Statutory maternity pay (SMP) can be tricky to calculate, for example where an employee’s pay increases during her maternity leave. We set out five top tips for employers struggling with SMP calculations.
1. Consider if employee is eligible for SMP
Calculating statutory maternity pay (SMP)
Maternity leave and pay policy
Before spending time on the maths, the employer will need to assess first whether or not the employee is eligible for SMP.
The employer will need to know when the baby is due, the employee’s length of continuous service and the employee’s average weekly earnings.
- How does an employer determine an employee’s right to statutory maternity pay?
- Which individuals are excluded from the right to claim statutory maternity pay?
- Task: Work out an employee’s period of continuous service
- Does an employee still qualify for statutory maternity pay if she leaves her employment?
- Letter responding to an employee who has notified her intention to take maternity leave
2. Recalculate SMP if employee receives a pay rise
If the employee receives a pay rise at any point during her maternity leave, this will require a recalculation of her SMP and the employer must backdate the increase in SMP to the start of the employee’s maternity leave.
A pay rise may also mean that an employee who was not eligible for SMP before may now be eligible on account of the increase to her weekly earnings.
- Where an annual pay rise coincides with an employee’s maternity leave will this affect her maternity pay?
- Practical guidance on dealing with a pay rise that coincides with an employee’s pregnancy or maternity leave
- Effect of pay rise on statutory maternity pay worked examples
- Letter informing an employee that her statutory maternity pay has been recalculated
3. Take into account allowances
When calculating an employee’s average weekly earnings, the employer must take into account all earnings including allowances, such as car allowances or travel allowances.
- What is included in an employee’s “normal weekly earnings” for the purposes of calculating statutory maternity pay?
- Should allowances such as travel allowances and car allowances be used in the calculation of statutory maternity pay?
- If an employee is in receipt of sick pay during the period for the calculation of statutory maternity pay, is her maternity pay calculated on her actual pay or the pay that she would normally have received?
4. Consider the effect of salary-sacrifice schemes
Where the employer operates a childcare voucher scheme based on salary sacrifice, this could affect the calculation of the employee’s SMP, causing the employee to receive less SMP or no SMP at all.
The Employment Appeal Tribunal has recently held in Peninsula Business Services Ltd v Donaldson that there is no requirement to offer childcare vouchers given through a salary-sacrifice scheme during an employee’s maternity leave.
- Practical guidance on dealing with maternity pay, salary sacrifice and childcare vouchers
- How is statutory maternity pay calculated when there is a salary-sacrifice arrangement in place?
5. Retain records and recover SMP
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Employers are required to keep records containing prescribed information relating to each employee’s SMP for three years after the end of the tax year in which the maternity pay period ends.
The majority of employers can reclaim a large proportion of the SMP that they have paid out from the Government. Records relating to SMP that the employer retains will be used to support such claims.
- What records relating to statutory maternity pay must an employer keep?
- How much of the statutory maternity pay that it has paid out can an employer recover?
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