SAP: Special Circumstances and Business Changes

Introduction

Statutory Adoption Pay (SAP) doesn't follow a simple one-size-fits-all approach. The type of employment contract, changes to your business structure, and various employee circumstances can all affect whether SAP is payable and how much you need to pay. Understanding these special situations will help you meet your legal obligations as an employer.

Business changes and your SAP obligations

Taking over a business

If you acquire a business and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) apply, the employee's continuity of employment continues unbroken. TUPE applies when you take over a business, part of a business, or a service provision and inherit the employment contracts of transferring staff.

Even when TUPE doesn't apply, continuity of employment may still be preserved in specific situations:

• A teacher moves between schools maintained by the same local education authority
• One corporate body replaces another as employer under an Act of Parliament
• The employer dies and their personal representative or trustees retain the employee
• There's a change in partners, personal representatives or trustees
• The employee moves between associated employers

When continuity isn't broken, the employee can receive SAP provided they worked for both you and the previous employer during the qualifying period.

If continuity is broken and you take on the business after the start of the Matching Week (MW), the previous employer must pay SAP if the employee worked for them in the MW. If you take over before the MW starts, the employee cannot receive SAP. Where SAP isn't payable, you must issue form SAP1 within 7 days of making the decision, and complete this process within 28 days of the 7-day period starting from when the adopter was notified of being matched.

Ceasing to trade

If you stop trading, you remain liable to pay any outstanding SAP until either the employee receives their full entitlement or their entitlement ends for another reason.

Business insolvency

If your business becomes insolvent during the SAP period, HMRC pays your employee's SAP from the date of insolvency. You should advise your employee to contact HMRC's Statutory Payment Dispute Team. The administrator, liquidator or similar must inform HMRC so employees can be paid as quickly as possible.

Making an employee redundant

If your employee has qualified for SAP, you remain liable to continue paying it even if you make them redundant.

Different employment types

Agency workers and casual employees

If you deduct PAYE tax and Class 1 National Insurance contributions (NICs) from an agency worker's earnings (or would do if they were high enough), you must pay them SAP if they satisfy the qualifying conditions.

The same applies to casual or short contract employees who work for you as and when required on a series of short contracts.

Supply teachers and seasonal workers

The same rules as agency workers apply, but with one exception: if they're either sick throughout the Matching Week or not required to work during that week, they're treated as having worked in the MW. This applies even if they don't return to work before starting their adoption absence.

Directors

The rules vary depending on when your company was incorporated:

Companies incorporated after 1 October 2009: Directors can determine their own remuneration without shareholder approval. Payment of director's fees counts as earnings on the date payment was made, and you calculate Average Weekly Earnings (AWE) normally.

Companies incorporated before 1 October 2009: These companies still require an ordinary resolution to determine director's remuneration. How you calculate AWE depends on how the director is paid:

• Contractual salary: Calculate AWE like any other employee
• Determination by directors (not formal vote): Add together all monies paid, using the date monies were paid instead of AGM dates
• Contractually plus formal vote: Calculate like any employee, but only include bonuses or fees voted formally if the vote date falls in the relevant period
• Only by formal vote: Substitute the dates of formal votes (usually at the AGM) in place of normal paydays

Don't include money drawn in anticipation of a formal vote when calculating AWE, even if NICs were deducted.

Mariners

Mariners can receive SAP if you have a place of business in the UK and they work on a home-trade ship.

Employees working abroad

Your employee can receive SAP if they work outside the UK during the qualifying period, provided you were liable to pay Class 1 NICs on their earnings throughout that period (or would have been if earnings were high enough).

If you weren't liable for Class 1 NICs throughout that period but they worked in the European Economic Area (EEA), they may still receive SAP if they worked for you within the EEA during the qualifying period and worked for you in the UK during the MW with Class 1 NICs liability for that week.

Multiple jobs with the same employer

If you add all the employee's earnings together to calculate Class 1 NICs, you must also add them together to calculate AWE. The employee can only receive one amount of SAP and should take the same time off from each job to avoid losing SAP.

If you calculate Class 1 NICs separately on each job's earnings, you must work out AWE separately, as the employee can receive multiple SAP payments.

Employee circumstances affecting payment

Furlough under the Coronavirus Job Retention Scheme

Where the SAP period begins on or after 25 April 2020 and your employee was on furlough during any part of the relevant 8-week period, different rules apply for calculating AWE.

The earnings used for the furloughed portion should be the higher of either what they:

• Actually received from you
• Would have received had they not been on furlough

The reference salary used for your Coronavirus Job Retention Scheme claim provides a helpful starting point. Also consider bonus payments and commission due in the relevant period.

No changes are needed if you topped up the employee's wages to full pay at your own cost, or if you agreed a pay reduction outside the scheme due to COVID-19.

Backdated pay rises

If your employee receives a backdated pay rise increasing earnings already paid in the relevant period, you must recalculate their AWE and pay any extra SAP due. If they previously didn't qualify, recalculate to check if they're now entitled.

PAYE Settlement Agreements

Recalculate AWE if all of the following apply:

• Their AWE is less than the Lower Earnings Limit in force at the end of the Matching Week
• They received expense payments or benefits in kind in the relevant period
• The expenses or benefits were included in a PAYE Settlement Agreement

Salary sacrifice

Calculate AWE using the amount actually paid to the employee during the relevant period. SAP cannot be sacrificed and must be paid in full.

Employee becomes sick during SAP

Check whether your employee is entitled to Statutory Sick Pay (SSP). You cannot pay them SAP for any SAP pay week in which they're entitled to SSP. Remember that SAP pay weeks can start on any day and employees aren't normally entitled to SSP from the first day of incapacity.

When incapacity ends within the SAP pay period, SAP recommences at the start of the next SAP pay week following the end of incapacity.

Keeping in Touch (KIT) days

Your employee can work up to 10 days during their SAP period without ending their adoption leave or losing SAP for the week they work. Before any work is done, you must agree:

• What work they'll do
• Whether KIT days are used consecutively, singly or in blocks (any work on any day counts as a whole KIT day)
• How much they'll be paid

You can count SAP towards the contractual pay agreed, but must pay the weekly SAP rate the employee is entitled to and meet statutory obligations like National Minimum Wage.

If your employee works more than 10 days during their SAP period, you cannot pay SAP for any week they work and their adoption leave ends. Once they've used their 10 KIT days, they'll lose one week's SAP for each week or part week they work. The SAP pay period isn't extended, and any lost SAP is always at the standard rate first.

Employee not returning to work

You must still pay SAP to which they're entitled. You cannot ask them to repay it.

Working for another employer during SAP

Check whether your employee worked for that employer during the MW. If they're working for someone they:

• Worked for during the MW: continue paying SAP normally
• Did not work for during the MW: stop paying SAP from the start of the SAP pay week they work for that employer

Employee leaves after being matched

Your employee remains eligible for SAP if they leave after being matched with a child, regardless of why they left or that they're not returning. They should give you 28 days' notice of when they want payment to start if possible.

You can start paying SAP up to 14 days before the child is expected to be placed, but no later than the day the child is placed (or the day after if the employee is at work that day). If they don't want payment to start before placement, they must tell you when the child is placed.

They won't be eligible for any week in which they work for a new employer they weren't employed by in the MW.

Legal custody

You cannot pay SAP for any SAP pay week your employee is in legal custody or for any subsequent weeks. Your employee isn't in legal custody if they're voluntarily helping police, out on bail, or serving a suspended sentence.

Employee death

Pay SAP for the week in which they die, but not for any subsequent weeks.

Child dies or stops living with adopter

If the child dies or ceases to live with the adopter during the SAP period, the pay period ends 8 weeks after the end of the SAP pay week in which the child stops living with the adopter, if it wasn't due to end earlier.

Multiple children placed

This situation can arise where two or more siblings are adopted from the same family within 39 weeks of entitlement to SAP for the first child.

Sources

• Statutory Adoption Pay: business changes that affect payment
• Statutory Adoption Pay: employee circumstances that affect payment
• Statutory Adoption Pay: how different employment types affect what you pay

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.