Maternal money

As part of our series of articles covering the AAT Payroll Qualification, Ian Whyteside takes a look at the conditions that employees must satisfy to qualify for Statutory Maternity Pay

The whole of Unit 72: Ascertaining Gross Pay is devoted to what is known as the ‘up to gross’ portion of the payroll process. There are numerous variations that have to be considered, all depending on the contractual arrangements the employer has.
Some items of gross pay, however, are common across all employers, such as the statutory payments to be made when an employee is absent for reasons such as sickness, maternity, paternity and adoption. This article will concentrate on the conditions for maternity payments.
These types of payment are explored in the simulation exercises that students go through as part of assessment. It is as important to get these payments right in these simulations as it is in real life.

Scope
This article will concentrate on the issues surrounding payment. However, you must not forget that prior to assessing entitlement to payment, potential beneficiaries must first be assessed on their entitlement to leave. If they are not entitled to any statutory leave, they will not be entitled to a payment.

Statutory Maternity Pay (SMP)
In order to fulfil Performance Criteria 72.2, you must first demonstrate the ability to determine the employee’s ‘eligibility’ for SMP. This is established by identifying the following four conditions:

• medical evidence at the correct time;
• employed for the required period at the relevant point in time;
• average earnings of at least the National Insurance Contributions Lower Earnings Limit (NIC LEL) during the relevant period; and
• stops working.
  

The next task is to prove that you know what each one of these conditions means in practice.

Medical evidence at the correct time
The most relevant document is the MATB1, which is a certificate signed by a doctor or midwife. However, the employer is permitted to accept another form of evidence as long as it is clear and unambiguous, i.e.:

• it is written;
• it identifies the mother-to-be;
• it states specifically when the expected birth date is; and
• it is signed by a suitably qualified person.
  

The decision of whether to accept it is the employer’s, but there must be good reason for rejection. The evidence must also be produced at the right time:

• not earlier than 20 weeks before the expected birth date; and
• at the latest, 21 days after the start of the SMP period.
  

However, there is a final deadline of 13 weeks into the SMP period – but only if there is a very good reason for the delay. Remember that if the SMP is denied because of the failure to submit the required evidence, the employee may still be entitled to unpaid leave.

Employed for the required period
To determine the employee’s eligibility here, you must first establish the relevant point in time. This is the beginning of the 15th week prior to the expected week of birth. HM Revenue & Customs (HMRC) provide tables in booklet E15 that show the relevant dates, as shown above.
As soon as the employee satisfies the employment criteria by the date in column three, she is entitled to 26 weeks of maternity leave, which is paid if she also satisfies the earnings rules.

Average earnings of at least the NIC LEL
First, determine the relevant period. then examine the earnings. Always use the tables in booklet E15 to find the relevant period. There is no need to use a calendar to work it out as the figures are there in the official document.

The relevant period is the eight weeks ending with the 15th week prior to the expected week of birth. For example, a woman whose baby is due between 2 April and 8 April 2006 must satisfy the earnings rules in the eight weeks including the week of 18 December 2005.

If she is paid weekly, it should be a matter of adding up all the NI-deductable payments during those eight weeks and then dividing the total by eight to arrive at the average. It may not be as simple as that, so watch out for missed weeks, weeks in which advanced holiday pay was paid out, and additional payment weeks (bonuses for example).

Monthly-paid employees must have their average worked out to a specified formula. The calculation for the average is: add up all payments made during the eight-week period, multiply by six, then divide by 52. Here again, there is a need to take care if more than two payments are made in the eight-week period.

Stops working
The whole idea of maternity rights is that they are designed to allow an employee to take leave with pay. Logically, if she does not stop working for the employer, she cannot be on maternity leave and, hence, cannot receive maternity pay. Similarly, if she returns to work at any time during the leave period, her right to payment will generally cease as well. There is some flexibility in this and developments for the future will increase the flexibility, allowing some return to work during the leave and allowing the employee to undergo necessary training and receive critical information.

Paying Statutory Maternity Pay
The amount of SMP is always:

• first six weeks of leave: 90 per cent of average earnings; and
• remaining 20 weeks: 90 per cent of average earnings or the standard rate, whichever is lower.
  

Students need to be aware of changes in the standard rate – currently £108.85 a week – and the rules for applying this when the maternity pay period crosses over into a new tax year. SMP is also pay for the purposes of Income Tax and National Insurance Contributions, so remember to categorise payments properly when you do the simulation exercises.

Form SMP1 must be issued if an employee is excluded for any reason. The form gives the reason and information about her alternative entitlements.

The future
Statutory payments are always subject to review and change. Students are reminded that they must keep up-to-date with current developments. Even if a simulation is based in a previous tax year, it will include a new development if it is a significant one.

Ian Whyteside is the Chief Assessor for Unit 73: Determining Net Pay and Unit 75: Completing Year-End Procedures of the AAT Payroll Qualification

Accounting Technician - September 2006 - pages 30-31