04 June 2024

Admittedly it’s not most payroll professionals favourite subject, but at least it’s easier to calculate than holiday pay.

The Alabaster ruling is something that employers need to be aware of when employees are on maternity leave and have been awarded a pay increase anytime between the start of the eight-week ‘relevant period’ for calculating statutory maternity pay (SMP) and the end of the woman’s statutory maternity leave.

The CIPP’s advisory service receive regular questions around this ruling and what pay needs to be taken into consideration.

If an employee has been awarded a pay increase, but they’re on maternity leave. You’ll need to recalculate the employees SMP, considering the pay increase, and pay the difference in SMP.

Now you may be thinking, ‘the pay increase is from now; let’s say 1 July, but my employee went on maternity leave in April, surely this doesn’t apply?’ But it does, you will need to recalculate the SMP but base the eight-week calculation on the new rate of pay the employee is entitled to, as if they were in receipt of the increased pay in the eight-week relevant period.

The difference between the SMP already paid, and the new rate of SMP will need to be paid to the employee. In most cases, it will only be the difference between the rates during the first six weeks which need to be paid. It will not affect an employee’s payment if they have received full occupational maternity pay (OMP), unless the first six weeks of SMP is higher than the OMP amount. 

If an employee was not entitled to SMP at the time of going on maternity leave, the recalculation will still need to be carried out. The situation may arise that the employee may now be eligible for SMP. In this case SMP should be paid minus the amount of maternity allowance they received.

The Alabaster ruling only impacts the rate of SMP the employee receives, it doesn’t therefore impact anything like their pension contributions or salary sacrifice arrangements.

Remember, for a salary sacrifice arrangement to be successful, the money must be foregone before it is due, therefore you cannot amend a salary sacrifice deduction in the instance on Alabaster, which is a retrospective calculation / entitlement. This means Alabaster focuses solely on the rate of SMP an employee is due. 

Useful links for calculating SMP:

The full Alabaster article (including examples) by Policy and Advisory lead, Samantha O’Sullivan is available in the July/August edition of Professional magazine

Information provided in this news article may be subject to change. Please make note of the date of publication to ensure that you are viewing up to date information.