COMPLIANCE
l earn at least the lower earnings limit (LEL) which is currently £123 a week in the eight- week ‘relevant period’. How to calculate SMP In truth, most payroll professionals will simply enter the expected week of childbirth (EWC) into their software and get a weekly / monthly breakdown of what the employee will receive. But to fully understand how to compliantly recalculate SMP in the cases where Alabaster applies, you need to know how to manually calculate this statutory payment. 1. By using the SMP tables produced by the CIPP as part of your membership benefits, determine the qualifying week based on the employee’s EWC (see https://ow.ly/ FxEz50RPj8C). 2. Determine how much gross pay the employee has received in the eight-week relevant period (the eight weeks of pay prior to the qualifying week). 3. Obtain the employee’s average weekly earnings (AWE). Please follow the steps as laid out in the Statutory Payments Manual page SMP170300, as methods will depend on the employee’s pay frequency (see https://ow.ly/GMOC50RPjjQ). 4. If the AWE totals the LEL or above, the employee will qualify for SMP. 5. If the AWE is less than the LEL, the employee will not qualify for SMP, so will need to be given an SMP1 form completed by the employer to give reason as to why they don’t qualify. If the employee is entitled to receive SMP, they will get: l 90% of their AWE for the first six weeks l the current amount of SMP or 90% of their AWE, whichever is the lowest, for up to 33 weeks. You can use the GOV.UK ‘Maternity, adoption and paternity calculator for employers’ to assist with your calculations (see https://ow.ly/zFUM50RPjuu). So, what to do when Alabaster applies? So, an employee has been awarded a 3% pay increase, but they’re on maternity leave. “Rest assured, if you can calculate statutory maternity pay, you can carry out an Alabaster recalculation”
You’ll need to recalculate the employee’s SMP considering the pay increase and pay the difference in SMP. If you’re thinking, “The pay increase is from now; let’s say 1 July, but my employee went on maternity leave in April, surely this doesn’t apply?” It does. The Alabaster ruling means any employee who receives a pay increase anytime between the start of the eight-week ‘relevant period’ for calculating SMP and the end of the mother’s statutory maternity leave will need their AWE recalculating and any difference in pay to be awarded to them. “The Alabaster ruling means any employee who receives a pay increase anytime between the start of the eight-week ‘relevant period’ for calculating statutory maternity pay and the end of the mother’s statutory maternity leave will need their average weekly earnings recalculating and any difference in pay to be awarded to them” You will need to follow steps one to three above but base the eight-week calculation on the new rate of pay the employee is entitled to, as if they were in receipt of the 3% increase in the eight-week relevant period. The difference between the SMP already paid and the new rate of SMP will need to be paid to the employee. In most cases, it will only be the difference between the rates during the first six weeks which need to be paid. However, there may be instances where an employee previously didn’t qualify for SMP, but the pay increase now means they do. In that instance, the SMP will need to be backdated in the software and paid to the employee in the next available pay period. If the individual was in receipt of maternity allowance, any claimed allowance must be deducted from the due SMP and the remaining balance paid to the employee.
When paying the difference, ensure it’s paid as SMP through your software so that employers are still be able to reclaim the 92% via the employer payment summary, or 103% if they’re classed as a small employer. Example An employee who’s paid monthly received two gross payments of £3,000 in the relevant period, meaning their AWE was £692.31. The first six weeks were paid at 90% of AWE, so £623.08 per week. Taking a 3% pay rise into account, the employee would have received two gross payments of £3,090 in their relevant period, meaning their AWE should have been £713.08. The first six weeks were paid at 90% of AWE, which totalled £641.77 per week. Therefore, the difference you would need to pay to the employee in the next available pay run is the difference between £623.08 and £641.77 for the first six weeks of SMP, which equals £18.69 per week. This totals £112.14 for the six-week period. What else you need to know The Alabaster ruling only affects the rate of SMP the employee receives. Therefore, it doesn’t impact anything such as their pension contributions or salary sacrifice arrangements. Keep in mind that for a salary sacrifice arrangement to be successful, the money must be foregone before it is due. So, you cannot amend a salary sacrifice deduction in this instance on Alabaster, which is a retrospective calculation / entitlement. This means Alabaster focusses solely on the rate of SMP an employee is due. If you / your client pays any occupational / enhanced maternity pay, you will need to consider if you offset any additional SMP paid under the Alabaster ruling against the enhanced maternity pay. This should be specifically noted in company policies or staff handbooks to avoid any doubt. I know the word Alabaster usually sends shivers down the spines of payroll professionals, but I used to love processing the back pay from Alabaster calculations when working in operational payroll. So much so, it was just given to me as standard every annual pay increase season, as no one else wanted to touch it! I hope this article has clarified any concerns and given you the knowledge that it isn’t as daunting as it seems. If you love manual calculations (like I do), you can start adding the Alabaster workings to your ‘to-do’s’! n
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| Professional in Payroll, Pensions and Reward |
Issue 102 | July - August 2024
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