Background to Maternity Leave and Statutory Maternity Pay
All female employees, regardless of their length of service, are entitled to three elements of Maternity Leave:
- Ordinary Maternity Leave which lasts for 26 weeks;
- Additional Maternity Leave which lasts for 26 weeks from the end of Ordinary Maternity Leave; and
- Compulsory Maternity Leave, which must be taken for two weeks commencing on the date of birth even if the employee does not take Ordinary Maternity Leave or Additional Maternity Leave.
Statutory Maternity Pay is paid at a rate of 90% of the employee’s salary for six weeks and then at a statutory rate (currently £117.81 per week) for up to a further 39 weeks. If Additional Maternity Leave is taken, no Statutory Maternity Pay is paid for the final 13 weeks.
Employers can pay over and above the Statutory Maternity Pay level but Statutory Maternity Pay is the minimum amount that must be paid. Statutory Maternity Pay is not pay for salary sacrifice purposes.
Summary of changes
Following a recent judicial review, it has been clarified that when a female employee goes on maternity leave the employer must continue to provide all non-cash benefits (such as childcare vouchers) during the whole period of maternity leave.
Amendments made in the 5 October 2008 to the Sex Discrimination Act (SDA) have extended the period during which employees on maternity leave may continue to benefit from contractual non-cash benefits during statutory maternity leave. (There is no change to the position for sums payable as wages or salary or pension contributions.)
What does this mean…
Pre 5 October 2008, employees must continue to receive all their contractual benefits other than cash remuneration during Ordinary Maternity Leave (OML) for the first 26 weeks. These may be described as contractual non-cash benefits.
As a result of the amendments on the 5 October 2008 employees must now continue to receive all their contractual non-cash benefits during Additional Maternity Leave (AML) after the first 26 weeks (a total of 52 weeks). Employees who are denied this entitlement will be able to bring a claim of sex discrimination against the employer.
These changes to rules for contractual non-cash benefits during AML will apply to all women where the week their baby is due is on or after 5 October 2008 – regardless of when their baby is actually born. These rules changes apply in both Great Britain and Northern Ireland.
Therefore the effect of the change to the Regulation is no more than an extension to the period during which contractual non-cash benefits must be provided.
Consequences of the changes for employers
Unless the employer pays occupational maternity pay, the costs incurred providing the childcare vouchers cannot be recouped through salary sacrifice, which is likely to result in increased costs for the employer.
This potentially covers all female employees who currently participate in a childcare voucher arrangement.
The likelihood is that only current childcare voucher arrangement participants who go on maternity leave for a second or later child will be affected - first time mothers are unlikely to have participated, unless they care for another child, e.g. an adoptee.
Employers are recommended to identify which employees could be affected in order to assess impact on business and to ensure plans are put into place to ensure benefits continue.
Options available for the employer
1. The employer bears the costs of continuing to provide childcare vouchers.
The changes are employment law driven and legal advice should be sought before any option is considered. As childcare vouchers of £55 per week are free of tax/NIC, even if the vouchers are still provided, no tax/NIC will be due. As HM Revenue and Customs accept pregnancy as a salary sacrifice lifestyle-changing event, pausing, extending or terminating the salary sacrifice agreement should not result in a tax/NIC charge arising.
This option is a continuation of the pre 5 Oct 08 legislation where by benefits are provided up to 12 months instead of 6 months during maternity leave.
2. The employee voluntarily agrees to suspend or even cease participation in the childcare voucher arrangement.
This must be a genuine agreement between employee and employer, ideally with independent legal advice, and confirmed in writing to prevent any sex discrimination claims that the employee could make.
There will be no tax/National Insurance Contribution (NIC) consequences as pregnancy qualifies as a ‘lifestyle changing event’ which allow changes to be made to salary sacrifice based arrangements under certain circumstances;
3. The employer seeks to recoup the childcare voucher costs by extending the salary sacrifice period.
Whilst there will be no adverse tax/NIC consequences under this option, legal advice must be sought before the salary sacrifice period is extended to prevent claims by the employee for unauthorised deductions from wages or sex discrimination.
For More detailed advice on contractual non-cash benefits during statutory maternity leave contact the ACAC helpline on 08457 47 47 47.
Frequently Asked Questions
Q1. Can the employer re-coup non-cash benefit (childcare vouchers) from an employee once she returns to work if she has not had sufficient funds to pay for the benefit?
A. No. If an employee is only in receipt of basic rate Statutory Maternity Pay an employer has to continue to provide childcare vouchers and treat that internally as a write off if they so chose.
However as far as the employee is concerned this is not a debt as following the judicial review the employer has a legal duty to continue providing non-cash benefits, in this case childcare vouchers.
If an employer tried to recover that 'debt' from the employee then employers are placing themselves at risk of a sex discrimination claim, as in employment law terms no debt exists.
Q2. If the employer pays for childcare vouchers whilst the employee is on Additional Maternity Pay leave and then the employee does not return to work or upon return to work the conditions of the members employment are changed, can the employer request for the money back in any type of arrangement as a result of the change in the employees contract.
A. The employer has a duty to provide childcare vouchers and the fact that the employee may leave does not impact on that duty, a change of terms and conditions would also not change this view. In both cases employers are advised to seek employment lawyers for this if further clarity is required.
Q3. For employers who allow childcare voucher selections over £243 a month or £55 a week, what amount do they need to continue to provide to the employee.
A. The company would be required to provide the same non-cash benefit (i.e. childcare vouchers) under the revised rules. So for example if the employee was having £1000/month of CCV before going onto Statutory Maternity Pay the company would need to provide £1000/month thereafter.
Q4. Does the change in Statutory Maternity Pay legislation affect all other salary sacrifice (non cash) benefits or just childcare vouchers? For example Company car, Cycle to Work, health screening, life assurance, pension etc.
A. Yes the change applies to any non-cash benefit the employee was in receipt of prior to going on Statutory Maternity Pay. Perhaps the most common is a company car that is also available for private use. Pensions are not normally considered to be a non-cash benefit in this instance. Employer will not be required to continue paying employer contributions into a pension fund (whether provided via salary sacrifice or not), however you should seek advice from the pension provider or an employment lawyer.
Got a question or point of view on this topic? Please email choose@youatwork.co.uk
Note: The information provided by You at Work for your reference is guidance notes to assist you in your understanding of the amendments in legislation, this is not advice or instruction form action and you should consult your local tax inspector or lawyers for full assessment of amendment in legislation to the business.