Maternity Pay Increased!

There is now a new way to increase your partners Statutory Maternity Pay (SMP) if she’s an employee of your company, how?

Current Status

At the moment it is possible for you to increase your partners average weekly earnings when they are due to go on maternity leave and thus the SMP payable will also increase by paying a bonus in the relevant period. However, this can now be taken further.

Reference Period

Average weekly earnings are taken from a period known as the reference period which is needed for the calculation of SMP. Usually, this is the eight week period ending on the last payday before the start of the week that is fifteen weeks before the baby is due but this can vary depending on the frequency with which the employee is paid.

Back Dating

Since 1996 any pay rise that is back dated to a time that falls within the so-called reference period had to take into effect when calculating average weekly earnings for SMP purposes, but pay rises that were effective after that reference period were ignored. This has changed.

Recalculate!

Since April 6th 2005 it has been necessary to recalculate average weekly earnings each time a pay rise takes effect from the beginning of the reference period to the end of the maternity leave period as if the pay rise had taken effect from the start of the reference period. This basically means that where average weekly earnings rise as a result of the recalculation, the employer must pay any additional SMP due. (Statutory Maternity Pay (General (Amendment) Regs 2005).

If the recalculation means that the employee is now entitled to SMP that she wasn’t previously then the employer must work out 90% of the new average weekly earning, deduct the standard rate of SMP from this (it is assumed the woman has been receiving maternity allowance) and pay the difference as additional SMP.

Advice
Backdating a pay rise to just before the end of the maternity leave period, or timing the maternity leave to end just after the annual pay award is worthwhile. The employee will get more SMP at little or no cost to the employer.

Remember to claim back the additional SMP through your monthly PAYE figures. A small employer (total annual NI bill is below £45,000) can recover all SMP paid and a handling supplement of 4.5%. Employers who are over the threshold can still recover 92% of any SMP paid.