The National Minimum Wage and National Living Wage rates increase for pay periods commencing 1st April 2022.
HMRC, as part of the February 2022 Employer Bulletin are reminding employers of the obligations for any pay rise that falls into the maternity leave period (from the start of the earnings averaging period and through to the end of the maternity leave), of the obligations to recalculate the average earnings used for SMP. This principle is often referred to as Alabaster.
The HMRC state:
Impact of the change to National Minimum Wage on Statutory Maternity Pay
Statutory Maternity Pay
Since 6th April 2005 it has been necessary for employers to re-calculate a woman’s entitlement to Statutory Maternity Pay (SMP) if a woman is awarded a pay rise (or would have been awarded a pay rise had she not been on maternity leave) which takes effect at any time between the start of the period used to calculate her SMP and the end of her maternity leave. The earnings-related part (which is 6 weeks for most women but for some will be 26 weeks) must go up to take account of that pay rise.
SMP must also be re-calculated to reflect pay rises taking effect before the start of the relevant period but where the earnings used in the calculation had not at the time of the calculation been adjusted to reflect that pay rise.
If such a recalculation results in SMP entitlement for the first time, then the employer will only be liable to pay SMP to the extent that any sum exceeds Maternity Allowance paid by the Department for Work and Pensions.
Many employers may not understand the implication of the Alabaster ruling and how any pay rise (whether contractual or statutory related), impact maternity pay rights.
April 2022 sees a significant rise in minimum wage rates, this is likely to affect the SMP entitlements of many individuals who may now qualify for SMP where they previously didn’t, and a need to provide an SMP top-up payment.
Any top-up payment made will qualify for the SMP reclaim and compensation (if applicable).