Maternity and Pay Rises
The National Living Wage (NLW) became compulsory for employees aged 25 and above, at a new minimum rate of £7.20. Not to be confused with the voluntary Living Wage (LW) set by the Living Wage Foundation with a £9.40 London Rate and £8.25 elsewhere which has attracted over 2,000 accredited employers since 2011. ‘Almost two million workers are expected to have their pay topped up… for those currently on the minimum wage, it will mean a pay rise of over 10 per cent’.
One of the side effects of applying any pay rise is the potential impact on rights to maternity pay – Statutory Maternity Pay (SMP) and Maternity Allowance (MA). Following the European Court of Justice decision in the case of Alabaster, the Statutory Maternity Pay (General) regulation 1986 were amended from 6 April 2005, and as a result the Average Weekly Earnings (AWE) calculation must take into account any rise awarded, or which would have been awarded, to an employee had she not been on maternity leave. This may effect employers who have applied the high Living Wage rates across their employees and will impact all employers with relevant employee on maternity leave who have had to raise their payment to employees as a result of the National Living Wage (NLW). Have you considered the implications and reviewed your maternity leave payments and made top-ups of SMP?
In the case NLW rises in April, this could require recalculation of SMP back to April 2015 (and AWE back to November 2014). There may be employees already paid or in payment of SMP that are entitled to a higher amount. Others who originally had no SMP entitlement but now, with this pay rise, do have an entitlement. Some may have qualified for Maternity Allowance.
The law requires that a pay rise must not be withheld because of maternity leave. Employers are required to recalculate the Average Weekly Earnings (AWE) to take account the rise being affective from anytime from the start of the 8-week relevant period and the end of maternity leave. She must also benefit from a pay rise even if she doesn’t intent to return to work. Even a pay rise after termination of employment which is backdated into a time when they were working for you, or on maternity leave may be entitled to benefit. If more than one pay rise is awarded during the relevant period, then the employer will need to perform a separate top-up calculation for each time rise.
Employers are required to:
- Recalculate the AWE to include the pay rise as though it was effective from the beginning of the relevant period
- Pay any extra SMP due
If as a result of the pay rise they would now be entitled to SMP but were not before, then the employer must:
- Work out 90% of the Average Weekly Earnings
- Take away the standard rate of SMP
- Pay the difference for the 6 weeks
If 90% is less than the standard SMP rate, then the employer may not need to pay anything. Some employees will have been entitled to receive Maternity Allowance (MA) from the Jobcentre Plus (for the Northern Ireland the Jobs and Benefits office). Not all women are entitled to receive MA, or the amount they do receive may be less than the SMP they are now entitled to. Therefore the employer must ask them to get a letter from the Jobcentre Plus (GB) or Jobs and Benefits office (NI) showing how much MA she received.
On receipt of the letter the employer must:
- Work out the total amount of SMP
- Tax away the MA paid
- Take away any SMP already paid
- Pay the difference
Recalculation of SMP amounts may become an annual activity for some employers as the National Living Wage increases each year to hit its higher hourly rate target.
So if you have applied any pay rise due to the raising of minimum wage or for other reasons and you have employees on Maternity Leave, receiving or have received SMP or not, and are yet to return to work etc, then you will need to review each case:
- Recalculate the Average Weekly Earnings
- Top-up or pay SMP as required by the revised calculation