SMP: Special Circumstances and Business Changes

Introduction

If you employ staff, you need to understand how Statutory Maternity Pay (SMP) works when circumstances change — whether that's a business takeover, employee redundancy, or different types of employment contract. Your obligations to pay SMP can continue even after significant business changes, and different employment arrangements affect how you calculate entitlement and payment amounts.

Business Takeovers and TUPE

When you take over a business or part of a business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) may apply. If they do, continuity of employment isn't broken, and you must continue to pay SMP to employees who are already entitled to it.

TUPE applies when you take over contracts of employment along with the business. The previous employer must provide 'employee liability information' identifying which employees are transferring.

Even if TUPE doesn't apply, continuity of employment may still continue in specific situations:

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

If continuity of employment is broken and you take over after the start of the Qualifying Week (QW), the previous employer must pay SMP (if the employee was employed by them in the QW). The employee remains entitled to 52 weeks maternity leave, but if you take over before the start of the QW, the employee cannot get SMP (though they're still entitled to maternity leave).

Where SMP isn't due, you must issue form SMP1 within 7 days of the decision being made, which must be within 28 days from the date the employee gave notice of absence, or the date she gave birth if this was earlier.

When You Cease Trading or Become Insolvent

If you cease to trade, you remain liable to pay any outstanding SMP payments until either your employee has received their full entitlement or their entitlement ends for another reason.

If you become insolvent, HMRC will pay your employee's SMP in the following circumstances:

• If you become insolvent after the start of the QW but before the start of your employee's pay period, HMRC pays the full SMP
• If you become insolvent during the SMP pay period, HMRC pays from the week in which you became insolvent

You (or the administrator, liquidator or similar) must tell HMRC, and employees should contact HMRC's Statutory Payment Dispute Team.

Redundancy and Leaving Employment

If your employee has qualified for SMP, you remain liable to continue paying it where she leaves your employment for any reason, including redundancy. However, if after the baby is born your employee or ex-employee starts work for another employer who did not employ her in the QW, SMP should stop.

When an employee leaves their job, they may still qualify for SMP even though they cannot get maternity leave. It doesn't matter why they left or whether they're coming back — they're entitled to SMP if they satisfy the qualifying conditions, and you cannot ask them to repay it.

There are special rules for when to start paying. If the employee leaves before the Sunday of the 11th week before the baby is due, the SMP pay period starts on the earlier of:

• The Sunday of the 11th week before the baby is due
• The day after the baby is born

If they leave after the start of the 11th week and before any other triggering event, the pay period starts the day following the day they left employment.

Pay Rises and Average Weekly Earnings Recalculation

A pay rise must not be withheld because of maternity leave. You must recalculate the average weekly earnings (AWE) to take account of pay rises awarded, or that would have been awarded had your employee not been on maternity leave.

This applies if the pay rise was effective anytime between the start of the 8 week relevant period for SMP and the end of the statutory maternity leave.

If a pay rise is awarded after you've calculated earnings, and that pay rise is effective from the start date of the relevant period but before the end of statutory maternity leave, you must:

• Recalculate the AWE to include the pay rise as though it was effective from the beginning of the relevant period
• Pay any extra SMP due

If a recalculated pay rise means earnings are now high enough for your employee to get SMP when they could not before, you must work out 90% of the AWE, take away the standard rate of SMP, and pay the difference for 6 weeks.

Your employee should still benefit from a pay rise even if they don't intend to return to work after maternity leave ends. If a pay award is made after they've terminated employment and is backdated to when they were working for you or on maternity leave, they may be entitled to benefit from it — check the terms of their old contract of employment.

Furlough and the Coronavirus Job Retention Scheme

For employees whose period of statutory pay begins on or after 25 April 2020, if your employee was on furlough during any part of the relevant 8 week period, there are different rules for calculating AWE.

The earnings used to work out their AWE for the part of the 8 week period they were on furlough will be the higher of either what they:

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

This ensures your employee's eligibility for SMP and the earnings-related rate isn't affected by reduced furlough wages. Where it's unclear what the employee would have received, a helpful starting point is the reference salary used to determine your claim through the scheme. You should also consider payments the employee was due to receive such as bonus payments and commission payments.

No changes are needed where you claimed wages through the scheme but topped them up to full pay at your own cost, or where you agreed a pay reduction with your employee outside of the scheme due to the COVID-19 pandemic.

Different Employment Types

Agency Workers

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

Casual and Short Contract Employees

Casual employees who work as and when needed on a series of short contracts may still qualify for SMP. If you have to deduct PAYE tax and Class 1 NICs from their earnings, you must pay them SMP if they satisfy all qualifying conditions.

Supply Teachers and Seasonal Workers

These employees may not have worked for you in every week from the latest start date up to and including the Sunday of the QW. They can still get SMP if they didn't work because they were on paid leave, you didn't have work to offer them, or you offered them work and they turned it down for a valid reason.

Company Directors

For companies incorporated before 1 October 2009, an ordinary resolution is required to determine director's remuneration, and any payments made in anticipation of the annual vote cannot be taken into account for calculating AWE.

For companies incorporated after 1 October 2009, directors can decide what remuneration to pay and when without a shareholders' resolution. Payment of director's fees is regarded as earnings for SMP purposes on the date payment was made.

Where a director is paid only by a formal vote (usually at the company's AGM), calculate their AWE in the usual way, substituting the dates of the formal votes in place of normal paydays. Don't include money drawn in anticipation of a formal vote when working out AWE, even if NICs were deducted at the time.

Multiple Jobs

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

If Class 1 NICs are worked out separately on the employee's earnings, calculate their AWE separately — the employee can get more than one amount of SMP and can choose to take different times off from each job without losing any SMP.

Sickness, Keeping in Touch Days and Working Abroad

If an employee becomes sick during the SMP pay period, do not pay Statutory Sick Pay — continue to pay SMP as normal. If they return to work within the Maternity Pay Period and then go sick during that period, pay SMP, not SSP.

Employees can work for you for up to 10 'keeping in touch' (KIT) days during maternity leave without ending their maternity leave or losing SMP. Any work on any day (even an hour) counts as a whole KIT day. You must agree in advance what work they'll do, how the days are used, and how much they'll be paid. If your employee works more than 10 days in their SMP pay period, you cannot pay SMP for any weeks where they work, and their maternity leave will end.

An employee who works for you outside the UK can still get SMP if you were liable to pay Class 1 NICs throughout the period from the latest start date for employment up to and including the Sunday of the QW, or would have been if their earnings had been high enough.

Sources

• Statutory Maternity Pay: business changes that affect payment
• Statutory Maternity Pay: employee circumstances that affect payment
• Statutory Maternity 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.