|
If, having qualified for Statutory Maternity Pay, a woman becomes entitled to a pay rise that is effective on a date that falls
- prior to the eight-week relevant period, or
- between the start of the eight-week relevant period and the start of maternity leave, or
- at any time during the full period of maternity leave,
the woman's average earnings must be recalculated and her SMP payments adjusted accordingly.
This recalculation procedure, introduced into legislation following the 2004 decision of the European Court of Justice (ECJ) in the case Alabaster v Woolwich plc and the Secretary of State for Social Security, is commonly known as the "Alabaster" recalculation. The statutory rules, now set out in Regulation 21(7) of the Statutory Maternity Pay (General) Regulations 1986, uses the term "pay increase" for the event that prompts the recalculation.
The term "pay increase" is nowhere defined. It was called a "pay rise" in the ECJ judgement Alabaster v Woolwich, but was not defined. The explanatory notes that accompanied the new Regulations did not define the term or illustrate its meaning. The 1986 Regulations do not define it. No guidance on what constitutes a "pay increase" appears in the E15 and E15(Sup) Handbooks for 2007. There is no guidance on the term on HMRC's website.
From reports received by the author from various sources, there is considerable confusion over what the terms "pay rise" or "pay increase" mean. When terms used in legislation are not defined, the courts normally take the view that they must be given their normal meaning. Most employees would probably identify a "pay rise" as an increase in the hourly rate of pay or an increase in annual salary. Unfortunately, circumstances are not always as clear cut as that. For example, an article on the "Alabaster" recalculation, published in one of the payroll magazines earlier this year, included a section that gave quotations that were described as "HMRC view". It indicated that the following situations would count as pay rises:
- the employee's rate of pay stays the same but the employee's contractual hours increase
- the employee's rate of pay increases when a salary sacrifice arrangement ends
- the employee's salary increases as a result of exchanging a benefit-in-kind for extra salary
- the employee's rate of pay stays the same but the rate of regional allowance increases
- the employee receives a car allowance in lieu of a company car, and the car allowance increases
- the benefits provided for the employee's grade are improved and the employee chooses to take a car allowance
- the employee is promoted and receives a salary increase.
One of the comments in the article that was attributed to HMRC defined a pay rise as "any ongoing increase in the NICable element of pay".
We asked HMRC to
- comment on the validity of these examples of pay rises,
- confirm whether the definition "any ongoing increase in the NICable element of pay" could be taken to be HMRC's formal definition of the statutory term "pay increase", and
- include some practical examples of what constitutes a "pay rise" in the E15 Helpbook.
HMRC's response to our queries was as follows:
"The ECJ did not define 'pay rise' and neither do the SMP regulations. This was deliberate because it recognises that what may constitute a pay increase will vary from contract to contract and between employments. The approach that we (HMRC & DWP) have taken is that it is for employers and employees to use a commonsense approach and that in most cases it will be clear when there has, and when there has not been a pay increase, and if there is disagreement, the HMRC disputes procedure may be used by either party.
On that basis we would have difficulty with you using the proposed definition and, because the legislation does not define a pay increase, HMRC guidance will not attempt to impose a definition which is not contained in either domestic legislation or in ECJ legislation. We cannot therefore agree to endorse the definition of a pay increase proposed by you as HMRC's formal definition. Ultimately it will be for the courts to decide what the ECJ means and the ECJ has twice declined to be specific (i.e. Gillespie and now Alabaster).
You have also asked for a view from HMRC on the validity of the examples quoted in [the payroll magazine] but I am unable to provide this. The difficulty, as I am sure you will be aware, is that what constitutes a pay rise under one contractual relationship might not constitute a pay rise in different circumstances and by providing examples we run the risk of being too prescriptive.
The response to the individual enquiry that was forwarded to [the payroll magazine] illustrates the difficulty of trying to be as helpful as possible when faced with a series of hypothetical questions posed in isolation from any other facts.
If a specific dispute comes to our attention we will look at the particular circumstances of the case and give an informal opinion or a formal decision if necessary on that case but in the meantime we have no plans to put a definition into the Employer Helpbook".
...back to 5 October 2006
|
For Payroll and Human Resource Professionals
