An employee who receives sick pay is taxed on it. It is treated the same as other taxable compensation, which means it is taxable for income tax purposes and subject to FICA.
Employers who give sick pay to an employee can deduct the payment. Again, it is merely another form of taxable compensation.
Deferred compensation plan set up by a state or local government, or tax-exempt organization, which allows tax-free deferrals of salary.