Chris'I, it covers any part of the holiday, so if you had a 10 day holiday and were sick for 3 you could claim for those 3 without a note from "mum".
To be honest, how many of your employees actually take the maximum amount of statutory paid sick leave? Most people are honest enough in that respect, why would you assume that people would suddenly lie because they were sick on holiday? My employees generally have 0-3 days off a year each due to sickness, I guess if they reclaimed holiday due to sickness I wouldn't mind too much as I know they don't take the ****.