The Importance of Recalculating Statutory Maternity Pay Post-Alabaster Case

Background

The landmark Alabaster ruling has set a significant precedent in the calculation of Statutory Maternity Pay (SMP), emphasising the importance for employers to meticulously review whether SMP needs recalculating whenever there are pay rises.

Understanding this ruling and its implications is crucial for both compliance with employment law and the support of equitable workplace practices.

The Alabaster case, decided by the European Court of Justice (ECJ) in 2004, ruled in favor of Michelle Alabaster who argued that her SMP was not correctly calculated, as it did not reflect a pay rise awarded during her maternity leave. The court determined that any pay rise awarded, or due to be awarded, during the period from the start of the eight-week reference period before the qualifying week up to the end of maternity leave should be included in the calculation of SMP

This ruling underscores the necessity for employers to incorporate any salary increases into SMP calculations to avoid potential legal challenges and to ensure fair treatment of employees on maternity leave. It applies not only to salary but also to other compensable elements like bonuses that might affect the average weekly earnings used to calculate SMP.

For employers, the steps to compliance involve several key actions:

1. Review when increases have been awarded to women on maternity leave who receive SMP: Regularly review and update payroll systems to include checks for any pay rises that occur during the critical periods affecting SMP calculation.
2. Educate Line Managers: Ensure that Line Managers and Payroll are aware of the implications of the Alabaster ruling and trained on how to apply it correctly in SMP calculations.
3. Communicate Transparently: Clearly communicate with employees on maternity leave about how their SMP is calculated and inform them of any changes due to salary revisions.

The impact of the National Minimum Wage (NMW)

The practical impact of this ruling is that if an employee’s pay is increased, say because the National Minimum Wage goes up, the employer must recalculate the SMP for the first six weeks of maternity leave, which is paid at 90% of the employee’s average weekly earnings. This recalculated amount may result in additional SMP being owed to the employee . Failure to do so not only risks legal repercussions but could also damage the employer’s reputation and employee relations.

Furthermore, employers should be aware that while the Alabaster ruling directly addresses statutory pay, it could also influence how enhancements, such as contractual maternity pay, are handled if they are similarly based on average earnings.

In conclusion, the Alabaster ruling is a reminder of the intricate nature of employment law and the ongoing duty of employers to ensure their payroll practices are both fair and legally compliant.

If you need any assistance with employees who are on maternity leave and receiving SMP, please call the team on 01527 909436.