Maternity Pay Calculations

Sean Hannam · PayPerShop Newbie Joined: 01 Nov 2006 Posts: 7

Hi, I have been reviewing some previous maternity calculations and have found one where I cannot determine if it is correct.
The Baby Due Week was 14/08/2007
The Relevant Period for payments is 15/02/07 to 13/04/07
We have included payments made on 15/03/07 and 13/04/07
Now the question of how to calculate the average earnings:
Booklet e15 says multiply by 6 and divide by 52 � Which we did at the time
However the Payroll software specification for SMP states we should:

Rounded divisor used when calculating average weekly earnings for employee paid calendar monthly or in multiples of a calendar month. Monthly_Divisor = number of whole calendar months in relevant period. If there are not a whole number of calendar months in the relevant period round to a whole number as follows

▫ 30 and 31 day months: 15 days or less round down, 16 days or more round up

▫ 28 and 29 day months: 14 days or less round down, 15 days or more round up.

Applying these rules we get back to a monthly divisor of 1 which we are sure is incorrect but seems correct when compared against the rules.
Does anyone know which way we should actually calculate?
Thanks
Sean

Ian Congreave

You are right Sean, the technical specification does indeed give a different result in this particular case. However, it is the procedure that is described in the E15 booklet, which replicates that statutory procedure, that is the correct one to use, so your original calculation is correct.

The statutory procedure for calculating average earnings for SMP, where there are two paydays in the relevant period, is to divide the total NICable earnings in the "relevant period" by 2, multiply by 12 and divide by 52. You have described the calculation as multiplying by 6 and dividing by 52, which is the same except that it hides where the need to divide by 2 comes from. It is possible, in some monthly-paid situations, for the divisor to be 3, so, despite what the E15 booklet says, it is better to describe the calculation as dividing by the number of months involved, then multiplying by 12 and dividing by 52.

Now the technical specification. In your example, the dates of the relevant period are from 15/02/07 to 13/04/07. Applying the rule, which you correctly quote from the SMP specification, the relevant period splits into three, namely

The result of this calculation is 1 month, whereas it should correctly be 2 months, so there is a defect in the way the technical spec works in this situation.

I tried this calculation out on HMRC's SMP calculator, but that does not use the technical spec for determining the number of months - it simply says that, if the number of months is not 2, see the E15 booklet - so it uses 2 months as the default divisor. It does not calculate the divisor using the technical spec - it is not good that HMRC's calculator using a shortcut rather than the technical spec for the calculation.

I think that this is a rare situation in which the spec does not work correctly. I am away from home at the moment but I also want to try out the figures on the payroll system that I use, which has HMRC accreditation and should, therefore, use the technical spec. If I find it does, in practice, give the same incorrect result, I will point out the discrepancy to my contacts at HMRC.
_________________
Ian Congreave, PayPerShop owner

PayPerShop provides a free weekly UK, US and Worldwide payroll news service - http://www.paypershop.com/latestnews.html

Sean Hannam · PayPerShop Newbie Joined: 01 Nov 2006 Posts: 7

Thanks for that Ian, I thought I was going mad! It is a very strange one indeed and I think would actually only ever occur when an employee is paid on the 15th of the month and the relevant period includes the February and March pay dates. I did check the HMRC test data and there is no test for this scenario so indeed any accredited software that has used the technical specification 'should' make an incorrect calculation.