PAYROLL - 25.10.2006

SMP changes - are you ready?

SMP - a recap

As an employer, the company has to pay its employees Statutory Maternity Pay (SMP) for six months (26 weeks) while they’re off on maternity leave. During the first six weeks, you have to pay 90% of the employee’s average weekly earnings, with the remaining 20 weeks paid at the lower of 90% of the employee’s average earnings and a statutory rate, which from April 1, 2006 is £108.85 a week. For an employee to qualify for maternity pay they must have completed 26 weeks’ continuous service at the 15th week before the baby’s due date and have earned, on average, at least £84 a week.

Changes coming up

Six to nine months. The Taxman has outlined guidance to the changes on his website (see The next step). The major change is that SMP is due to be increased from six to nine months for employees with an expected week of childbirth on or after April 1, 2007. So any member of staff who became pregnant from July 2006 onwards will benefit from this increased maternity pay. This means your company will have to stump up an extra £1,400 per employee in maternity pay (although you should be able to claim most of it back - see below).

Expected date. Note that these changes are based on the expected week of childbirth which can be found on the form MATB1 completed by their doctor. The employee will need to give you this in order for you to pay them SMP. This could lead to a strange situation where one of your employees qualifies for the extra SMP even if their baby is born before April 1, 2007 because it’s premature - something else you need to be aware of.

What’s the impact?

Increased costs. As well as the increased SMP, you need to be aware that your female staff may be absent for longer, meaning that your company could also be facing increased costs in recruitment of temporary staff or overtime for existing staff.

Tip. If you have an enhanced maternity pay scheme, i.e. you pay more than the standard SMP, then now might well be the time to review what you offer to see if you can afford the extra costs that these changes will incur. If necessary, look at introducing any changes prior to April 2007.

Claim it back. However, the additional costs might not be quite as bad as you think. If your company has an annual liability for NI of £45,000 or less, you can claim back 104.5% of the SMP payable. If your annual liability is more than £45,000, then only 92% is recoverable. This can be claimed back by deducting it from the monthly PAYE and NI payment that you make to the Taxman.

Other considerations

Benefits-in-kind. Remember you must retain all benefits, and terms and conditions, except those relating to remuneration during ordinary maternity leave, i.e. from April 1, 2007, for the first nine months. For example, you must continue to pay pension contributions as if the employee were still attending work. Holiday will also continue to be accrued.

The next step

For further information see http://companydirector.indicator.co.uk(CD 08.02.04).