What do employers need to know about benefits and allowances during Maternity Leave.

The question of what benefits an employee can continue to receive during maternity leave is one that can – quite rightly – cause some confusion.   Below we revisit the law regarding the continuation of benefits during maternity leave and answer some frequently asked questions.

What is the law regarding employment benefits during maternity leave?

The relevant law is contained in the Maternity and Parental Leave Regulations 1999 which say that during Ordinary Maternity Leave (OML) and Additional Maternity Leave (AML), an employee has the statutory right to the benefit of “all of the terms and conditions of employment which would have applied had she not been absent“.  The exception to this statutory right is to terms and conditions aboutremuneration” – that is “sums payable to the employee by way of wages or salary”.

In basic terms, therefore, an employee will continue to benefit from all their rights and benefits while on maternity leave, except for those relating to pay.  The employee’s pay instead is replaced by Statutory Maternity Pay (subject to eligibility), and/or the employer’s own enhanced maternity pay scheme, or maternity allowance during their maternity leave.     

What type of contractual benefits continue during maternity leave?

All contractual benefits other than remuneration will continue during both OML and AML.   This includes benefits like private health care, permanent health insurance, private use of a company car or mobile phone and staff discounts. 

It also includes annual leave, which will continue to accrue during the maternity leave period, and employers will be familiar with the additional right of employees to carry over unused holiday entitlement to the next holiday year if they cannot take it because of maternity leave.

It has been argued, however, that some benefits – like car allowances, for example – actually constitute “remuneration” and therefore are not payable during maternity leave.

Car allowances – benefit in kind or remuneration?

There is no clear answer in law as to whether a car allowance should be regarded as a benefit or part of an employee’s salary.   If the car allowance is a regular payment made to the employee with their salary, then it is arguable that it forms part of their remuneration package. Equally, it could be argued that because a car allowance appears as a separate item to wages on the employee’s payslip, it is not “remuneration” but a benefit.  

Certainly, if the employee has chosen to receive a car allowance instead of the use of a company vehicle (where that vehicle is used for business and personal use) then there will be a stronger argument to say that the benefit – like the use of a company car – should continue during maternity leave.    

With no legal precedent as yet on this issue, it means that employers will need to tread carefully when deciding whether or not to continue an employee’s car allowance while she is on maternity leave and, if necessary, seek legal advice before making a decision.  

What about bonus payments?

This is a particularly complicated area because of the different types of bonus schemes you can have (contractual or discretionary) and the different reasons for which bonuses can be paid (rewarding company or personal performance or encouraging loyalty and staff retention).  

The general position is that bonuses or commission payments that are regarded as part of an employee’s regular wages or performance related pay are likely to be classed as “remuneration” and therefore are not payable during maternity leave.   

However, what is clear is that you must pay an employee a pro rata bonus or commission payment in relation to the following periods of time:

  • The period in which they worked before statutory maternity leave started.
  • The period of compulsory maternity leave.
  • The period after the end of maternity leave.

The same rule applies to both contractual and non-contractual (i.e. discretionary) bonus or commission payments and a failure to make such payments could result in a claim of discrimination.     

The above, said, this is such a difficult area to navigate that you are best to seek advice when deciding questions regarding payment of bonuses or commission to an employee on maternity leave.  

Should we continue to offer childcare vouchers during maternity leave?

This is yet another controversial area but one which has arguably been cleared up now due to a decision made by the Employment Appeal Tribunal in 2016 on the issue. 

Many employers will be familiar with the childcare vouchers scheme whereby childcare vouchers are provided as a benefit of employment, usually through a “salary sacrifice” arrangement.   Although the scheme has been closed to new entrants since October 2018 there will still be many employees who continue to participate in the scheme and therefore for whom this issue will continue to be relevant. 

The confusion in this area, again, has concerned the question of whether the vouchers should be classed as “remuneration” – and therefore not payable during maternity leave – or as a non-cash benefit which must continue.    This uncertainty has, to some extent, been resolved by an Employment Appeal Tribunal decision in 2016 where it was held that childcare vouchers provided under a salary sacrifice scheme were part of the employee’s remuneration and therefore the employer did not have to continue to provide them during maternity leave.   The case, however, has been treated with caution and many employers have continued to offer childcare vouchers during maternity leave. 

What happens to pension payments during maternity leave? 

There is a special regime that applies to pension payments during maternity leave.  

During the first 26 weeks of maternity leave (Ordinary Maternity Leave), an employer must continue to pay its pension contributions as if the employee had been working normally and earning full salary.  However, the employee’s contributions into that pension scheme (if the pension scheme requires the employee to make contributions) will be based on the pay she actually receives, not her full salary.

The employer must continue to pay pension contributions based on the employee’s normal pay into the last 26 weeks of the 52 weeks’ statutory maternity period (Additional Maternity Leave) but this obligation only continues for so long as the employee continues to receive maternity pay.   However, as soon as the employee’s entitlement to maternity pay ends (which in the case of statutory maternity pay will be after 39 weeks) and the employee enters a period of unpaid maternity leave, the employer no longer is required to make any contributions into the scheme. 

It is worth mentioning that there is a debate about whether UK law complies with EU law in relation to pension rights during unpaid AML but as the law currently stands, there is no requirement for an employer to pay pension contributions after paid maternity leave has ended. 

Any questions?

This is a very brief overview of an area of law where there still exists lots of uncertainty.   Therefore, if you have a question or concern about what benefits or pay an employee is entitled to while on maternity leave, please contact us. 

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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