Statutory Maternity Leave – who is entitled and how does this affect payroll and pensions?
The UK’s Statutory Maternity Pay policy has been under fire from the TUC recently, saying the UK underpays maternity leavers in terms of weekly pay, but if you look at the SMP package as a whole, the UK offers much more than most other countries in Europe, and far in excess of the EU directive.
So what do we offer in terms of SMP?
In terms of leave entitlement, eligible employees can take up to 52 weeks’ maternity leave. The first 26 weeks of this leave is known as ‘Ordinary Maternity Leave’, the last 26 weeks as ‘Additional Maternity Leave’. The earliest that leave can be taken is 11 weeks before the expected week of childbirth, unless the baby is born early, and employees must take at least 2 weeks after the birth (or 4 weeks if they’re a factory worker).
Then in terms of pay, SMP for eligible employees can be paid for up to 39 weeks. For the first 6 weeks pay is based upon 90% of their average weekly earnings (AWE) before tax, and the remaining 33 weeks is paid at £140.98 per week, or 90% of their AWE (whichever is lower). To calculate AWE, you need to take an average of the employee’s gross earnings over a period of eight weeks up to and including the last payday before the end of the employee’s qualifying week. The qualifying week is the 15th week before the week the baby is due.
Tax and National Insurance need to be deducted from their pay as usual. As a small employer, you can claim back 103% of the maternity pay, or as a large employer who pays more than £45,000 a year in Class 1 NI, you can claim back 92% of the SMP paid.
Not everyone is eligible for SMP – there are some qualifying criteria. Your employee must have been on the payroll in the 15th week before the expected week of childbirth, they must have given you the correct notice and have worked for you continuously for at least 26 weeks up to the first day in the qualifying 15thweek. Finally, they must earn at least £113 a week in the 8 week period over which AWE are calculated.
In terms of notice, an employee must tell their employer that they are expecting a baby at least 15 weeks before the baby is due. The employee should also confirm what date they want their maternity leave to start – this can be moved but the employee should give 28 days notice before leave starts. The employer should then confirm their Statutory Maternity Leave start and end dates and the SMP due, in writing, within 28 days of notice being given. Employees can change their return to work date if they give 8 weeks’ notice.
If the employee isn’t eligible for SMP, then you must give them a Form SMP1 and explain why they are not eligible.
SMP and pension contributions can be a tricky one because your payroll software might not work out the correct employer pension contributions, so you might need to over-ride the software! Under employment law, an employer should continue to pay the same employer contributions that they were paying prior to employee going on maternity leave, so contributions must continue at their current level, even though the employee’s income has dropped, but the employee will pay contributions based upon the SMP she’s actually receiving, so her actual income.
However, once SMP stops after 39 weeks and the employee is not receiving any pay at all, both employee and employer contributions can stop (although they don’t have to). The employee will remain an active member of the pension scheme, however, because contributions are just suspended. Once the employee returns to work and pay recommences, pension contributions will start once again.
If you currently run your own payroll in house, or if you’re an accountant or book-keeper who would like to outsource your payrolls to a professional payroll and pensions bureau so that you can focus on your core business, then we would love to help.