For owner-managers, maternity law and the subsequent payments can feel like a financial burden and particularly complex. This article aims to provide a clear explanation of the rights and responsibilities of employers relating to maternity, paternity and shared parental leave. As an employee, it is equally as important to understand your entitlement and responsibilities in ensuring you receive the correct employee benefits.
Reclaiming SMP from HMRC as an employer
As an employer, you can usually reclaim 92% of employees' Statutory Maternity (SMP), Paternity*, Adoption, Parental Bereavement and Shared Parental Pay.
If your business qualifies for Small Employers' Relief (if you paid £45,000 or less in class 1 national insurance) you can reclaim the full amount plus an extra 3%.
*paternity defined as taking time off to look after the child and be one of the following:
- the father
- the husband or partner of the mother (or adopter) – this includes same-sex partners
- the child's adopter
- the intended parent (if you are having a baby through a surrogacy arrangement)
[wording extracted from HMRC website]
How does an employer reclaim SMP?
Employers may be able to claim using their companies' payroll software to calculate the claim- this puts the necessary paperwork for HMRC together in order to process the refund. Not all payroll software has this ability and can be alternatively communicated with HMRC directly. Often SMP can be paid out by HMRC in an advance payment, prior to when the employees' maternity leave commences, so as to limit the financial burden on the employer.
What does SMP entail for an employee?
Employees are entitled to 52 weeks maternity pay. The first 6 weeks are paid at 90% of the employee's average weekly earnings. For the remaining 33 weeks, SMP is a flat rate of £172.48 per week, or 90% of your average weekly earnings; whichever is lower. A further 13 weeks can be taken however it will be unpaid unless your employer specifies otherwise. SMP is paid in the same way as your wages, therefore, both tax and National Insurance (NI) will be deducted.
Some employers offer 'enhanced' or 'contractual' maternity pay. If your employer offers enhanced maternity pay, it is worth familiarising yourself with the terms of the enhanced benefit as each employer differs and full details will be outlined in your employer's maternity or family policies. For instance, you may have to repay some, or all, of the enhanced amount back if you choose to leave the company within a certain time period (typically 12 months) after returning to work. Your employment rights are protected while on SMP, this includes pay rises, accruing holiday, and return to work.
To be eligible for SMP an employee must:
- Earn at least £123 a week on average.
- Have worked for the employer for 26 weeks before the 15th week before their due date (the qualifying week).
You can find out using the Government Calculator how much SMP you should expect to receive.
If an employee is not eligible for SMP via the payroll or employer, they will need to be issued an SMP1 form by their employer in order to claim from the jobcentre.
Employees can choose to either take 1 week or 2 consecutive weeks' paternity leave- this cannot be taken prior to the baby's birth but must be within 56 days of the birth. Statutory paternity pay (SPP) for eligible employees is either £172.48 a week, or 90% of their average weekly earnings (whichever is lower).
We expect paternity leave to change in April 2024 to provide greater flexibility to parents.
Shared Parental Leave
Employees can also choose to take shared parental leave (SPL) and Statutory Shared Parental Pay (ShPP) allowing up to 50 weeks of leave and 37 weeks of pay to be split between parents. Both parents must meet the eligibility criteria from HMRC.
Can I claim SMP if I am self-employed?
If you are self-employed you can still claim Maternity Allowance (MA), just not SMP as you must have a full-time employment contract with a company that deducts National Insurance and pays you through PAYE.
You are entitled to MA once you have completed 26 weeks of self-employment in the 66 weeks before your baby is due and is paid at a standard rate of £172.48 (provided you pay Class 2 NI contributions). The MA claim is made through Jobcentre Plus who verify your eligibility with HMRC. Eligibility is based on National Insurance (NI) contributions.
What are an employee's rights whilst on maternity leave?
- If an employee only takes ordinary maternity leave (the first 26 weeks), then they are entitled to return to the same job role.
- If an employee takes additional maternity leave (the following 26 weeks) – after they have taken ordinary maternity leave – then they are entitled to return to their job on the same terms and conditions, however, if there has been a significant change within the organisation, then the employer could offer the employee a similar job role. This cannot be on lesser terms such as pay.
- Annual leave entitlement is still accrued as 'normal' whilst an employee is on maternity leave.
- 10 Keeping in Touch (KIT) days may be worked during SMP without an employee losing that week's maternity pay. If more than 10 KIT days are worked, then by law SMP will automatically end.
- Under discrimination law, an employee cannot be made redundant just because they are pregnant or on maternity leave.
- The employer must determine how the pension contributions should be handled while the employee is on maternity leave if the employee is part of a group personal pension plan.
- Alabaster (named after a ruling from the European Court of Justice brought to the court by Mrs. Alabaster): If a pay increase is awarded to the employee between the start of the eight-week set period for calculating average weekly earnings for SMP, and the end of the statutory maternity leave, then the Alabaster ruling applies and the average weekly earnings for SMP must be recalculated based on this increase. An Alabaster payment may be due based on this recalculation however, if an employee received enhanced contractual maternity pay a payment may not be due, if the employee still received more (than would have been due following the recalculation). The employer can still choose to make the Alabaster adjustment payment though.
It is important that both employees and employers understand and adopt the appropriate policies and procedures when arranging maternity leave. The hope is to make the process of arranging and managing maternity leave as simple as possible, to enable the lead up to your employee's new arrival as stress free and exciting as possible. The key to this is often clear and timely communication on the side of both employee and employer. If you would like further advice on any of the topics discussed in this article, contact our specialist Payroll Team using the form below.
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.