What happens to benefits during maternity leave?
Most employers understand that when women are on maternity leave, they will receive maternity pay, so long as they qualify for it. I don’t intend to talk about maternity pay but I do want to touch on some of the more difficult questions about those benefits that the employee pays for, such as pension, childcare vouchers and other salary sacrifice schemes and season ticket loans. I was recently asked about these three particular benefits and it took a bit of digging to find out the answers.
As you probably know, there are two consecutive maternity leave periods, the ordinary maternity leave (OML) and the additional maternity leave, (AML). During maternity leave, women are entitled to benefit from all their normal terms and conditions of employment, with the exclusion of terms relating to remuneration. Remuneration is substituted by payment of Statutory Maternity Pay (SMP), which is payable for up to 39 weeks.
Accrual of pension
The exclusion relating to remuneration does not stop a woman accruing pensionable service, or other benefits that depend on length of service, during her absence, so long as these benefits do not fall under the heading of remuneration. However, women must not be treated less favourably by their employer in relation to their pension during any period of paid maternity absence than they would normally be treated when working. ‘Paid’ is defined as including the payment of SMP. This means that accrual of pension rights continues up to the 39th week of maternity leave, at least where the woman has sufficient qualifying service to be entitled to receive SMP. If the pension scheme is contributory, you must pay the usual percentage of the employee’s normal salary throughout the period that the employee receives SMP. However, for the employee, although the percentage figure remains the same, it is calculated on the SMP and not her normal salary.
As to the position during any AML after the end of the paid period, the statues include an express provision that during unpaid AML, there is no requirement to pay pension or accrue pensionable service. Pensionable service is preserved at the point where the unpaid period of AML commenced.
Many employers provide employees with childcare vouchers as a benefit of their employment. This is usually done through a salary sacrifice scheme, which has tax and NIC advantages to both the employer and the employee.
There has been some uncertainty over whether an employee’s entitlement to childcare vouchers continues during maternity leave in addition to SMP. This has arisen because of confusion about whether the vouchers should be treated as part of the employee’s “remuneration” (which does not continue during maternity leave) or as a non-cash benefit (which must continue).
Remuneration or non-cash benefit?
During OML, other than remuneration, the employee is entitled to all the usual benefits of her employment. Remuneration is defined as “sums payable to the employee by way of wages or salary”.
The vouchers are generally not transferable and cannot be changed into cash by the employee. This suggests that childcare vouchers cannot be considered wages or salary. They are not sums payable to the employee, but a promise to pay a sum to a childcare provider in return for services to the employee. This would suggest that they should be continued throughout maternity leave in the same way as any other contractual benefit in kind.
HMRC’s view is that childcare vouchers are non-cash benefits rather than remuneration, even if they have been provided through a salary sacrifice. The result is that:
- The value of the childcare vouchers should not be included for the purpose of calculating SMP; and
- The employee is entitled to the childcare vouchers during her maternity leave without sacrificing any of her SMP.
Season ticket loans
We have not been able to find any mention anywhere of whether it is permissible to make contractually agreed deductions from SMP. However, we have spoken to HMRC and they were confident that it was appropriate to continue to make these deductions while the employee is receiving SMP. On a practical front, we would suggest that it would be best to ensure that the repayments do not outstrip the SMP payments and it might be sensible to agree a reduced payment once the first six weeks of SMP is over and the employee is on the standard SMP rate.
It has taken some digging to find these answers. We would welcome your comments on what happens in your organisation and whether there are any other tricky benefits that have to be tackled during maternity leave.