay because it's taxed through PAYE when paid, and because insurers want a financial incentive for recovery — after tax, a 60–75% benefit usually lands close to normal take-home pay.

How much does group income protection cost an employer?

Generally around 0.25–1% of the payroll being covered. A young office-based team with a 26-week deferred period and limited payment term sits at the bottom of the range; older or manual workforces with cover to retirement age sit at the top. Quotes are per-scheme, so comparing designs matters.

Is group income protection a taxable benefit for employees?

Not normally. Employer-paid group income protection premiums are generally not a P11D benefit in kind, so employees usually pay no tax on the cover itself. Tax only arises if a claim is paid: the benefit goes through payroll and is subject to income tax and National Insurance like salary.

Are group income protection premiums tax deductible for the company?

Generally yes — premiums for a standard employer-paid scheme are normally an allowable business expense for corporation tax, because the policy protects the business's obligation to pay staff. Treatment can vary with unusual scheme structures, so confirm with your accountant before relying on it.

What is the deferred period on group income protection?

The waiting period between an employee going off sick and the benefit starting — typically 13, 26 or 52 weeks. Longer deferred periods mean cheaper premiums. Most employers align it with their company sick pay, so their own sick pay covers the early weeks and the insurer takes over afterwards.

How long does group income protection pay out for?

It depends on the design. Full-term policies pay until the employee returns to work, dies, or reaches the scheme's retirement age. Limited-term policies cap each claim at, say, two or five years, which meaningfully reduces premiums. Payments always stop once the employee is well enough to return under the policy's definition.

Does group income protection cover mental health absence?

Yes — mental ill health is one of the most common causes of group income protection claims, reflecting its 41% share of long-term absence. Policies pay when a covered employee meets the definition of incapacity regardless of cause, and most insurers provide early psychological support during the deferred period to aid recovery.

Do employees need medicals to join a group income protection scheme?

Usually not. Most schemes operate a free cover limit: every eligible employee is covered automatically up to a set benefit level with no medical questions. Only high earners whose benefit would exceed that limit typically face individual underwriting, which keeps admin light even for small companies.

What's the difference between group income protection and health insurance?

Health insurance funds private treatment to shorten an illness; group income protection replaces salary when illness keeps someone off work long-term anyway. One pays hospitals, the other pays people. Many employers eventually run both — our guide to choosing between them covers which to buy first.

Can a small company get group income protection?

Yes. Schemes typically start from two or three employees, and small groups get the same free-cover-limit underwriting as large ones. At roughly 0.25–1% of payroll, a five-person company with £200,000 of salaries might pay in the region of £500–£2,000 a year, depending on design.

Related guides

Sources & method: Sources: Drewberry employee benefits data, Association of British Insurers industry statistics, and gov.uk benefit-in-kind rules. Figures are indicative. This page is not financial or tax advice.