My VIP Tax Team question of the week: The effect of pay rises on Statutory Maternity Pay

We have just given pay rises across our workforce, one of my employees has been on maternity leave for a few months, is her statutory maternity pay affected at all?

A. Statutory Maternity Pay (SMP) for eligible employees can be paid for up to 39 weeks. SMP is paid as follows:

  • the first 6 weeks is calculated at 90% of the employee’s Average Weekly Earnings (AWE)
  • the remaining 33 weeks is paid at the statutory rate for SMP which is currently £184.03 per week or 90% of their AWE, whichever is the lower amount.

The AWE calculation for SMP uses the earnings paid in what is known as the ‘relevant period’. The relevant period is the eight weeks prior to the Qualifying Week (QW). The QW is the 15th week before the baby due date that is shown on a form MATB1 that an individual receives from their doctor or midwife after the 20th week of their pregnancy.

A decision from the European Court of Justice in 2004 on the case of ‘Alabaster v Barclays Bank (Woolwich plc)’ resulted in an amendment to the SMP regulations in 2005.

This decision meant that an employee who is on maternity leave and who is awarded a pay increase between the start of their relevant period and the end of their statutory maternity leave is entitled to have their SMP calculated as though at the time of the relevant period, the employee was earning their new salary.

The amended legislation can be found in regulation 21(7) of The Statutory Maternity Pay (General) Regulations 1986 (SI 1986/1960).

The recalculation of SMP will affect the original SMP amount in one of two ways, either

  • the new calculation would only affect the first 6 weeks of an employee’s maternity pay if an employee’s AWE exceeds the SMP statutory rate, or
  • the new calculation would affect an employee’s maternity pay for the full 39 weeks if an employee’s AWE is less than the SMP statutory rate.

HMRC guidance on how a pay increase can affect an SMP calculation can be found at SMP: employee earnings affected by a pay rise.

If an employee is on statutory maternity leave, receives a pay increase and is not receiving SMP then the original calculations to determine whether an employee is entitled to SMP or not must be re-visited to determine if this is still the case after taking the pay increase into account. HMRC guidance on this and backdated claims can be found at SPM172200.

The same rules for recalculation of statutory pay when an employee is off on statutory family leave and receives a pay increase also apply to other types of statutory family leave such as Statutory Adoption Pay.

See HMRC guidance at SPM172100 for further detail.

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Payroll Adviser
0844 892 2470


Sue is a Payroll Adviser on the tax consultancy advice lines. Sue has over 20 years of payroll experience gained both from working in a payroll bureau for a chartered accountants and more recently as a payroll manager for a large retail company.

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