Joined: 13 Feb 2006 Posts: 201 Location: Hampshire, United Kingdom
Posted: Thu Jun 12, 2008 8:51 pm Post subject: SMP and Recalculation of Average Earnings
Hi everyone,
I have a very interesting situation with my current client and whilst I know how I am going to deal with it the very existence of the problem has prompted me to highlight the issue.
We all know, don't we, that following the Alabaster ruling a woman whose rate of pay increases at any time between the beginning of the Average Weekly Earnings reference period and the end of her maternity leave period is entitled to have her AWE recalculated in order to take account of the increase in the rate of pay and to receive any additional payment of SMP which is consequently generated.
To me that is an easy concept to accept even if the practice is more difficult. I am aware that there are many employers, and some very highly qualified payroll practitioners, who to this day continue to misinterpret this ruling but what do you do when the employer, knowing the correct application of law, decides not to apply it claiming that to do so disadvantages all other staff who cannot have their increase "backdated" in the same way?
I will persuade the client to comply because not to means a direct problem and in any case as soon as one employee twigs what is going on and lodges a formal complaint they will have to sort it out, right back to the first case.
But has anyone else met this situation, an open refusal to operate the new rules?
Posted: Thu Jul 03, 2008 7:54 am Post subject: SMP and recalculation of average earnings
Ian, I haven't some across a refusal to perform the calculation but I share your view that the requirement is still seriously misunderstood and ignored.
With regard to the "logic" behind the requirement and its fairness, the following notes that I wrote when it was first introduced may help.
Quote:
The recalculation of the SMP is certainly done as if the pay rise were in ct at the time that the woman’s average earnings were calculated. As the ECJ decision stated: “It is for the competent national authorities to -determine how … 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.” The device used in the UK legislation is to determine average earnings by looking at earnings in the “relevant period” leading up to the qualifying week. In effect, the new approach is to treat the earnings in the relevant period as if they had been paid at the highest rate of pay applicable to the woman’s job right up to the end of her maternity leave.
In practice, a woman will not receive the benefit of the pay rise earlier than her colleagues. She only appears to do so because of the way in which her SMP is recalculated. In fact, she only receives the extra SMP at the time of the recalculation.
However, most people looking at the proposed method of applying the ECJ ruling are unable to understand why the additional SMP from the calculation should be retrospective to a date earlier than the effective date of the pay rise.
Example
A woman is expecting a baby on 24 May 2005. Her qualifying week starts on Sunday, 6 February 2005. Her average earnings are based on her earnings in the relevant period between 24 December 2004 and 11 February 2005. Her average weekly earnings are £200. Her maternity pay period starts on 16 May 2005 and she is paid 6 weeks at £180, followed by 20 weeks at £106.
In December 2005, she is still on maternity leave but is no longer receiving SMP. If she had been at work she would have received a 5% pay rise on 1 December 2005. Under the proposals, her average earnings in the relevant period are recalculated and increased by 5% to £210. This gives a new rate of £189 for the first six weeks of SMP, with no change to the rate for the 20 weeks, so she is paid a further £54 in December 2005.
The pay rise could have occurred at any time up to the end of her maternity leave and the result would have been the same. Her SMP entitlement for the whole of the maternity pay period would have been recalculated.
In the above example, it is very difficult to understand why the woman should have her SMP recalculated at all. Her maternity pay period has finished – why should a later pay rise cause a recalculation?
Similarly, if her pay rise had occurred during the maternity pay period, it may be reasonable to expect her SMP payments to be recalculated, but why should the new rate be paid for any week of the maternity pay period earlier than the effective date?
The answer to those questions is that SMP payments are calculated in that way under UK legislation:
- the SMP rate for the first six weeks is based on average earnings
- the average earnings is based on earnings in the reference period
- the reference period has to be before the qualifying week in order to determine entitlement
- a later pay rise forces a recalculation of average earnings during the reference period
- the SMP for the first six weeks is based on the new average earnings.
I remember that the government considered other ways that the SMP rate could be calculated but none were as effective as using the earnings in the period immediately before the qualifying week. If it is accepted that it is discriminatory not to apply a pay rise that the woman would have benefited from if she had been at work, you might find it helpful to ask an employer who does not want to apply the rules if he can suggest a fairer way of removing the discrimination. It would require a complete redesign of the way in which average earnings are determined. _________________ Ian Congreave, PayPerShop owner
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