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.

Events from this Firm
22 Nov 2017, Seminar, Montreal, Canada

Please join us on Wednesday, Nov. 22 for a breakfast seminar featuring a panel of experts who are abreast of the most recent developments in the field. Also featured will be Paul Allard, president of Impak Finance, who launched the first cryptocurrency offering under the traditional financial regulatory framework.

29 Nov 2017, Seminar, London, UK

Join us at 4 More London for this breakfast seminar on Wednesday, 29 November 2017 to gain a greater understanding on this debate. Coffee and breakfast will be from 08:30 with the discussion commencing at 09:00. We will finish and have you on your way by 10:00.

7 Dec 2017, Seminar, London, UK

Would you like the opportunity to hear more about the potential disruptive effect that blockchain is going to have in the energy sector? If so, please join us on 7 December where Jo-Jo Hubbard, a leading light in this area, will explain all.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.