Under the provisions of Schedule 5 of the Social Security Act 1989, employment-related benefit schemes, including occupational pension schemes, must comply with the principle of equal treatment on the grounds of the sex of the scheme members. Employees currently protected are
women taking ordinary maternity leave and receiving SMP
women taking additional maternity leave and receiving contractual maternity pay
employees taking "family leave", including paternity and adoption leave, for which the employer has made contractual, but not statutory, payments to the employee.
The rules require employers to treat, for pension purposes, women taking paid maternity leave and employees taking family leave and receiving contractual payments as if they were in full employment and receiving their normal pay.
The effect of the rules is that
employers' contributions to the occupational pension scheme must be calculated as if the employee were working normally under the contract during the period of paid leave and receiving normal pay
if the employee is required to make contributions under the scheme, they must be based only on the statutory and contractual payments that are paid during the period of paid leave
unless the terms of the pension scheme require otherwise, the employer is not required to make contributions during a period of unpaid leave.
The Pensions Bill, currently before Parliament, has been amended to extend these rules to employees who are on paternity or adoption leave and receiving only SPP or SAP in order to bring them into line with those that apply to SMP. As a result, where employees are on paid paternity or adoption leave, the employer will pay contributions as if the employee were working normally and receiving the normal pay for doing so.
These new provisions will take effect at a time to be announced, subsequent to the Pensions Bill receiving Royal Assent.
The standard rate of SMP, SPP and SAP has increased from £;100 to £;102.80 from the first payment period starting on or after 4 April 2004. However, it does not follow that, where payments span the end of the last tax year and the start of the new tax year, an employee receiving £;100 per week before 4 April should receive £;102.80 after that date.
In the case of SMP, the rate at which payment is made is
for the first 6 weeks, 90% of average earnings, even if that is lower than £;102.80
for the remaining 20 weeks, the lower of (1) £;102.80, and (2) 90% of average earnings.
The 90% rule applies both before and after the increase in the standard rate to £;102.80. If a woman is receiving £;100 before 4 April, it should not be increased automatically to £;102.80. A check must be made to see if the 90% rule gives a lower figure.
Example 1
If a woman's average earnings are £;200 and her maternity pay period starts on Sunday, 18 January 2004, she would receive
6 weeks @ £;180 (i.e. 90% of £;200), followed by
5 weeks @ £;100 (i.e. up to 4 April 2004), followed by
15 weeks @ £;102.80 (from 4 April 2004).
Example 2
If a woman's average earnings are £;113 and her maternity pay period starts on Sunday, 18 January 2004, she would receive
6 weeks @ £;101.70 (i.e. 90% of £;113), followed by
5 weeks @ £;100 (i.e. up to 4 April 2004), followed by
15 weeks @ £;101.70 (from 4 April 2004).
A similar situation arises with Statutory Paternity Pay and Statutory Adoption Pay.
The Inland Revenue has confirmed this situation and has made the following comment:
"This change has caused a lot of confusion because this is the first time since 1986 that the standard rate is not a specific figure in every case. Problems may crop up again next April because employers who may have paid SMP in the past but aren't paying it this April will come across it for the first time next year. We intend to put an explanation and examples in the April 2005 version of the E15 Employer's Help Book Pay and time off work for parents to help employers to more easily understand how to calculate the new standard rate."
Mrs. Alabaster was an employee of Woolwich plc between December 1987 and August 1996. On Monday, 8 January 1996, she commenced maternity leave in advance of her expected week of confinement starting Sunday, 11 February 1996. Under the rules for maternity leave and statutory maternity pay (SMP) at the time, she was entitled to be paid for 6 weeks at 90% of her average earnings, followed by 12 weeks at a lower fixed rate. In fact, under her contractual provisions, she received 10 weeks maternity pay at the higher rate and a further 8 weeks at the lower rate.
The "qualifying week" in which Mrs. Alabaster's entitlement to SMP was determined was the week commencing Sunday, 29 October 1995. As a result, the rate of SMP that she was paid for the first 10 weeks of her maternity leave was calculated as 90% of the average of her earnings in the statutory reference period, i.e. September and October 1995.
Before starting her maternity leave, Mrs. Alabaster received a pay rise. It was effective from 1 December 1995. As her SMP was based on her earnings prior to the pay rise, it was not taken into consideration in the calculation of 90% of average earnings.
On 12 June 1996, the Government changed the SMP legislation, following a decision by the European Court of Justice (ECJ) in the case of Gillespie -v- Northern Health and Social Services Board. The change required the 90% higher rate payment to be recalculated where a woman receives a pay award that takes effect retrospectively on a date that is during or before the reference period used to calculate the average earnings. That did not affect Mrs. Alabaster's higher rate payment as her pay rise took affect after October 1995.
Nevertheless, in January 1997, Mrs. Alabaster brought a complaint against her employer before an Employment Tribunal, arguing that "her pregnancy and her consequent absence from work on maternity leave was the only reason for her not receiving the direct benefit of the pay increase during that period; and that failure to reflect the pay increase in her maternity pay constituted 'automatic' unlawful discrimination on the ground of sex in the context of equal pay (then Article 119 of the EC Treaty)". In other words, maternity pay, both statutory and contractual, are paid in lieu of wages and it is therefore discriminatory not to increase those wages if she would have received the increase had been at work instead of taking maternity leave.
Both the Employment Tribunal, in March 1999, and the Employment Appeal Tribunal, in April 2000, found in favour of Mrs. Alabaster and against the Woolwich and against the Secretary of State for Social Security, who had by that time been joined in the proceedings.
The Woolwich and the Secretary of State appealed further, and the Court of Appeal took the view that resolution of the dispute depended on interpretation of European law and referred a number of specific questions to the ECJ for a preliminary ruling. There were three key questions about the effect of a pay rise on maternity pay in the situation where that pay rise takes effect after the reference period used for calculating average earnings and before the end of maternity leave:
Is Article 119 of the Treaty and the judgment in Gillespie to be interpreted as meaning that the woman is entitled to have that pay rise taken into consideration in calculating or re-calculating the earnings-related element of her SMP?
Is the answer to Question 1 affected by whether the effective date of the pay rise commences: (i) prior to the beginning of the woman's maternity leave, (ii) prior to the ending of the period of the earnings-related period of her SMP, or (iii) on some other date and, if so, on what date?
If the answer to Question 1 is in the affirmative,
how should the calculation or re-calculation of the normal weekly earnings in the relevant period take into account the pay rise?
should the relevant period be changed?
what allowance, if any, should be made for other factors occurring within the period to which the pay rise relates such as the numbers of hours worked, and the reason for the pay increase?
does it follow that, if there is a reduction in pay after the end of the relevant period but before the end of the woman's period of maternity leave, her SMP should be calculated or re-calculated to take account of the reduction of pay, and if so, how is this to be done?
The decision of the ECJ was given on 30 March 2004. The Court confirmed the finding in the Gillespie case, that
'the principle of non-discrimination requires that a woman who is still linked to her employer by a contract of employment or by an employment relationship during maternity leave must, like any other worker, benefit from any pay rise, even if back-dated, which is awarded between the beginning of the period covered by reference pay and the end of maternity leave. To deny such an increase to a woman on maternity leave would discriminate against her since, had she not been pregnant, she would have received the pay rise.'
In providing answers to the first two of the three specific questions, the ECJ stated:
'In the light of the foregoing, the reply to the first and second questions must be that Article 119 of the Treaty must be interpreted as requiring that, in so far as the pay received by the worker during her maternity leave is determined, at least in part, on the basis of the pay she earned before her maternity leave began, any pay rise awarded between the beginning of the period covered by the reference pay and the end of the maternity leave must be included in the elements of pay taken into account in calculating the amount of such pay. This requirement is not limited to cases where the pay rise is back-dated to the period covered by the reference pay.'
However, the court declined to answer the various parts of the third question on the grounds that the manner of implementing the European Directive is not the subject of Community law but is the responsibility of each Member State. In addition, the question about the effect of a reduction of pay is hypothetical and therefore inadmissible. The courts decision was that
'In the light of the foregoing considerations, the reply to the third question must be that, absent any Community legislation in this sphere, it is for the competent national authorities to determine how, in compliance with all the provisions of Community law, and in particular Directive 92/85, any pay rise awarded before or during maternity leave must be included in the elements of pay used to calculate the pay due to a worker during maternity leave.'
Implications for employers
The ECJ has made it clear that the decision in the Gillespie case has not been correctly applied in the UK's maternity legislation. The situation of a pay rise taking effect in or before the reference period has been built into the legislation. However, the Gillespie decision was that it does not matter when a pay rise is awarded - if it is effective at any time before or during paid maternity leave, the maternity pay must reflect the increase.
The decision creates considerable difficulty for the Government. As pointed out by the ECJ, the Government can make its own decisions as to how to implement the Gillespie decision, perhaps by amending the current provisions, or by introducing a completely new method of determining the earnings-related maternity payments. It appears, however, that the changes to maternity leave and pay introduced in April 2003 have made the situation worse.
The current maternity leave and maternity pay provisions were put in place in April 2003 and the changes from that date were intended to simplify the procedures for employers. It is a very convenient and practical provision of the current maternity legislation that a woman's full entitlements to maternity leave and maternity pay are determined in the qualifying week. Both employer and employee know precisely the period of leave and the rate of maternity pay. It is a very tidy arrangement.
The ruling of the ECJ throws everything into disarray. Any pay rise that occurs before the end of the period of paid maternity leave that would have occurred if the woman had been at work must be taken into consideration when determining a woman's earnings-related maternity pay. There is nothing in the ECJ ruling that suggests that a woman should receive the benefit of a pay rise earlier than she would otherwise have done had been at work, even if it is backdated.
Prior to April 2003, only the first six weeks of SMP were earnings-related; the remaining 12 weeks were paid at a fixed rate. Under the new provisions, the SMP for the whole of the 26-week maternity pay period is defined in terms of average earnings, i.e.
the SMP for the first 6 weeks is paid at 90% of average earnings, even if that is less than £;102.80,
the SMP for the remaining 20 weeks is paid at the lower of (1) £;102.80, and (2) 90% of average earnings.
The implications for SMP differ according to whether a pay rise takes effect between
the qualifying week and the end of the 6th week of the maternity pay period, or
the 7th and 26th weeks of the maternity pay period.
A pay rise that is effective before the end of the 6th week will always mean a recalculation of the SMP due for some or all of the first 6 weeks. It may also mean a recalculation of the SMP due for the remaining 20 weeks.
If a pay rise takes effect after the first 6 weeks, this will not necessarily cause an increase in the rate of SMP. Although the SMP for 20 weeks is defined in terms of average earnings, the fixed rate of £;102.80 applies in all cases where the woman's average earnings are more than £;114.22 per week. In that situation, a pay rise occurring after the first 6 weeks would not result in a higher payment. But, if 90% of the woman's average earnings is less than £;102.80, a pay rise at any time after the 6th week would mean a recalculation of the SMP payments.
The existing application of the Gillespie ruling, i.e. only to take into consideration pay rises that take effect in or before the reference period, affects relatively few women receiving SMP. However, the ECJ ruling properly applies to pay rises that occur during a period of almost a year, i.e. the 8 or so weeks of the reference period, the 15 or so weeks up to the birth of the baby, and up to 26 weeks of paid maternity leave. Almost all women taking maternity leave would likely have had a pay rise if they had been at work and will, as a result, be affected by the full application of Gillespie.
Although the ECJ declined to comment on how a reduction in pay should be handled, the Government will have to address that problem - and a variety of other situations that could have affected the woman's earnings if she had been at work, such as the effect of a reduction in her hours of work, or changes in pay structures, or the payment of bonuses. These are difficult situations to accommodate within the existing arrangement of calculating average earnings within a reference period. It may be necessary to make more radical changes.
Another issue that was not addressed directly by the ECJ was the effect of the Gillespie ruling on contractual maternity pay. Most contractual maternity pay schemes tops up the statutory rate to 90% or 100% of average earnings for more than 6 weeks. If, in the event of a pay rise, it is discriminatory not to increase earnings-related statutory maternity pay, is it not also discriminatory not to increase earnings-related contractual maternity pay?
The affect of the ECJ ruling has the potential to cause a complete overhaul of the way in which payments of both statutory and occupational maternity pay are calculated.
Three technical changes are being paid to the paternity and adoption pay regulations from 6 April 2004:
One of the conditions for entitlement to paternity pay in respect of adoption, is that the employee is married to or the partner of a child's adopter or, in a case where there are two adopters, married to or the partner of the other adopter. The term "partner" means a person (whether of a different sex or the same sex) who lives with the adopter and the child in an enduring family relationship but is not a relative of the adopter.
The definition of "relative" was omitted from the original Regulations. The amendment defines specific relatives who are not to be regarded as the partner of the employer, namely the adopter's parent, grandparent, sister, brother, aunt or uncle. The definition matches that specified for paternity pay in respect of a birth.
In the case of an adoption from overseas, where the provisions relating to "matching" and "placement" do not apply, an employee may qualify for paternity pay in respect of adoption, or for adoption leave, if the employee has 26 weeks' continuous employment ending with the week in which official notification of approval to adopt is received. A further exception allows the employee to qualify by virtue of employment partly before and partly after receipt of the notification of approval.
The amendment to these rules removes both of these conditions. Although the employee must still subsequently have 26 week's continuous employment with the employer with whom the employee is to receive the paternity pay or adoption pay, the employee may be working for another employer or even be unemployed at the time that notification of approval is received.
Also in the case of an adoption from overseas, the "relevant week" for the condition that the normal weekly earnings must be at least the lower earnings limit is changed to the later of (1) the week in which official notification of approval to adopt is sent, and (2) the week in which the person completes the qualifying employment condition.
Similarly, the "appropriate date" for calculating average earnings is the later of (1) the first day of the week following the week in which the official notification is received, and (2) the first day of the week following the week in which the qualifying employment requirement is met.
Two technical changes are being paid to the adoption leave regulations from 6 April 2004:
Notice to take ordinary adoption leave must be given within 7 days after the matching date. The employer may ask the employee to provide evidence in the form of documents from the adoption agency of
the name and address of the agency,
the name and date of birth of the child,
the date on which the employee was notified that he had been matched with the child, and
the date on which the agency expects to place the child with the employee.
The requirement to provide evidence of the "name and date of birth of the child" has been removed from this list. This change brings the adoption leave regulations into line with the statutory adoption pay regulations.
When an employee returns from adoption leave, the employee is entitled to return "on terms and conditions as to remuneration not less favourable than those which would have been applied to him if he had not been absent". The restriction "as to remuneration" has been deleted. As a result, all terms and conditions, not just those relating to remuneration, are to be not less favourable than those which would have applied if the employee had not been absent.
The Inland Revenue has warned employers that the three helpbooks for SSP, SMP, SPP and SAP contain an error that could affect the entitlement of a small number of employees to these benefits. The error is identical in all three E14, E15 and E16 books where, for the purpose of establishing an employee's entitlement based on average earnings, a "quick check" is recommended to see if the lower earnings limit is reached. For monthly-paid employees, the booklets give a comparison figure of £;343. This appears to be correct as it is the stated monthly LEL for 2004/05.
However, in the helpbooks, the Inland Revenue states that the monthly comparison figure should be £;342. This seeming anomaly also appeared in last year's books and, as the time, we queried why the figure quoted was £;1 less than the monthly LEL. The explanation that we received is reproduced below, but updated to use the 2004/05 figures.
"There is a different approach to rounding the monthly lower earnings limit and the level an employee must earn each month so that, when their monthly earnings are converted into average weekly earnings, they earn above the weekly lower earnings limit. Therefore, these figures will not be the same.
If someone always earns £;342 a calendar month, then their average weekly earnings are £;78.92308 (calculated as £;342 x 12 / 52). Because you never round up average weekly earnings, this is below £;79 and therefore the person doesn't qualify. If someone always earns £;343 a calendar month, then their average earnings are £;79.15385 (calculated as £;343 x 12 / 52). This is more than £;79 so the person qualifies.
The exact level of the least amount of calendar monthly earnings an employee must earn to satisfy the earnings test is £;342.34. Therefore it would not be accurate to say that, if the employee earns less than £;343, they don't qualify. This is only meant to be a quick check for employers, hence rounding down to £;342."
If employers use the £;343 figure quoted in the helpbooks, the effect could be that a small number of employees do not receive SSP, SMP, SPP or SAP because the employer thinks that their average earnings are too low. However, where a computerised system is used, entitlement is calculated exactly and there not be a problem.
As announced in our summary of changes at the time of the Pre-Budget Statement, the NICs threshold under the Small Employer's Relief scheme will increase from £;40,000 to £;45,000 from 6 April 2004.
The regulations that define who is or is not a "small employer" for the purpose of reclaiming SMP under the SER scheme are to be found in The Statutory Maternity Pay (Compensation of Employers) and Miscellaneous Amendment Regulations 1994. "Small employers" are entitled to recover 104½% of their SMP payments rather than just 92%. The scheme applies to SMP, SPP and SAP.
An employer is only a "small employer" in respect of the payments of SMP, SPP or SAP made to a particular employee for the payment period. There is a "qualifying day" for this purpose, namely the first day, the Sunday, of the employee's qualifying week or matching week, as relevant. To qualify as a small employer, the employer must, under the current rules, have paid no more than £;40,000 in primary and secondary Class 1 NICs, after deducting any NIC rebates, during the "qualifying tax year", i.e. the tax year that precedes the tax year in which the "qualifying day" falls.
Examples
The qualifying day for a baby due on 25 June 2003 is 9 March 2003. As that falls in the 2002/03 tax year, the qualifying tax year is 2001/02.
The qualifying day for a baby due on 3 March 2004 is 16 November 2003. That falls in the 2003/04 tax year, so the qualifying tax year is 2002/03.
The qualifying day for a baby due on 20 July 2004 is 4 April 2004. As that falls in the 2003/04 tax year, the qualifying tax year is 2002/03.
The qualifying day for a baby due on 27 July 2004, a week later than example 3, is 11 April 2004. That falls in the 2004/05 tax year, so the qualifying tax year is 2003/04.
From 6 April 2004, an employer is a "small employer" under the SER scheme if the total Class 1 NICs paid in the "qualifying year" does not exceed £;45,000. In order for employers to benefit immediately from the change, those employers who are making SMP, SPP or SAP payments to an employee that span the end of the 2003/04 tax year and the start of the 2004/05 tax year may review their status and if, in the qualifying year, their total Class 1 NICs did not exceed £;45,000, they will be able to claim the higher repayment for those payments made in the 2004/05 tax year.
Examples
The qualifying day for a baby due on 25 June 2003 is 9 March 2003. As that falls in the 2002/03 tax year, the qualifying tax year is 2001/02. The MPP starts on 25 May 2003 and runs for 26 weeks to 22 November 2003. If the employer's total Class 1 NICs during 2001/02 do not exceed £;40,000, the employer may recover the SMP for the entire MPP at the higher rate.
The qualifying day for a baby due on 3 March 2004 is 16 November 2003. That falls in the 2003/04 tax year, so the qualifying tax year is 2002/03. The MPP starts on 11 January 2004 and runs through to 9 July 2004. The payments therefore span the two tax years. The SMP payments are paid to the woman weekly.
The SER threshold for SMP payments made during 2003/04 is £;40,000. As the employer's Class 1 NICs during the 2002/03 qualifying year came to £;42,000, the SMP payments made before 6 April 2004 did not qualify for the higher rate of recovery. However, in respect of the payments made after the start of the 2004/05 tax year, the employer's Class 1 NICs during the 2002/03 qualifying year fall below the new £;45,000 threshold. As a result, the employer may reclaim SMP payments made in the new tax year at the higher rate.
The qualifying day for a baby due on 20 July 2004 is 4 April 2004. As that falls in the 2003/04 tax year, the qualifying tax year is 2002/03. The MPP fell entirely within the 2004/05 tax year. As long as the employer's Class 1 NICs during 2002/03 did not exceed £;45,000, the employer may reclaim all of the SMP paid during the MPP at the higher rate.
Two years ago, when the NICs threshold was increased from £;20,000 to £;40,000, the same method of implementation was used, allowing employees who qualified to recover the higher percentage for payments made after the start of the new tax year. At the time, however, this was in breach of the Regulations which only allowed "the total amount of statutory maternity pay paid by an employer to an employee during her maternity pay period" to be recovered at the higher rate. A change part way through an MPP was not permitted.
After raising the matter with the Department for Work and Pensions in February 2002, we received confirmation that the Regulations did, in fact, contradict the transitional arrangements but that they would go ahead nevertheless. Since then, the Regulations have been amended and allow any payments made in a particular tax year to be recovered at the higher rate.
...back to 2 January 2004
The Inland Revenue provides an interactive SMP calculator on its secure website. Users have been advised that, although the calculator will give correct dates and entitlements for maternity pay periods starting on or after 5 October 2003, the rate at which SMP will be paid from April 2004 has not yet been announced and the calculator does not, therefore, give correct payments and recoveries.
(Source: www.ir-portal.gov.uk/calculators/smp/smpIndex.jsp )
...back to 10 October 2003
In December 2002, we asked both the DTI and the Inland Revenue to explain why the SC3 and SC4 self-certificates, used by employees when claiming entitlement to paternity leave and SPP, omitted any reference to one of their basic statutory rights. The certificates do not explain the statutory right for employees to specify their choice of date for starting paternity leave in one of three different ways. The self-certificate does not provide the options, and the guidance notes for employees on the certificate makes no mention of the options.
The third box on the SC3 certificate and the fourth box on the SC4 certificate ask employees to indicate the date on which they would like their SPP and paternity leave to start. There is only one single box in which to enter a date.
In the case of paternity leave for a birth, Regulation 5(3) of the Paternity and Adoption Leave Regulations 2002 gives employees three options as to when they may start their leave, i.e.
from the date on which the child is born,
from a number of days after the birth, or
from a predetermined date.
Similar provisions are set out in Regulations 9(3) in the case of paternity leave for adoption.
Identical provisions are defined in the Statutory Paternity Pay and Statutory Adoption Pay (General) Regulations 2002 for the employee's choice of when to start the paternity pay period.
Employees applying to take paternity leave are, therefore, deprived of their statutory right to make this choice. The options are not explained in the notes included on the SC3 and SC4 certificates. The date box on these two forms does not allow an employee to state that he wishes to start his leave from the date of birth, or a number of days after the birth, rather than having to give a specific date 15 weeks before the baby is due.
The DTI has now responded to these issues, as follows:
"As with the matching certificate, the SC3 and SC4 were drawn up to simplify the process for employers and employees. In this case, a single date box was included since it would make the form easier to understand. It is, however, possible for the employee to amend the form if they so wish to suit their own individual circumstances. In fact many employees will no doubt discuss their initial plans with their employer. The form then being completed to reflect the outcome of that discussion, albeit with any necessary amendments.
"The SC3 and SC4 forms are model documents that employers may wish to use but are not mandatory, employees are free to use an alternative form of words if they so wish.
"Guidance on these rights sets out when paternity leave can be taken and how employees should notify their employer. It is, though general guidance only and is not intended to cover every possible scenario nor is it an authoritative statement of the law. Further advice, when necessary, is available for both employers and employees from either the Inland Revenue or Acas."
These comments are not satisfactory. The inclusion of a single date box does not make it easier for the employee; it makes it harder. It would be much simpler to give the employee the option to say that leave will start from the date of birth, and leave it open to make a more precise choice later.
Guidance does not have to cover "every possible scenario", but it should cover basic entitlements. In this case, employees completing an SC3 or SC4 certificate are being denied the opportunity to make a choice that is their statutory right. The fact that further guidance is available to employers and employees from other sources does not help the employee completing the form. Even if employees do read about their options in the DTI's PL517 booklet, how do they enter their choice on the certificate?
The DTI has not ruled out changes to these forms, or to the problems with the matching certificate discussed in the previous article. The final comment in the DTI's response to our questions is as follows:
"These rights are new, and the Government is committed to a review of them in three years time. We are already gathering evidence on how the new laws are actually working, and will continue to do so as an ongoing process. We will keep your comments on record and will consider them when we next review the guidance.",
Employees should not have to wait three years to be given their basic statutory rights. The DTI and Inland Revenue should correct the SC3 and SC4 certificates immediately.
...back to 26 September 2003
Ever since the Paternity and Adoption Leave Regulations 2002 were published at the end of 2002, we have been concerned about the format of the matching certificate. This certificate is issued by an adoption agency when a child is matched for adoption. It does not meet the statutory requirements and its use is open to fraud.
The matching certificate has been produced by the DTI for the use of adoption agencies. Its use is, however, optional and they may use documents of their own design to give adopters the information needed for the purposes of adoption leave and statutory adoption pay (SAP).
Statutory requirements
Regulation 17(3)(b) requires employees, at the employer's request, to provide evidence of being matched for adoption in the form of "one or more documents issued by the adoption agency". The documents must give the name and address of the agency, the name and date of birth of the child, the date on which the employee was notified of being matched with the child, and the expected date of placement.
The DTI's model form (sample at www.dti.gov.uk/er/individual/matchcert.pdf ) does not provide spaces for the adoption agency to give the name and date of birth of the child. By itself, therefore, it does not meet the statutory reporting requirement placed on the adoption agency. When we queried this with the DTI, we were given the following explanation:
"The matching certificate has been drawn up to satisfy the evidence requirements primarily for Statutory Adoption Pay (SAP) but also for adoption leave, as far as possible. As evidence of the name and date of birth of the child are only required for the purposes of leave and then only if the employer requests it, this information was not included on the form. Where the employer requests it, the employee will have to provide this information on a separate document issued by the adoption agency."
The equivalent evidential requirement for SAP purposes is defined in regulation 24 of the Statutory Paternity Pay and Statutory Adoption Pay (General) Regulations 2002. In this case, the employee must provide "one or more documents provided to him by the adoption agency" - not just if the employer asks for it - and no reference is made to the name and date of birth of the child.
Just why the child's name is required for adoption leave purposes is not clear. The child's date of birth is necessary however because the child must be under the age of 18 on the date of placement - and the employer must be satisfied on that point. Nevertheless, the legislation is clear; for adoption leave purposes, the name and date of birth of the child must be provided, on a document issued by the adoption agency, if the employer asks for it. It is interesting to note that the DTI's guidance booklet PL518 on adoption rights (page 22) misses out completely the statutory requirement to provide the child's name and date of birth.
It should also be noted that the DTI's comments, quoted above, places the statutory obligation on the employee, not on the adoption agency, to ensure that the name and date of birth of the child are provided. According to the DTI, if the employer asks for evidence, it is the employee's responsibility to approach the adoption agency for it, not for the adoption agency to provide it in the first place.
Why should the onus be placed on the employee to obtain the details when it would be no additional burden on the adoption agency to enter the details when completing the form? This is the DTI's legislation and they should explain the requirements properly. If the statutory requirement to provide the child's name and date of birth can simply be ignored, what other parts of the legislation can also be ignored? Alternatively, if there is no practical purpose served by providing these details, or if the task of entering a name and a date of birth on a matching certificate is too onerous for the adoption agencies, the requirement should be repealed.
Potential for fraud
A further issue arises with the matching certificate in the context of fraud. Where a couple are adopting a child, one adoptive parent is able to elect to take adoption leave and receive SAP; the other may take paternity leave and receive SPP.
Delegates on the courses that I have conducted on the new adoption rights, and on those conducted by my colleagues, regularly ask what procedures are in place to prevent the adoptive mother and father fraudulently electing to take adoption leave with their respective employers. Although only one matching certificate is issued by the adoption agency and the employer of the adopter who is taking adoption leave should expect to hold the original certificate, the Inland Revenue has already conceded that a photocopy will be needed if the adopter has two jobs.
"For SAP, how does an employer know that their employee's partner is not also claiming entitlement to SAP from another employer? Only one matching certificate is issued per adoption. An employer should be given the original matching certificate. If an employer is given a photocopy they should ask their employee for the original. If the employee has more than one job, the employer will need to accept a photocopy."
However, if an employer can pay SAP with a photocopy of a matching certificate as the evidence, that opens the way for fraud. Our advice to employers is that they should not pay SAP if they are presented with a photocopy; rather they should ask to see the original and make their own photocopy.
The DTI's guidance in booklet PL518 says nothing about preventing abuse. It does, however, suggest that the adopter may elect to take adoption leave by giving the following written declaration to the employer:
"I have provided you with the relevant documentary evidence from the adoption agency as proof of my entitlement to Statutory Adoption Pay. In addition, please accept this letter as my declaration to you that I have elected to receive Statutory Adoption Pay and not Statutory Paternity Pay in respect of this adoption."
However, neither the Revenue's nor the DTI's directions prevent the possibility of fraud. If adoptive parents both wish to take adoption leave, one can present the original certificate to the employer when giving notice for adoption leave and then retain it on some pretext so it can be presented to the partner's employer. They can both make declarations of election.
Although it is not contained in the Regulations, our original expectation was that the matching certificate would also include the statement of election. The adopter would write on the certificate the name of the employer or employers with whom adoption leave is being taken. This completed original document could then be photocopied without the risk of it being used by the adopter's partner.
We made these suggestions to the DTI in May this year and have just received a response.
"The matching certificate was drawn up to be completed by the relevant adoption agency, to satisfy the evidential requirements for Statutory Adoption Pay and adoption leave, as far as possible. It is therefore considered inappropriate and unnecessarily complex for the matching certificate to also include information about the employer and the employee's declaration.
"In drawing up a 'matching certificate' it was our intention to make this process as simple as possible for both employers and employees, reflecting the light touch approach to the new rights, supported by employers and employees throughout the consultation process. Similarly, we worked closely with Department for Health to ensure there would be no significant additional burden on adoption agencies.
"The matching certificate itself is not mandatory. For adoption leave purposes, where the employer requests it, the employee must provide them with specific evidence 'in the form of one or more documents issued by the adoption agency...' (Reg 17 (3) of the Paternity & Adoption Leave Regulations 2002). It follows that this information may be provided in letters from the adoption agency. In this situation it would not be appropriate for the Department to direct the agency as to the specific content of those letters. Employers are expected to accept such documentation at face value.
"Any possible fraudulent use of the matching certificate as detailed in your e-mail would be committed on the part of the employee, not the employer and would be a matter for the Inland Revenue to investigate. An employer who believes they have been given fraudulent information should contact the Inland Revenue employer's helpline for further advice. If they did they would be told that they could refuse to allow the leave and not pay the SAP. They would also be told that their employee had the right to challenge that decision and ask the Inland Revenue to investigate and make a decision about whether the employer was liable to pay SAP or not.
"You may be interested to know that we anticipate there being only about 4000 adoptions per year. So, in reality, many employers will never actually have the experience of an employee taking adoption leave."
We have a number of comments to make about this reply.
The guidance given on what an employer should do if fraud is suspected is useful and matches that already provided by the Inland Revenue in the context of paternity leave and SPP. However, the guidance does not prevent fraud taking place in the first place and our suggestion would achieve this simply and effectively.
Our suggestion for preventing fraud was that the matching certificate should have a separate section for the employee's declaration of election. That would be completed entirely by the employee, not by the adoption agency. The employee would enter the name of the person electing to take adoption leave, and the name or names of that person's employers. Putting this information on the certificate would immediately prevent it being used fraudulently by the adopter's partner, even if a photocopy were used. Yet, the reason given for not doing this is that it would make the matching certificate "unnecessarily complex"
!
It is accepted that use of the DTI's matching certificate is optional and that adoption agencies may use letters if they wish. Although the DTI may not wish to direct the "specific" content of such alternative documents, the agencies must still provide the information that is required by law.
The provision of an optional "model" certificate for adoption agencies is similar in concept to the "model" letter provided for employers to acknowledge notification of adoption leave. (Sample at www.dti.gov.uk/er/individual/adoptmodel.doc ) However, rather than limiting this model letter to the only piece of statutory information that the employer must provide, namely the date on which adoption leave will end, the letter also contains extensive - and very practical - information about other aspects of the employee's adoption leave and SAP.
The DTI's approach to these model documents is inconsistent. Additional non-statutory information can be added to the employers' model document to make it more useful, but adding a short section to the adoption agencies' model document in order to prevent fraud makes it "unnecessarily complex".
...back to 26 September 2003
Guidance on statutory maternity pay (SMP), statutory paternity pay (SPP) and statutory adoption pay (SAP) is provided in the Inland Revenue's E15 and E16 booklets, and their more recent supplements. We have been critical over the lack of comprehensive information given in the supplements, when compared with the former CA29 Maternity Pay Manual. See Newsletter on 13 June 2003.
A number of questions that are not covered adequately in the supplement booklets have now been answered on the Inland Revenue website.
(1) What should employers do if they have good reason for believing that their employee has given them a false declaration of entitlement to SPP?
The E15 and E16 booklets, on page 11, state that the employee's response to the declaration of family commitment on the self-certificate should be "accepted at face value". The instruction now is that employers should contact their local Inland Revenue office for advice. The Inland Revenue will investigate and may prosecute the employee if that is appropriate. Employers can consider taking disciplinary action against an employee making a false declaration.
This instruction does not properly answer the question. In the answer given by the Inland Revenue to our own question on this subject (see Newsletter of 13 June 2003), employers are advised to talk to the Employer's Helpline, where they would be told that "they could refuse to accept the declaration and to not pay the SPP and refuse to allow leave. They would also be told that their employee had the right to challenge that decision and ask the Inland Revenue to investigate and make a decision about whether the employer was liable to pay SPP or not."
(2) If a woman works for the employer during the first six weeks of the maternity pay period, does she lose a week of SMP at the higher rate or at the standard rate?
We also asked this question earlier in the year and the Revenue's response at that time (see Newsletter of 6 June 2003) was that the guidance had been omitted by mistake. The answer is that, if the week lost is one of the first six weeks of the MPP, she loses a week at the lower, standard rate of SMP. This means that she would have to work for more than 20 weeks of the MPP before any of her entitlement at the higher rate for the first six weeks would be lost.
(3) How much SPP should be paid by an employer who also pays occupational paternity pay?
Many employers were already providing some paid paternity leave before the new statutory entitlement was introduced. Statutory and occupational payments offset each other, but what should be paid where the contractual and statutory entitlements differ from each other? The guidance given on page 25 of the E15 supplement and page 27 of the E16 supplement applies, contrary to what it states, to SMP and SAP but not to SPP. The new guidance for SPP is as follows.
If the contractual paternity leave is for a period that is equal to or less than the one or two weeks of statutory leave, but the contractual payment is equal to or more than the SPP, the payment must be at least the contractual pay.
Example: An employee is taking one week of paternity leave for which the SPP is £;100. The contractual entitlement is to three days leave at full pay, for which £;200 is due. The employer must pay £;200, which is considered to include the £;100 of SPP. The appropriate proportion of the £;100 may be reclaimed from payments to the Collector.
If the contractual paternity leave is for a period that is equal to or less than the one or two weeks of statutory leave, and the contractual payment is less than the SPP, the payment must be at least the SPP.
Example: An employee is taking two weeks of paternity leave for which the SPP is £;200. The contractual entitlement is to one week's leave at half pay, for which £;150 is due. The employer must pay £;200, which is considered to include the £;150 of contractual pay. The appropriate proportion of the £;200 may be reclaimed from payments to the Collector.
(4) Finally, there are corrections to the wording of the procedures set out in the supplements to help employers determine whether or not they are "small" employers for the purpose of recovering SMP, SPP and SMP.
In the E15 booklet, page 28, the wording at step 6 should be
"Work out the number of tax months between the start of the tax year you identified at 3, or the first tax month for which you were liable for Class 1 NICs, and the tax month you identified at 4, inclusive"
In the E16 booklet, page 29, the wording at step 5 should be
"Add together your liability for Class 1 NICs between the start of the tax year you identified at 3, or the first tax month for which you were liable for Class 1 NICs, and the tax month you identified at 4, inclusive"
(Source: www.inlandrevenue.gov.uk/employers/stoppress.htm )
...back to 12 September 2003
The new rights to paid adoption leave and paternity leave for an adoption come into full force from 6 April 2003. As originally defined, the legislation for the leave and pay provisions apply only to adoptions in the UK. The Regulations setting out the provisions in the case of adoptions from abroad have now been finalised and also take effect from 6 April 2003.
The different arrangements that apply for adoption and paternity leave, and for SAP and SPP, are as follows:
In addition to the qualifying service requirement, entitlement to leave and pay also depends on the adopter receiving an "official notification". This is a written notification, issued by or on behalf of the "relevant domestic authority", that the authority is prepared to issue a certificate to the overseas authority concerned with the adoption of the child, or has issued and sent it, confirming that the adopter is eligible to adopt and has been assessed and approved as being a suitable adoptive parent.
The "relevant domestic authority" is
the National Assembly for Wales, for adopters habitually resident in Wales
the Scottish Ministers, for adopters habitually resident in Scotland
the Secretary of State for Health, in all other cases.
Adoptions may be from Convention, Designated or Non-designated countries:
"Convention" countries are those that have ratified the Hague Convention. The Convention ensures that intercountry adoptions take place in the best interests of the child and with respect for the child's rights, without any profit being made from the process, and securing the recognition of adoption orders between Convention countries. Orders made in those countries will be automatically recognised in the UK provided that at least one of the adopters is a UK citizen. The UK is expected to ratify the Convention on 1 June 2003.
"Designated" countries - adoptions made in these countries are recognised under UK law, so there is no need to adopt once the child enters Great Britain.
"Non-designated countries - adoptions made in these countries are not recognised under UK law, so the adoptive parents must adopt once the child enters Great Britain.
The new rights apply where the adopter receives official notification on or after 6 April 2003, or where official notification is received before 6 April 2003 but the child arrives in Great Britain after that date.
Adoption leave may start from the date the child enters Great Britain, or from a fixed date that is not later than 28 days after the date of entry. Leave may not, therefore, be used for travelling overseas to arrange the adoption or visit the child.
Paternity leave may start from the date the child enters Great Britain, or from a chosen date after the date of entry. Leave must be completed within 56 days after the date of entry.
As there could be a year or more between an adopter receiving official notification and the child entering Great Britain, employees who leave the job they had when they received official notification may qualify for leave and pay with their new employer if they have at least 26-weeks' employment with that new employer before the child enters Great Britain.
The notification rules mirror those for adoption/paternity leave and pay but the employee must provide the date on which official notification was received and the date the child is expected to enter Great Britain instead of the matching date and the expected date of placement. In the case of adoption leave, the employer must also confirm in writing the date on which adoption leave will end.
Evidence for SAP is a copy of the official notification, a declaration that the employee is not also claiming SPP, and copies of plane tickets or entry documents for the child. Evidence for SPP is a self-certificate, similar to the SC4.
(Source: The Employment Rights Act 1996 (Application of Section 80B to Adoption from Overseas) Regulations 2003, The Paternity and Adoption Leave (Adoption from Overseas) Regulations 2003, The Social Security Contributions And Benefits Act 1992 (Application of Parts 12ZA and 12ZB to Adoptions from Overseas) Regulations 2003, and The Statutory Paternity Pay (Adoption) and Statutory Adoption Pay (Adoption from Overseas) Regulations 2003. DTI guidance at www.dti.gov.uk/er/overseas.pdf )
...back to 4 April 2003
The DTI's range of guidance booklets on employment rights has been extended to include PL518 Adoptive parents, rights to leave and pay when a child is placed for adoption within the UK. This is a detailed guide covering both adoption leave and statutory adoption pay (SAP) and paternity leave and statutory paternity pay (SPP) in the event of adoption.
A form of wording is now included that may be used to satisfy the statutory requirement for an adoptive parent to make a declaration of having elected to receive SAP and not SPP. Although the legislation states that the declaration must be made in writing, the DTI's booklet states that the declaration may be made verbally or in writing. If it is made in writing, the DTI suggests the following wording in a document provided by the employee:
Dear [insert name of employer],
I have provided you with the relevant documentary evidence from the adoption agency as proof of my entitlement to Statutory Adoption Pay. In addition, please accept this letter as my declaration to you that I have elected to receive Statutory Adoption Pay and not Statutory Paternity Pay in respect of this adoption.
The DTI's booklet PL958 Maternity rights: a guide for employers and employees has been revised to explain the new maternity rights that are available to women who are expecting a baby on or after 6 April 2003. Revision 8 of the booklet is available at www.dti.gov.uk/er/individual/matrights-pl958.pdf. The previous version of the booklet, which describes the rules that apply up to April 2003, is still available at www.dti.gov.uk/er/individual/maternity.pdf.
Samples of the model documents that will be used to administer the new maternity, paternity and adoption rights are also available on the DTI's website, at www.dti.gov.uk/er/individual/workparents_response.htm. They include
the SC3 and SC4 self-certificates that employees will use to provide evidence of entitlement to paternity leave and pay
the matching certificate, issued by adoption agencies, that will provide evidence of entitlement to adoption leave and pay
model letters for employers to use to meet their statutory notification obligations under the new maternity and adoption leave rules.
The latest version of the Inland Revenue's invaluable SMP calculator now includes the effect of the new rules that apply in full from 6 April 2003. It is available for use at www.ir-portal.gov.uk/calculators/smp/SMPintro.htm .
The site asks visitors not to use the calculator if a baby is born more than 15 weeks early as there are currently errors in those calculations. However, another notable error is that, after entering the woman's chosen maternity leave date, that date is retained throughout the calculations, even if the baby is born early or if the woman has to start her leave because she is absent from work with a pregnancy-related illness. As a result, the summary pages show different dates for the start of maternity leave and the start of the maternity pay period when, in fact, they should be the same date in these situations. This inaccuracy has been drawn to the Revenue's attention.
Payroll Briefing 14 - 21 January 2003
We reported in Issue 5 of Payroll Briefing that the SMP Calculator that appeared on the Revenue's website in July contained a number of errors. Some were based on quite fundamental misunderstandings of the SMP Regulations. Despite being informed of the problems, two specific errors have still not been corrected, i.e. those involving the calculation of
continuous employment of women who leave their employment in the qualifying week, and
average earnings for women whose payday falls on a Saturday.
Following a further enquiry, the Revenue's press office issued the following statement:
"In answer to your query, I have, as I had said previously, asked for appropriate amendments to be made to the calculator and it has been agreed that they will be done asap. However, at the time of the original e-mail, work had already begun on next year's calculator, to take account of the major, and minor, changes from 6 April 2003. The development and production of the new calculator has taken precedence over relatively minor amendments to the existing calculator. A part of that development includes ensuring that the points raised by you are fully taken on board and that they work as they should.
"It is recognised that, until the outstanding minor amendments are completed, it is possible for a user to get an incorrect answer. However, as I have said previously, it is felt that the risk of this actually happening is very small. If any problems were caused to users due to the amendments not yet having been done, then obviously our response would depend on the individual circumstances of each particular case."
On 26 February 2002, the Court of Appeal referred a case about the recalculation of average earnings for SMP purposes to the European Court of Justice (ECJ) for their opinion on a number of important issues. The case, Alabaster v. Woolwich plc, has been working its way through the courts since early 1997. By the time it reached the Court of Appeal, the Government had also become a respondent. Mrs. Alabaster received higher rate SMP during the first six weeks of her maternity pay period, properly calculated as 90% of her average earnings in the eight-week relevant period. She subsequently received a pay award that was backdated to a date that was later than the eight-week relevant period. If the award had been backdated to a date before or during the eight-week relevant period, the employer would have had to recalculate her higher rate SMP and pay her the extra. Nevertheless, Mrs. Alabaster made a claim to an employment tribunal that, among other things, the employer had made an unlawful deduction from her SMP by not increasing it as a result of the backdated pay award.
Mrs. Alabaster's argument is "that her pregnancy and her consequent absence from work on maternity leave was the only reason for her not receiving the direct benefit of the pay increase during that period; and that failure to reflect the pay increase in her maternity pay constituted "automatic" unlawful discrimination on the ground of sex in the context of equal pay". In other words, SMP (and other contractual earnings-related maternity payments) are paid in lieu of wages and it is therefore discriminatory not to increase those wages if she would have received the increase had she been at work and not on maternity leave.
She further argues that the 1996 decision by the ECJ in the case of Gillespie v Northern Health and Social Services Board, has not been fully brought into UK law. It was the Gillespie case that prompted the change to the SMP rules that requires higher rate SMP payments to be recalculated where a woman receives a backdated pay award. (Full instructions for these recalculations are provided on pages 23 to 26 of the CA29 SMP Manual.)
One of the Government's counter-arguments is that to apply pay increases that occur after the reference period would create serious practical problems. If SMP and other occupational maternity payments must take pay rises into consideration, what about reductions in pay, or reductions in hours of work, or changes in pay structures, or the payment of bonuses? It might be necessary to make radical changes to the concept of the "reference period" and the way in which average earnings are calculated.
The Court of Appeal has referred these key issues to the ECJ for direction. The ECJ's responses will be critical as, potentially, they could lead to a complete overhaul of the way in which payments of SMP and occupational maternity pay are calculated. Payroll Briefing 5 - 28 August 2002
The Employment Bill received Royal Assent on 8 July and became the Employment Act 2002. In addition to the new maternity, paternity and adoption rights, there are a number of other significant employment rights that will come into force over the coming year. A short description of these provisions, their current status and their likely implementation dates are given below.
Maternity, paternity and adoption rights
These will be fully operational from 6 April 2003. However, as both the maternity and paternity provisions are related to the expected and actual dates on which the baby is born, it will be possible for the right to 26 weeks maternity leave and 2 weeks paternity leave to start as early as late November 2002. It is unlikely that anyone will be entitled to statutory adoption pay before 6 April 2003. The new £;100 weekly rate will not take effect until the first maternity or paternity pay period on or after 6 April 2003.
The six separate sets of Regulations that define the precise rules for these new leave and pay provisions were published in draft form to accompany the final period of consultation on some of the remaining technical issues. The consultation period has now ended and the Regulations are now being prepared in their final form, with Parliamentary approval expected by the end of the year. In the meantime, the DTI has published four summary documents describing the key features of the new entitlements.
There are several pages of information about these rights on the DTI's website. The best starting page is www.dti.gov.uk/er/ , following the links to "Employment Act" and "Work and Parents".
To help employers with the entitlement, payment and funding issues for statutory maternity pay, the Inland Revenue have developed an SMP Calculator and made it available on their website. The first version of the calculator is only equipped to handle SMP under the current rules and it will not accept dates that would involve the new rules from April 2003. The calculator may be of benefit to employers whose payroll system does not yet have an automated SMP calculation facility. However, as it requires information that can only come from the payroll, users must have obtained the employee's gross pay for the pay periods in the relevant eight weeks, the employee's start date, and the total Class 1 NICs paid in the relevant tax year, before using the calculator.
Unfortunately, the version of the calculator that was made available initially had a number of errors. The author drew the Revenue's attention to them and they are preparing to put them right. However, anyone using the calculator should check the results carefully in the circumstances where an employee leaves the employment in the qualifying week, or has a Saturday payday, or does no work at all in the (Sunday to Saturday) week in which she starts her maternity leave, or expects to qualify for Small Employers Relief. Despite the errors, the Revenue maintains that they "cannot be held liable for incorrect output from this Calculator".
The Employment Bill, when it becomes law, will provide the framework for the improved maternity leave and pay entitlements, and for the new paternity leave and Statutory Paternity Pay (SPP) and adoption leave and Statutory Adoption Pay (SAP). Although the Government and the Revenue have given us some of the details of these new benefits, the (almost) complete picture has now been revealed with the publication by the Department of Trade and Industry of the new Regulations. These are still in draft format and the DTI is inviting feedback on the details, principally in a few areas where the Government believes there are some outstanding policy issues.
A number of articles will be provided in coming issues of Payroll Briefing to explain in more detail how the new benefits will work from April 2002, or even earlier in some situations. In the meantime, the specific issues on which the Government is seeking feedback are as follows:
Paternity leave and pay
Fathers will have to take their leave entitlement within two months of the child's birth. Should this period be longer in the case of premature births, where the mother and baby may not return home from hospital for some considerable time after the birth?
The intention is for paternity leave to be taken as either a period of one week, or a period of two weeks. Having taken a single week, the father would not be able to take another week later. Should paternity leave also be available as two separate periods of a week and would that put a greater administrative burden on employers?
Entitlement to paternity leave and pay will depend on the employee's relationship with the child and the mother or adoptive parent. Where the paternity leave relates to the birth of a child, the Government proposes that the relationship should be an enduring one, namely that the employee:
has or expects to have responsibility for the upbringing of the child, and
is the biological father of the child or is married to or the partner of the child's mother.
Similarly, where the paternity leave relates to adoption, the proposed conditions are that the employee
has or expects to have responsibility for the upbringing of the child, and
is either married to or the partner of the child's adopter.
The Government would like to receive views on these relationship conditions.
Adoption leave and pay
Maternity leave and pay continue for their full duration if a child dies after the start of maternity leave and maternity pay. The Government does not feel that the end of a child's placement for adoption should be treated in the same way. It is proposed that, if a placement for adoption comes to an end during adoption leave, entitlement will continue for eight weeks only from that point. Is that an appropriate period of time for adoptive parents to come to terms with the ending of the placement and does it allow for an appropriate period of notice to be given to the employer of an early return to work?
Parental leave
All of the notice periods for maternity, paternity and adoption leave will be harmonised at 28 days. The Government also proposes to change the notice period for parental leave from 21 to 28 days, other than in the case of parents with a disabled child who may take parental leave in single days. Would such an extension to 28 days be welcomed?
Consecutive periods of leave
The creation of paternity and adoption leave, in addition to the existing maternity and parental leave provisions, makes possible a variety of combinations of leave that could be taken consecutively. For example, a woman could be entitled to six months' ordinary maternity leave, followed by six months' additional maternity leave, followed, for another pregnancy, by a further six months' ordinary maternity leave. The return to work provisions for these different benefits vary; for ordinary maternity leave it is to the same job, for additional leave it is to the same job, or to a suitable and appropriate alternative job if her job is not available. If she were then away for a further period of ordinary maternity leave, it does not seem logical that she should then be guaranteed her original job back. The draft Regulations currently say nothing on this matter and the Government would like views on the issues so that provisions may be made in the final Regulations.
Working during paternity and adoption pay periods
As with SMP, employees will not be entitled to SPP or SAP for any week in which they are working. However, it is proposed that, as with SMP, employees will retain entitlement to SPP or SAP if, at the same time, they are working for another unrelated employer by whom they were also employed during the 'Qualifying Week' (i.e. the fifteenth week before the expected week of childbirth) or the 'Matching Week' (i.e. the week in which the adoption agency confirms a match between the adopter(s) and the child). Comments are invited on this proposal.
Treatment of terms of imprisonment
Under current maternity pay rules, a woman loses entitlement completely to SMP if she is taken into custody. This is to prevent the State making dual provision for people who are in prison. Payment of SMP does not resume on release from prison in order not to put a burden on employers but, if she qualifies, the woman may be entitled to Maternity Allowance. The Government believes that it is not necessary to replicate these rules for SPP and SAP. In the case of SPP, there will be few cases where a father is taken into custody during paternity leave and it is proposed that it will be simpler for payment of SPP to continue when an employee is taken into custody. In the case of SAP, as there is no adoption equivalent of Maternity Allowance and the situation of an adoptive parent being taken into custody will be rare, it is proposed that it will be simpler for SAP to continue to be paid after the employee is taken into custody. The Government invites views on these proposals.
Draft model documents
There are five model documents that have been designed to help employees and employers manage the maternity, paternity and adoption processes. There are self-certificates for paternity leave and pay, a certificate for adoption leave and pay, and draft model letters for employers to acknowledge notification of maternity leave and adoption leave. Employees, employers and adoption agencies may use alternative formats as long as the statutory information is incorporated. Comments on the draft model documents are invited.
Readers who have views that they would like to express on any or all of these policy matters may view or download copies of all the documents from www.dti.gov.uk/er/workparents_consult.htm , or order paper copies from the Work and Parents Review Team, email reviewteam@dti.gsi.gov.uk , telephone 020 7215 6207. Responses should be sent by 19 July to the Review Team at the address provided in the documents.
Payroll Briefing 1 - 11 June 2002
A detailed technical specification has been published by the Revenue to enable payroll software developers provide the facility to calculate and pay SMP using the rules that will apply from 6 April 2003. Many payroll systems already calculate SMP and developers will be able to compare their existing calculation routines with those defined by the Revenue. The requirement for payroll software to calculate and pay SMP is expected to become a part of the Payroll Standards by the end of 2002 so that accredited systems have the functionality in place for the start of the 2003/04 tax year.
All the necessary features for full SMP calculation have not been included in the specification. Yet to be added are:
SMP entitlement where the employee's baby is born before the Qualifying Week
the calculation of average weekly earnings where weekly payments are mistimed
interruptions of work in the period used for the continuous employment test
NHS Trust employees to elect to have their contracts treated as one
changes of employer where the business is transferred as a going concern and employment is treated as continuous.
For the specification to operate correctly, the following assumptions are made about each claim for SMP:
the employee notifies her pregnancy in time, or the employer accepts any delay
acceptable evidence of pregnancy is held
no other payments are offset against SMP liability.
As the specification relates to the SMP rules as they will be from April 2003, it gives further clarification as to the Government's intentions for the new SMP Regulations that will be produced once the Employment Act 2002 is passed.
Weekly rates
The rules defining the weekly rates of SMP from April 2003 are different to those that apply currently:
for the first six weeks - 90% of average earnings, even if that is less than £;100
for the remaining twenty weeks - the lower of £;100 and 90% of average earnings.
As a result, it will be possible for the weekly rate to be less than £;75, the lowest rate that may currently be paid. For example, an employee with average weekly earnings of £;83 will (presumably) be earning above the LEL in April 2003. The rate of SMP for the full 26 weeks will, under the new rules, be £;74.70 per week.
In such a case, where a woman's SMP payments fall partly in 2002/03 and partly in 2003/04, her payments from 6 April 2003 will continue to be paid at £;75 and will not reduce below that figure. However, the £;75 floor will not apply to any woman whose MPP starts on or after 6 April 2003.
Other rule changes
The increase in the MPP from 18 weeks to 26 weeks and all the other changes (except the new recovery arrangements) will apply to women with an expected week of childbirth on or after 6 April 2003. It should be noted that, as a result, a woman could give birth prematurely as early as late November 2002 and be entitled to the new provisions. Also note that the Revenue will now refer to the expected week of "childbirth", not the expected week of "confinement".
Recovery arrangements
The current rules allowing employers to recover payments of SMP only permit recovery to be made against the employer's NICs liabilities. If an employee does not pay enough NICs to allow full recovery of SMP, reimbursement may be requested in advance. From April 2003, employers will be able to offset their SMP payments against income tax, NICs and any other allowable payments paid to the Collector, thereby reducing the need for advance reimbursement. The change will apply in respect of SMP payments made, or due to be made, on or after 6 April 2003.
MPP start day
The maternity pay period, under current rules, always starts on a Sunday. This is in contrast with the proposed rules for statutory adoption pay and statutory paternity pay, where the pay period will be able to start on any day of the week.
The strict Sunday start for SMP will be modified from April 2003 so that the MPP may start on any day of the week where the MPP is triggered by an early birth, in which case the MPP will start on the day following the birth, or by a pregnancy-related illness in the four weeks preceding the EWC, in which case the MPP will start on the first complete day of absence.
However, where the employee starts her maternity leave on the day of the week that she planned, the MPP will continue to start on a Sunday.
Payroll Briefing 221 - 12 April 2002
The Employment Bill, having received its third reading in the House of Commons, moved to the Lords in the middle of February. Among its many new provisions is paternity leave and paternity pay for fathers, of up to two weeks at the time of their child's birth. Fathers in work will be entitled to paternity leave if they have the necessary qualifying service and if they have average earnings that exceed the NI lower earnings limit.
Some fathers and adoptive parents who will be entitled to paternity leave have low earnings and are in receipt of income support. If their average earnings do not reach the lower earnings limit, they will not qualify for paternity pay. The government has announced that the Income Support regulations will be changed to allow some 30,000 fathers each year to have their income increased to a minimum of £;130 per week during their two weeks paternity leave. In addition, the income support payments of fathers who do receive paternity pay will not be affected.
The new E15 booklet contains the first description of the way in which the increase in the Small Employer's Relief threshold to £;40,000 will be handled. See issue 217 of Payroll Briefing.
The new threshold will apply to any "qualifying year" that relates to payments of SMP that are made on or after 6 April 2002. So, for example, if the first day of a woman's qualifying week is Sunday, 13 April 2002, the relevant qualifying year is 2001/2002. As long as the total of the employer's Class 1 NICs payments, less rebates, is not more than £;40,000 for that year, the employer is a "small employer" and will be able to recover 104.5% of all of the SMP payments paid to the woman.
The interesting situation, and this is where the legislation has to be changed, is where the 18-week maternity pay period straddles the 2001/02 and 2002/03 tax years. Payments start, say, in February 2002 and continue into June 2002. As the first day of the woman's qualifying week fell in the 2001/02 tax year, the qualifying year is 2000/01. If, for example, the employer's total NICs for that year were £;35,000, above the current £;20,000 threshold, the employer would not be a "small employer" in respect of the payments made during 2001/02. Only 92% of the SMP payments can be recovered.
However, under the revised rules, the employer will become a "small employer" in respect of the payments made from 6 April 2002/03 because the total NICs payments made in 2000/01 are below the new £;40,000 threshold. Therefore, the employer will be able to claim 104.5% of the payments made in the 2002/03 tax year. Payroll Briefing 218 - 14 February 2001
The normal rate at which employers recover SMP is 92%. However, the Small Employer's Relief (SER) scheme currently allows employers to recover 105% of their SMP payments if their total annual Class 1 NICs are below the £;20,000 threshold. The Revenue confirmed in November that the recovery rate will fall to 104.5% from the start of the coming tax year and the threshold will be increased to £;40,000. Just how this threshold increase will be implemented, however, is not at all clear.
Under current rules, employers are "small" employers if their total primary and secondary Class 1 NICs are not more than £;20,000 in the "qualifying year", i.e. the tax year that precedes the tax year in which a woman's "qualifying day", i.e. the Sunday at the start of a woman's SMP qualifying week, falls. If this requirement is met, an employer may recover, currently, 105% of the SMP paid to an employee throughout her entire maternity pay period. Hence, if the threshold is increased to £;40,000 from 6 April 2002, the 2002/03 tax year becomes the "qualifying year" in respect of SMP payments to women whose "qualifying day" falls on or after 6 April 2003. Hence, no employer will qualify under the new threshold until the 2003/04 tax year.
However, the Government's intention is that employers will benefit from the new SER threshold immediately from 6 April 2002, in respect of any payments of SMP paid on or after that date. If a maternity pay period overlaps 6 April 2002, the new rules will even allow the employer to recover SMP for payments made before 6 April 2002 at 92% and for those after 6 April 2002 at 104.5%, a situation that is not possible under current rules.
These intentions will require changes to the 1994 Regulations that define the rules for the SER scheme. In response to an enquiry about when the new Regulations will be available, the Revenue press office stated that it was not their responsibility but that of the Department for Trade and Industry. The DTI press office said that the legislation would not be available until the end of February, extremely late to allow proper communication of the changes to all employers before the start of the next tax year.
The Government has published a new Employment Bill, covering a broad range of provisions that are due for implementation over the next 18 months, including the new maternity and related entitlements, and fixed term working. The Bill clarifies many aspects but still allows for further Regulations to be made to fill in the fine detail. Descriptions in the following notes about the contents of future Regulations are based on the explanatory notes that accompany the Bill. As this is a Bill, any part may be amended before it comes into law. Equally, the provisions of any future Regulations may differ from those described below.
Paternity leave and pay
Two weeks' paid paternity leave will be available to fathers following the birth of a child, or to one or other spouse if a child is adopted, from April 2003.
The Regulations will provide for paternity leave to be:
• available to an employee with a defined relationship with the child and with the mother, and the equivalent in the case of adoption
• for the purpose of caring for a new-born child and supporting the mother, and the equivalent in the case of adoption
• available to an employee with at least 26 weeks' continuous employment by the 15th week before the week of childbirth or, in the case
of adoption, the week in which an approved match with the child is made
• subject to the presentation of a self-certificate of entitlement to leave
• taken in a single block of one or two weeks at the father's choice
• completed within 56 days of a child's birth or placement for adoption
There will be a right to return to the employee's same job and statutory protection against detrimental treatment or unfair dismissal in connection with paternity leave.
Statutory Paternity Pay will be paid to employees who qualify for paternity leave and whose average earnings exceed the lower earnings limit. The rate for 2002/03 will be the lesser of £;100 and 92% of average earnings, based on 8 weeks of earnings, not 26 weeks as suggested by the Government earlier. Employers will be able to reclaim 92% of the payments from their payments to the Collector, or 105% in the case of employers entitled to Small Employers' Relief, i.e. those with NICs of not more than £;40,000 in a tax year.
Other clauses in the Bill define the record-keeping, inspection and disclosure requirements and the right of the Revenue, the DTI and other government departments to exchange information about Statutory Paternity Pay.
Adoption leave and pay
This new entitlement allows qualifying adoptive parents to take up to 26 weeks' paid ordinary adoption leave and up to 26 weeks' unpaid additional adoption leave. The rules mirror closely the new maternity leave provisions that also come into effect in April 2003. The Regulations will provide for adoption leave to be:
• available to an adoptive parent who is matched with a child by an approved adoption agency
• subject to the presentation of a 'matching certificate' from the adoption agency
• where a married couple adopt, available to one of the spouses at their choice, the other to be entitled to paternity leave
• applicable only where the child is newly placed with an adoptive parent - it will not apply to step-family adoptions or adoptions by a
child's existing foster carers
• available to an employee with at least 26 weeks' continuous employment by the 15th week before the week in which an approved
match with the child is made. (Note the difference with ordinary maternity leave, where there is no service requirement.)
The further provisions for the right to return to the same job, protection from detrimental treatment and unfair dismissal, average earnings calculation, and the payment and recovery of Statutory Adoption Pay, are all similar to those described for paternity leave above, except that the rate of Statutory Adoption Pay in 2002/03 will be the lesser of £;100 and 92% of average earnings throughout the 26 weeks of leave. This is a surprising variance with the two-tier rates that apply for SMP.
Maternity leave and pay
Ordinary maternity leave will be extended to 26 weeks from April 2003, followed by a further 26 weeks of additional maternity leave. The SMP period will be increased to 26 weeks to match. Average earnings will continue to be based on earnings over 8 weeks. The notice period for starting the SMP will increase from 21 days to 28 days, to match the rules for statutory paternity and adoption pay.
SMP will continue to be paid for the first six weeks at 90% of average earnings, but the lower rate for the following 20 weeks will be the lower of £;100 and 90% of average earnings, but not less than the current rate of Statutory Sick Pay. For example, a woman with £;200 average earnings will receive £;180 for each of the first six weeks, and £;100 for each of the following 20 weeks. However, if her average earnings are £;90, her payments will be £;81 per week for all 26 weeks.
Under Regulations introduced during 2000 following a ruling of the Social Security Commissioner, women who otherwise qualify for SMP but who resign for a reason totally unrelated to their pregnancy lose their entitlement. A provision in the Bill restores that right so that women who leave after the 15th week before the expected week of childbirth will retain their entitlement for whatever reason they leave. The new clause omits the words "wholly or partly because of pregnancy or confinement".
Maternity Allowance
The calculation of Maternity Allowance (MA) will be amended to provide a formula for the rate of payment that is equivalent to SMP, from April 2003. Women qualifying for MA will receive the lesser of 90% of average earnings and £;100 per week. Payroll Briefing 213 - 29 November 2001
Employers have had to take care that they do not accept a MATB1 as evidence of a woman's pregnancy that is completed more than 14 weeks prior to the week in which the baby is expected, i.e. the week following the qualifying week. A woman does not qualify for SMP if the certificate is dated earlier than this.
The 14-week period has now been changed to 20 weeks by the provisions of The Social Security (Medical Evidence) and Statutory Maternity Pay (Medical Evidence) (Amendment) Regulations 2001, which come into force on 28 September 2001. The change affects entitlement to both SMP and Maternity Allowance. - Payroll Briefing 209 - 27 September 2001
The government has announced further improvements that will be made to the maternity leave and pay rules with effect from April 2003. These come directly from the detailed consultation exercise that was conducted between December 2000 and March 2001, based on the many ideas put forward in the Green Paper "Work and Parents: Competitiveness and Choice". Over 600 formal responses were received from employers and parents and from groups representing both employers and employees. In addition, members of the review team conducted 300 interviews with individuals representing all of the interested parties.
Many of the key preferences for improving statutory benefits for parents at work were clear before the consultation period ended and, as a result, the Chancellor announced a number of improvements in the Budget. In summary, these were:
• increases in the lower weekly rate of SMP to £;75 in 2002 and to £;100 in 2003
• extension of ordinary maternity leave and SMP to 26 weeks in 2003
• introduction of two weeks' paid paternity leave in 2003
• introduction of paid leave for parents adopting a child, similar to SMP, in 2003
• increase in the Small Employer Relief threshold to £;40,000, from 2002, allowing employers to claim 100% of their SMP payments,
plus the NICs compensation.
On 1 May, the government published its review of the responses to the Green Paper and announced more radical changes to the maternity provisions from April 2003. Secretary of State Stephen Byers said: "Employers have told us that the system of maternity rules which has evolved over the years needs to be radically altered. We have come up with a dramatically simplified framework which will deliver clarity, certainty and improved planning time for employers and employees."
The key effect of the changes will be that, from 2003, all women with 6 month's service at 15 weeks before their baby is due will be entitled to up to a year away from work, made up of 26 weeks paid ordinary maternity leave (OML) and 26 weeks unpaid additional maternity leave (AML). The main features are:
• the qualifying service for both paid OML and unpaid AML will be harmonized at 26 week's service
• notification arrangements will be harmonized at a single date, the 15th week before the expected week of childbirth (EWC)
• average earnings will be calculated over a 26-week period
• notification periods will all be harmonized at 4 weeks
• maternity leave in the event of a pregnancy related illness will start automatically at 4 weeks before EWC
The review makes no suggestion that there will be any change to the current provisions for paying six weeks at a rate related to average earnings, with the remaining weeks paid at the fixed rate.
The following Table provides a more detailed comparison between the current provisions and the proposed improvements.
Current Provisions
Proposed Improvements
Ordinary Maternity Leave (OML)
All pregnant employees entitled to18 weeks, rising to 26 weeks in 2003
All pregnant employees entitled to 26 weeks
Statutory Maternity Pay (SMP)
Entitlement if:
• at least 26 weeks' continuous service by the "qualifying
week", i.e. the 15th week before the expected week of
childbirth (EWC)
• average weekly earnings in the 8 weeks up to and
including the qualifying week at least equal to lower
earnings limit for NICs
Entitlement if:
• at least 26 weeks' continuous service by the "notification
week", i.e. the 15th week before the expected week of
childbirth (EWC)
• average weekly earnings in the 26 weeks up to and
including the qualifying week at least equal to lower
earnings limit for NICs
Additional Maternity Leave (AML)
Entitlement if employee has one year's continuous employment by the 11th week before the EWC
Runs from end of OML to the end of the 29th week after childbirth, counting from the start of the week in which the baby was born
AML is unpaid
Entitlement if employee is entitled to SMP
Runs from end of OML for an additional 26 weeks, unrelated to the actual date of childbirth
AML is unpaid
Notice Periods
To qualify for SMP, the employee must notify her employer 21 days before she intends to start her leave that she is pregnant, the date of the EWC and the date she intends to start her leave
The employer may write to the woman no earlier than 21 days before the end of her OML to :
• confirm the child's date of birth, and
• ask whether she is still intending to return to work after
her AML, and
• explain how she calculates her AML
The employee must reply within 21 days
To qualify for SMP and AML, the employee must notify her employer during the notification week that she is pregnant, the date of the EWC and the date she intends to start her leave
During the notification week, the employer must, in writing,
• acknowledge the employee's intended leave start date
• make clear that the employee is expected to return to
work at the end of her OML or AML, according to her
entitlement
• specify her return to work date
To change the intended leave start date, the employee must give four weeks' notice before the new intended start date, or as much as is reasonably practicable
To return from OML or AML early, the employee must give four weeks' notice.
Sickness Trigger
An employee must start her maternity leave immediately if she is absent from work due to a pregnancy related reason after the beginning of the sixth week before the EWC
An employee must start her maternity leave immediately if she is absent from work due to a pregnancy related reason after the beginning of the fourth week before the EWC
The proposals are described as a "framework" and are subject to further consultation with interested parties and the passing of primary legislation. A copy of the proposal document is available on the DTI web site, at www.dti.gov.uk/er/review.htm.
The DTI has published clarification of the way in which paid leave for parents adopting a child and for paternity will be handled when they are introduced in 2003.
The rules for both adoption leave and paternity leave follow closely the new rules for maternity leave and SMP that come into effect in 2003. Employers will be able to claim reimbursement of 92% of payments, or 100% plus NICs compensation if they are entitled to Small Employer Relief.
There are around 2,000 adoptions each year, mostly of children of up to age 4. The key features of adoption leave will be as follows:
• adoptive parents will be able to choose which of them takes the adoption leave
• that parent will be entitled to six months' paid leave (£;2,600) and six months' unpaid leave, as for SMP. (The inference from the
DTI press release, however, is that payment of the first six weeks at a rate related to average earnings will not be a feature of adoption
leave.)
• the other parent will be entitled to take two weeks' paid "paternity" leave (see below)
• paid adoption leave will be available for children adopted up to the age of 18
• parents taking adoption leave will have to give their employers notice that they will want to take leave and approximately when this
might be needed
There are around 450,000 fathers who will be entitled to take paternity leave each year. The main features of paternity leave will be as follows:
• to qualify for paid paternity leave, fathers must have 26 weeks' continuous service at the Notification week, i.e. the 15th week before
the EWC, just like SMP
• the paid leave (£;200) may be taken as a single two-week block at any time during the first two months following the child's birth
• fathers will have to give 15 weeks' notice to their employer of when they intend to take their leave
• if the employee wishes to change the time of his paternity leave at a later date, he must give four weeks' notice
The DTI's interactive web site www.tiger.gov.uk already provides a "live" facility for checking entitlement to the National Minimum Wage. It has now been enhanced to provide excellent new facilities to help employees and employers understand maternity rights. It will be a useful tool for employer and employee to use together to get a visual picture of the options available to the employee.
The new module asks the user to input the expected date of childbirth and to indicate entitlement or otherwise to additional maternity leave, i.e. based on one year's continuous service. The system then generates a calendar that covers the entire maternity period, using colour coding to highlight:
• the latest date by which the employer must be notified of the date on which the woman intends to start her leave
• the earliest date that she may start her leave
• the period of ordinary maternity leave
• the period of additional maternity leave, if relevant
• the expected week of childbirth, and
• the date on which the baby is expected.
When the calculator is first used, it shows the ordinary maternity leave (OML) period starting at its earliest point, i.e. at the start of the eleventh week before the baby is due. The clever feature is that, when any later date is clicked, up to the date the baby is due, the whole calendar table is regenerated to show the OML period starting on that new date and a new latest date for notifying the employer. - Payroll Briefing 202 - 24 May 2001
Paid paternity leave was one of the options set out in the Green Paper, Work and Parents: Competitiveness and Choice. (See Payroll Bulletin issue 193) The Green Paper invites as many people as possible to vote for their preferred three options. However, pre-empting the results of the consultation, the Prime Minister announced on 18 February that the government had decided in principle to introduce paid leave for fathers at the time of the birth of their child.
No decision has been taken on the level and duration of payments. In the Green Paper, the government ruled out an 18-week period of leave, to match maternity leave, as it would cost over £;1 billion to introduce. Instead, it suggested that leave might be for two weeks, with payments matching the lower rate of maternity pay, i.e. £;62.20 from April. The cost of around £;25 million annually will be borne by the government. Surveys show that 38% of working fathers already have entitlement to paternity leave through contractual schemes. - Payroll Briefing 199 - 17 April 2001
For Payroll and Human Resource Professionals
