July 15th, 2015  

At the time of writing, the BBC have recently reported that according to latest office figures, the UK’s population has increased by nearly half a million last year (http://www.bbc.co.uk/news/uk-33266792). Just over half of the growth was accounted for by natural change i.e. there were 212,100 more births than deaths. That’s a lot of maternity leave!

And that led me to wonder how many SME employees are familiar with the legislation around awarding pay awards during maternity leave and in particular the implications of the now ten year old judgement in Alabaster v The Woolwich plc………Simply put, this case established that a pay rise can not be withheld when an employee is on maternity leave.

What I suspect is that many employers may not fully appreciate the full implications of the Alabaster judgement. Namely that any pay rise awarded (or that would have been awarded had the employee not been on maternity leave) must be applied to the Average Weekly Earnings used to calculate both the employees entitlement to statutory maternity pay (SMP) and to calculate the 6 week entitlement to SMP at 90%. This requirement applies if the pay rise is effected at any time between the start of the 8 week relevant period¹ for SMP and the end of the statutory maternity leave.

Consider the following illustration:

Ms Chocolate-Box employment contract states that annual pay reviews will be carried out on 1^st April each year. Her salary is £20,000, she has worked for the firm a year and so she is eligible for full SMP. She starts her maternity leave on the 4th April 2014 and takes the full year entitlement and so she returns to work on the 3^rd April 2015.

On the 1^st April 2014, Ms Chocolate-Box was awarded a pay increase of 5% and as required, her employer ensured that this increase was factored into the AWE calculation (this is based on earnings in the 8 weeks immediately preceding her “qualifying week” ²). As a result, the first 6 weeks of SMP included this 5% pay award.

On the 1^st April 2015, further pay awards were awarded across the firm and Ms Chocolate-Box received a 3% pay increase. The ruling in Alabaster v The Woolwich plc 2005 means that as this second pay increase has been awarded during Ms Chocolate-Box’s maternity leave, the employer is required to also factor this increase into the AWE calculation and pay the additional SMP for the first 6 weeks to the employee.

The good news is that this additional pay is SMP and so is unlikely to represent a significant cost to the employer as most of the cost will be reclaimed when paying HMRC.

If you’d like assistance with your payroll or any other of your accounting functions, please get in touch. I’ll be happy to help.

¹ For babies born before or during the qualifying week, the 8 week relevant period is the period between the last normal payday on or before the Saturday of the week the baby is born, and the day after the last normal payday falling at least 8 weeks before.

The start of the relevant period is the day after the last normal payday falling at least 8 weeks before the end of the relevant period. The end of the relevant period is the last normal payday on, or before the Saturday of the QW.

^{2 The qualifying week is the 15th week before the week in which the baby is due.}