How to Work out Maternity Pay

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04 Jun 2018

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As an employer, you've probably run into problems when dealing with maternity pay. In particular, when there are unusual circumstances surrounding pay and terms of employment. Although on the surface, maternity pay can seem simple, the situation can change depending on individual circumstances. It's important to evaluate all variables when considering how to work out maternity pay.

How do I Calculate my Employee’s Maternity Pay?

Without mitigating circumstances, and if you’ve employed the individual for the past 26 weeks, here's what you have to do: Calculate Average Weekly Earnings (AWE). You must determine whether the employee is eligible for SMP. To do this, take all earnings paid in the relevant period (this is usually the 8 week period before the employee is due to go on maternity leave) and divide the earnings by the number of weeks in that period. If they earn £116 or more in the tax year, they are eligible for SMP. First six weeks. 90% of the employee’s average weekly earnings (before tax). So if your employee normally earns £400.00 a week, they will receive £360.00 a week. Tax and National Insurance deductions will occur, as with a normal wage. The following thirty-three weeks.  Since April 2018, the current rate is £145.18 per week (or, if lower, 90% of the employee’s average weekly earnings).

How is Maternity Pay Calculated if the Employee has had a Pay Rise?

Firstly, if a pay rise is due, you must not withhold it because of maternity leave. If the pay rise is effective during the relevant period, ensure you include the rise in the calculations of AWE. And if the pay rise comes into effect after calculating AWE, you need to recalculate AWE with the pay rise implemented from the start of the relevant period, and pay any difference due. You must pay any difference that a pay rise causes, even if your employee doesn't intend to return to work. In cases where you agreed on the rise before their maternity leave, but they then terminated their employment, review contract terms. You need to find out whether they're eligible to benefit from the pay rise.

Will Breaks in Employment Change the Maternity Leave Salary Calculation?

The break should not influence the calculation but may affect whether the employee is applicable for SMP. The following breaks are allowable:

  • Temporary cessation of work
  • Public holidays
  • Sickness and injury, as long as the period of absence is 26 weeks or less
  • Previous maternity, parental, or adoption leave

The calculation shouldn't change, but if the employee takes a break that isn’t one of the above, and doesn’t have 26 weeks of continuous employment, they lose their SMP entitlement. If this is the case, the employee can apply for maternity allowance.

Expert Advice

If you have a question about how to calculate your maternity leave pay, contact our experts on 0808 145 3382.

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