Permanent health insurance (PHI)

Being off sick from work can cause significant financial worry for employees, especially if they have exceeded their entitlement to sick pay. However, permanent health insurance (PHI) can alleviate this.

What is PHI?

PHI is an insurance benefit that provides income to employees if they cannot work due to illness or incapacity. When this comes into effect is dependent on the specific scheme.

When operated, employees receive a proportion of their basic salary for a set time as outlined in the PHI policy. Some PHI policies provide additional services, such as an Employee Assistance Programme.

PHI is an agreement between the employer and the insurance company rather than between the employee and the insurance company.

Contractual versus non-contractual schemes

Contractual schemes tend to be included in an employee’s employment contract, outlining that the individual is entitled to participate. Full details of the scheme are set out in a separate policy.

Employers may also offer PHI on a discretionary basis, which may not be included in an employment contract.

PHI and other employment rights

An employee in receipt of PHI may find that it impacts other employment rights, such as:

• Holiday pay;
• Notice pay;
• Pensions auto-enrolment;
• Data protection;
• Changes to salary;
• TUPE.

Employers should familiarise themselves with how this may affect their employees receiving remuneration through the scheme.

PHI and retirement

As there is no longer a default retirement age, the Equality Act 2010 has provided an exception stating that an employer who ceases access to PHI for employees aged 65 or state pension age (whichever is greater) will not be committing age discrimination.

However, an employer who ceases access to PHI for employees below age 65 or state pension age (whichever is greater) may be discriminating on grounds of age. In this case, an employee could bring a claim before an Employment Tribunal.

Termination of an employee receiving PHI

Typically, a condition of eligibility for PHI is that an employee must remain employed while in receipt, but it is not unusual for an employee receiving PHI to be dismissed by reason of capability due to ill health.

However, an employee may be able to successfully bring a breach of contract claim if they are dismissed due to ill-health and their employment contract does not clearly state that their employer is entitled to do so if they receive PHI.

The use of settlement agreements in PHI cases

An insurance company may seek to end a PHI entitlement by offering the entitled employee a lump sum. In these circumstances, an employer may combine the lump sum offer with a settlement agreement to terminate the employee’s employment. Signing the settlement agreement would also mean the employee receives the lump sum and, potentially, an ex-gratia payment from the employer in return for the employee waiving their rights to bring an employment claim against them.

Potential Employment Tribunal claims

An employee may bring various claims to an Employment Tribunal concerning PHI, including:

• Wrongful dismissal;
• Unfair dismissal;
• Age discrimination;
• Disability discrimination;
• Discrimination arising from a disability;
• Failure to make reasonable adjustments.

We can assist with queries relating to PHI, including reviewing relevant wording in an employment contract.

Get in touch

Please get in touch with our Employment Litigation team for friendly advice and support. You can contact us on 023 8063 9311 or email enquiries@warnergoodman.co.uk.