UK: Dismissing An Employee & Maternity Leave: What Employers Need To Know About Statutory Maternity Pay

Last Updated: 22 November 2016
Article by Connie Cliff

Employees on maternity leave are not exempt from being dismissed or selected for redundancy in a genuine redundancy situation where there is no suitable alternative vacancy.

Once the dismissal takes effect, the maternity leave period automatically comes to an end. However, employers should be aware that the right to receive statutory maternity pay (SMP) survives termination of the contract. Provided the employee fulfils the conditions for payment of SMP, she will be entitled to receive SMP regardless of her departure for any reason, including resignation, misconduct and redundancy.

While the vast majority of SMP can be reclaimed by employers through the tax system, two recent tax tribunal cases highlight why employers need to bear in mind SMP entitlement when negotiating exit packages for pregnant employees and those on maternity leave.

Our employment and equalities experts consider the SMP tricky issues, including 'bonus babies', 'offsetting' and agreeing exit packages.


Entitlement to SMP

A pregnant employee with:

  • 26 weeks' continuous service into the 15th week before the expected week of childbirth (EWC);
  • average weekly earnings above the lower earnings level (currently £112 per week);
  • is still pregnant (or recently given birth) 11 weeks before the EWC

is entitled to SMP payable for 39 weeks.

Calculating SMP

SMP is paid

  • for six weeks at 90 per cent of her average weekly earnings (with no upper limit); followed by
  • 33 weeks at a flat rate currently £139.58 or 90 per cent of her average weekly earnings if that is less than the flat rate.

To calculate the average weekly earnings, the relevant period is the eight weeks before the qualifying week being the 15th week before the EWC.

To calculate the average weekly earnings, employers must take account of (non-exhaustive list):

  1. wages or salary;
  2. overtime;
  3. holiday pay; and
  4. commission, including any unusual payments such as an annual bonus.

paid in the relevant eight week period. Some payments are excluded from the calculation such as pension contributions and payments under share incentive schemes.

If the employee is eligible for a pay rise between the start of the relevant 8 week period and the end of her statutory maternity leave (SML), the SMP must be recalculated as if the pay rise had taken place at the beginning of the relevant period.

Employer reimbursement level

Employers can usually reclaim 92% of the SMP they pay by deducting it from their next payment of NI contributions, PAYE and other payments to the Inland Revenue. Employers who qualify for Small Employers' Relief can reclaim 103%.

Offsetting SMP

Many employers operate enhanced contractual maternity pay schemes. A contractual obligation to pay enhanced maternity pay for the same week in which SMP is due is offset by any SMP received, i.e. SMP is not payable in addition to contractual payment. SMP can also be offset against other contractual remuneration such as contractual notice pay and enhanced contractual redundancy pay (but not against statutory redundancy pay). 

The offset rule only applies on a week-by-week basis. For example, it would be unlawful for an employer to pay enhanced contractual maternity pay for the first 26 weeks of the pay period and then pay nothing for the remaining 13 weeks of the SMP period, even if the amount paid for the first 26 weeks exceeds the total amount of SMP due for the full 39 weeks.


Dismissal before maternity leave begins

A pregnant employee dismissed before she has begun maternity leave will still be entitled to receive SMP provided she meets the qualifying conditions.

The SMP pay period will start on the earlier of the following dates:

  • the Sunday of the 11th week before the baby is due; or
  • the day after the baby is born.

If she leaves her employment after the start of the 11th week, then the pay period starts the day following the day on which she left her employment.

Where the employer terminates the employee's employment before she qualifies for SMP and the employee can show that the sole or principal reason for dismissal was to avoid liability for SMP, the employer will still have to pay her SMP if she has been employed by the employer continuously for at least eight weeks.

Special cases

In the sad circumstances of a stillbirth special rules apply. A woman who suffers a stillbirth occurring after 24 weeks' pregnancy remains entitled to SML and SMP. However, if a woman's pregnancy results in a miscarriage or stillbirth before the end of the 24th week of pregnancy she will not be entitled to SML or SMP. If the child survives only for a very brief time this constitutes a live birth. In such a case, the birth would attract SML and SMP entitlement even if the child was born (and died) before 24 weeks of pregnancy.

For the purposes of SML and SMP, it is the birth mother who is regarded as the child's mother. Provided they meet the qualifying conditions, surrogate mothers and those who give their child up for adoption are entitled to SML and SMP regardless of whether or not they continue to have contact with the child following birth.

Bonus Babies

The inclusion of annual bonus payments for the purposes of calculating "average weekly earnings" can have a significant effect on the amount of SMP an employee receives during the first six weeks of maternity leave.

The relevant regulations define 'earnings' as including "any remuneration or profit derived from a woman's employment".

The recent case of Campus Living Villages UK Ltd v HMRC and Sexton, provides a useful illustration.

The relevant dates as regards Ms Sexton were:

  • employed since 1 July 2010;
  • £44,077 annual bonus under employer's discretionary scheme received 15 October 2014;
  • EWC 28 January 2015 (baby born 5 February);
  • dismissed as redundant on 26 December 2014

The employer argued the October bonus payment should not be taken into account in calculating the first six weeks of SMP (90% of average weekly earnings). The employer also argued that the bonus payment related to the previous year and so could not be part of Ms Sexton's 'normal weekly earnings'.

The First Tier Tax Tribunal rejected the employer's arguments and held:

  • the October bonus payment clearly fell within the relevant period' - being eight weeks ending with the 15th week before the EWC of 28 January.
  • 'earnings' include any remuneration or profit derived from a woman's employment. Irregular or one-off payments including bonuses therefore count as earnings. Ms Sexton's contractual right to participate in the employer's bonus scheme 'derived from her employment'.
  • there is no requirement that the pay in the relevant period must be 'normal' in the sense of the usual amount. The regulations make it clear that all payments, whether usual or not, are included in the earnings for the purpose of the calculation.

PILON clauses and offsetting

Can SMP be offset against a payment in lieu of notice (PILON) on termination of employment?  If contractual - yes.

In Ladiverova v (1) HMRC (2) Chokdee, the First Tier Tax Tribunal confirmed that a PILON payment made pursuant to a term in the contract of employment constitutes contractual remuneration. As such, it should be set off against the employer's liability to pay SMP.

In this case, the employee was not entitled to payments of SMP in addition to the contractual PILON payments already received in respect of the weeks to which the PILON related. However, the employer was not entitled to offset the total contractual PILON paid against the total SMP due as offset only applies on a week-by-week basis - in this case £2,807.64 of the £3,068.80 PILON paid could be offset.

The decision is limited to the treatment of a contractual PILON payment. Whether or not a non-contractual PILON is subject to a similar offset will have to be decided in a future case. It is certainly arguable that a non-contractual PILON amounts to 'damages' for breach of contract and not 'contractual remuneration'; which can be offset.

Exit agreements and SMP

Can SMP be included in a settlement agreement? No.

In the Sexton case, Ms Sexton brought employment tribunal claims for unfair dismissal and pregnancy dismissal in relation to her selection for redundancy. Following conciliation by the Advisory, Conciliation and Arbitration Service (ACAS), the claim was settled in February 2015 for the agreed sum of £60,000, with the Settlement Agreement stated that the amount was:

"compensation in full and final settlement of...all and any claims she has or may have relating to her contract of employment...and its termination...Included in this Settlement Payment is a sum of £20,000 as compensation for injury to feelings...For the avoidance of doubt, the settlement in this agreement includes, but is not limited to any claim under [statutes concerned with equality legislation]...The parties believe that the Settlement Payment is not subject to National Insurance".

In August 2015, HM Revenue & Customs (HMRC) issued a decision that Ms Sexton was still entitled to SMP of just over £42,000 (see bonus baby above) from the employer. The employer argued that the additional sum was not payable as SMP had already been taken into account as part of the Settlement Payment. The tax tribunal rejected the employer's arguments:

  1. women who meet the qualifying conditions have an absolute right to the payment of SMP. Under section 164(6) of the Social Security Contributions and Benefits Act 1992, it is not possible for a woman to contract out of that right. Any agreement which purports to exclude the right to SMP is void to that extent.
  2. while the Settlement Payment may have included an element in respect of maternity rights, there was no indication that any part of the payment was in respect of SMP. Also if an element for SMP was included that element would be subject to National Insurance Contributions (NICs) contrary to the wording of the agreement.
  3. while it was unfortunate that the ACAS officer did not advise correctly in relation to the impact of the agreement on SMP, ACAS is independent of HMRC and ACAS's acts or omissions could not affect HMRC's correct application of the law.

Practical implications

As most employers can reclaim 92% of the SMP they pay by deducting it from their next payment of NI contributions, PAYE and other payments to the Inland Revenue, why should employers be concerned?

  • 8 per cent of SMP may still amount to a sizable sum where a large annual bonus payment must be factored in the SMP calculation.
    In the Sexton case, the employer clearly believed that in offering £60,000, this would extinguish its SMP liability as well as injury to feelings and unfair dismissal compensation. By not appreciating the effect the October bonus payment had on SMP, the employer vastly underestimated the SMP payable.
  • SMP liability cannot be negotiated and settled under a Settlement Agreement, even under the auspices of ACAS (COT3).
    In the Sexton case, designating a portion of the settlement payment as 39 weeks of SMP in the settlement agreement would not have prevented the full amount of SMP being payable - a lower SMP payment could not be agreed . However, the employer would have at least been able to offset the allocated sum from the total SMP payable. It no doubt would have influenced its bargaining positon and sums offered in settlement of the other aspects of the claim.
  • Understand the offset rules and tax implications. SMP can only be offset against contractual remuneration on a week-by-week basis. Where a qualifying employee is dismissed during the SMP pay period, it would be unusual for a contractual notice period to extend to 39 weeks. PILON payments can only be offset if contractual. Failure to operate SMP correctly could result in a penalty charge by HMRC of up to £3,000. Settling a matter under the auspices of ACAS is not a get out of jail free card as far as HMRC is concerned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions