Pay rises and maternity pay

The European Court of Justice (ECJ) has recently decided that if a woman receives a pay rise before the end of her maternity leave, this must be reflected in her earnings-related maternity pay. This article looks at what employers should do in response to the Alabaster decision.

Alabaster brought a successful tribunal complaint, arguing that her employer had failed to reflect her salary increase in her statutory maternity pay (SMP), which took effect after the deadline for the reference period used to calculate SMP had passed. She argued this amounted to sex discrimination, and the case was referred to the ECJ, which ruled in her favour (see last week’s Case round-up for more information).

Q Do employers have to do anything now?

A Yes, as the decision was based on the European Treaty, private and public-sector employers are obliged to comply now, regardless of when the Government takes steps to amend the maternity rules.

Q What is earnings-related maternity pay?

A Maternity pay depends on the employee’s earnings. For most, earnings-related statutory maternity pay (SMP) will be paid during the first six weeks of maternity leave (calculated at the rate of 90 per cent of average pay received over an eight-week ‘reference period’). Employees who earn less than the current lower rate of SMP can receive earnings-related SMP for up to 26 weeks.

Q How will the new rules work?

A This is not yet clear. No guidance has yet been issued by the Department of Work and Pensions following the Alabaster decision, and the ECJ made it clear that the mechanics should be left to the Court of Appeal. Pending clarification, employers should take a practical approach. If a pay rise takes effect between the start of the reference period used for calculating earnings-related maternity pay and the end of the period during which earnings-related maternity pay is received, it would be sensible to award the pay rise with effect from the date the rise applies to other staff.

Q Does this decision affect company maternity pay as well as statutory maternity pay?

A Yes, if the company maternity pay is earnings-related.

Q Who will pay for this?

A Even large employers currently recoup 92 per cent of SMP through the national insurance system. It seems likely that, going forward, employers will be able to recover the extra SMP as well.

Q What about staff who have already taken maternity leave?

A Whether claims will be successful will depend on the relevant time limits. The limits are not yet clear because the ECJ was not asked this in Alabaster. The Court of Appeal will now need to decide whether Alabaster’s claim was made in time. It is unlikely (though theoretically possible) that claims will be successful if they relate to maternity pay due more than six years ago.

Q Can employers avoid the Alabaster decision by delaying a woman’s pay review until she returns to work?

A This is not recommended. Women who are pregnant or on maternity leave should have their pay reviewed in the usual way, and any pay rise should be awarded at the usual time. If staff are offered the chance to attend a formal appraisal meeting, this should also be offered to pregnant women and those on maternity leave. If women are disadvantaged just because of their maternity leave or pregnancy, this may lead to claims of sex discrimination.

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