Maternity Leave Benefits

by Hazel Phillips

Pregnancy and maternity leave can be a difficult issue for employers to handle. Recent years have seen an increase in the length of paid and unpaid maternity leave and greater rights for women whilst taking their leave and on their return to work. Whilst ‘mothers to be’ may (rightly) rejoice at the increased opportunities these changes give them, businesses, especially small businesses, have found the increased cost and administrative burden engendered by these changes difficult to cope with.

This month’s bulletin will focus on the rules and rights in relation to pregnancy and maternity leave as they stand and will also look at the changes to the law that came into force last month due to the Sex Discrimination Act 1975 (Amendment) Regulations 2008.

Maternity leave and pay

All employees (regardless of their length of service) are entitled to 52 weeks’ maternity leave. This is broken down into 26 weeks of ordinary maternity leave (OML) and 26 weeks of additional maternity leave (AML). Both sets of leave must be taken back to back.

Employees do not automatically qualify for statutory maternity pay; but if they are not eligible maternity allowance is available to them.  Employees who are eligible now receive statutory maternity pay (SMP) for 39 weeks, although employers can obviously choose to run more generous contractual schemes if they so wish. Presently the rate of statutory maternity pay stands at £117.18 per week.

Employers should be aware that the government’s long term plan is to introduce paid maternity leave for the whole 52 week period but it looks like this change will not come into force until at least April 2010.

Women on maternity leave now also have the right to ‘keeping in touch days’. This means that women can attend work for up to 10 days during their maternity leave without forfeiting their right to maternity pay. Any part of a day that the employee attends work counts as a full day for these purposes. The idea of these days is that women can keep up to date with developments, by participating in work or training during their maternity leave. However, employers cannot insist that the employee makes use of these days, it is for the employee to decide whether she wishes to participate in this scheme.  As the employee will be working if she does chose to make use of these days, there is an expectation that the employee will be paid. The level of pay is a matter to be agreed between the employee and the employer, although it is unlikely that employees will accept anything other than their normal pay for a day. Employers should also note that any pay that is given will be in addition to maternity pay.  

Benefits during maternity leave

Benefits during maternity leave have always been a complex area. The general rule is that whilst a woman is on OML she is entitled to all of her benefits (contractual and discretionary) except for pay, but whilst she is on AML, she is only entitled to limited contractual rights, such as the continuing duty of mutual trust and confidence.

However, the High Court held last year that this approach is not in line with EU law and consequently UK law had to be amended. The 2008 Regulations alter the position in relation to benefits whilst on maternity leave significantly by making AML the same as OML. These changes will impact on any employee who has an expected week of childbirth (EWC) on or after 5th October 2008.

Pay

At present women are not entitled to their pay whilst they are on maternity leave, save for any maternity related pay, unless their contract states otherwise. Pay has a wide definition though and can include salary, shift allowance, attendance allowance and overtime allowance, as well as a company car that is used solely on company business.

Under the changes to law the position with regards to these payments does not change, in other words if the benefit can be classes as ‘pay’ then it will not be due during OML or AML.

Bonuses and other payments

Christmas bonuses, loyalty bonuses and other gratuitous bonuses need to be paid throughout the maternity leave period (OML and AML). However, performance related bonus (whether contractual or discretionary) need only be paid during compulsory maternity leave. The period of compulsory maternity leave is 2 weeks after the child’s birth for most employees, but it is 4 weeks for employees who work in factories.

Additional benefits

The issue becomes more complicated in the case of benefits that can not be classed as ‘pay’. For example, many employees may be entitled to a company car which they can use for private use, luncheon vouchers, a mobile phone or laptop for private use or gym membership.

The position at the moment is that if an employee is entitled to any such benefits they need only be provided for the duration of OML, but for a EWC on or after 5th October 2008 they will need to be provided for the whole of the maternity period.  A good example of this is an employee who is entitled to use a company car for private purposes, as well as whilst on work business. At present, the employer must provide the employee with the car during OML but choose not to do so not during AML. However, women with a EWC on or after 5th October 2008 will be entitled to keep the car for the duration of their maternity leave.

Problem areas

Car allowance

Car allowance is difficult to categorise as either ‘pay’ or a ‘benefit’. As explained above, if it is pay then it will not be payable during maternity leave at all, if it is a benefit then at present it is payable during OML and when the changes to the law come into effect it will also be payable during AML.

It could be argued that a car allowance is a benefit, as it appears separately to wages on a pay slip, the sum is not pensionable and employees are able to choose between a company car and a car allowance.  As a result, it should be treated as any other benefit during maternity leave.  However, there is no decisive case law on this matter and there are strong arguments that a car allowance can be classed as ‘pay’ and, therefore, does not have to be paid by the employer during any of the maternity leave period.

Pensions

With regards to pensions the distinction between OML and AML is not relevant, the key distinction is between paid and unpaid maternity leave.

If an employee qualifies for SMP then their paid period of maternity leave is 39 weeks (unless an employer runs a more generous contractual scheme). If an employee is also part of a final salary scheme then the employer must count these 39 weeks as pensionable service. If an employee contributes to the scheme then the employer can insist that they keep paying contributions, but a woman’s contributions whilst on maternity leave should be worked out on the basis of the actual pay that she is receiving during her maternity leave and not her ‘normal’ pay.

If the employee is in a money purchase scheme then the employer needs to continue contributing to the pension scheme for the duration of the paid maternity leave. The employer should make their contributions based on the ‘normal’ salary of the employee, not based on what she is receiving during her maternity pay. If the employee is making contributions, the position is as above, in that the employee only has to pay contributions based on what she is actually receiving.

The position with regards to pensions is not altered by the changes to the law.

Life Insurance, PHI and medical cover

The definition of ‘pension’ in UK social security legislation is a very broad one which arguably encompasses life insurance, PHI and medical cover as well as what would generally be understood as a pension. Therefore, at present, it is advisable to provide these benefits throughout the paid period of maternity leave and not to link them to OML.

Even if not within the “pension” definition, such payments must be benefits and therefore covered by the recent changes.  As a result, for employees with a EWC of 5th October 2008 or later, it would be advisable to provide these benefits for the whole of the maternity leave period, until the position is clarified.

Employers should remember that whatever the benefit, and whatever the legal stance on whether and when a particular benefit is payable during maternity leave, if a practice has built up whereby an employer has in the past offered women on maternity certain benefits, it is likely that an employer will be unable to change this without the employee’s permission.

For further information contact Burnetts' employment law team on 01228 552222.

Back to Employment Law E-Bulletin June 08

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June 2008