Employers must quickly get to grips with the new maternity leave rights, says Victoria Furness
The government’s drive to be seen as more family-friendly in recent years – with the introduction of policies such as extended maternity leave – is having an unwanted effect: life has got more complicated for employers and employees, especially when it comes to determining what pay and benefits a mother should receive while on maternity leave.
In theory, this should be a straightforward process with legislation stating that all employed women are able to take up to 52 weeks’ maternity leave, split into 26 weeks’ ordinary maternity leave (OML) and 26 weeks’ additional maternity leave (AML). If an employee has worked for an employer continuously for at least 26 weeks up to the 15th week before the week in which her baby is due, she is also entitled to statutory maternity pay (SMP) for 39 weeks of her leave.
Amendments to the Sexual Discrimination Act, which came into effect on 5 October last year, appeared to settle the benefits aspect, too. Now, employers must make the same non-cash contractual perks available during AML as they receive throughout OML. Those who fail to do so could face a sex discrimination claim, and the risk of paying out a significant amount in damages.
Unsurprisingly, the changes have led some employers to review their maternity policies. For most employers, the likely effect of the new legislation will be an increase in the cost of providing benefits to cover the extra six months. This has prompted concerns that it will lead some employers to abandon benefits such as childcare vouchers, says Rachel Hadwen, rights adviser at charity Working Families. “We know some employers are worried about how much it is going to cost them.”
It is not just the increased cost of providing benefits for an extra six months that is worrying employers. Laura Livingstone, a partner in the employment department at Davenport Lyons, says: “The most significant change is the right to continue to accrue contractual and statutory holiday. This will result in employees being [away] for longer.”
But the main problem is many employers are unsure of what the legislation actually covers. This issue stems largely from what exactly is classed as a cash and non-cash benefit (see box). For instance, a company car is classed as a non-cash benefit, so an employer must continue to provide this perk throughout AML. However, a car allowance is considered a cash benefit so an employer is under no obligation to continue to provide the benefit during the same period.
Salary sacrifice One key area of concern for employers is what they should do about perks paid for via salary sacrifice. In the case of childcare vouchers, there is some debate as to whether employers should continue to provide them as a non-cash benefit during maternity leave or, whether they constitute remuneration if paid for through a salary sacrifice scheme. HM Revenue and Customs’ (HMRC) guidance on Statutory maternity leave – salary sacrifice and non-cash benefits treats them as a non-cash benefit. The same guidance also says entitlement to receive non-cash benefits through OML and AML continues even though the employee may not be receiving any salary or wages that can be sacrificed and adds that SMP can not be sacrificed. Whether employers or employees are free to opt out of a salary sacrifice arrangement is subject to contract law, and maternity and equal pay employment law.
There is a risk employees will manipulate the amount of SMP or non-cash benefits they receive while on leave. Andrew Erhardt-Lewis, senior manager consulting at Deloitte, says a former workplace of his allowed staff to make regular changes to benefits paid for via salary sacrifice. “Some women were savvy enough to drop childcare vouchers during the qualifying weeks for SMP then afterwards reinstate them,” he says. “So they benefited from receiving higher statutory maternity pay and [receiving] benefits [during leave].”
Employers can introduce some safety checks, such as only allowing staff to make changes to their benefits package once a year or when they experience a significant life event. But they must be cautious of implementing policies that single women out, such as capping the amount of salary expectant mothers can sacrifice, which may constitute sex discrimination.
By far the biggest area of confusion surrounding the legislation concerns whether employers should continue to pay pension contributions during the last 13 weeks of AML, when a woman is not receiving any pay. HMRC has issued guidance that says employers do not have to make occupational pension contributions during unpaid AML.
Pensions But guidance doesn’t constitute law and, again, there seems to be a fundamental problem about whether a pension should be classed as a non-cash benefit or as remuneration. If it is treated as the former, UK employers could be in potential conflict with EU case law of 1990 when Barber vs Guardian Royal Exchange Assurance Group defined a pension as deferred pay. Chris Seaton, head of employment, pensions and incentives at law firm Burges Salmon, says: “The cautious approach is to view it as a non-cash benefit and continue with employer contributions for the balance of the period. But unfortunately, this issue will have to be tested through [further] case law.”
Many employers supersede legal requirements by offering benefits such as workplace nurseries to encourage women back to work. PricewaterhouseCoopers gives women who return to work 20% of their return pay in childcare vouchers, while KPMG offers up to 20 days’ emergency childcare a year and first aid classes for staff with young children.
Once back at work, any employee with a child under six years has the legal right to request the right to work flexibly. This is about to be extended by the government to parents with children aged up to 16 years.
Family-friendly employers claim such policies help to recruit and retain key staff. So with further family-friendly legislation expected shortly, this may be a good time for more employers to review their policies.
Cash and non-cash benefits
Cash benefits
Salary
Bonus
Share schemes
Cash allowances (for example, housing, car, fuel or first aid)
Vouchers with a transferable cash value (such as luncheon vouchers, retail vouchers or tickets, for example, to sporting events)
Non-cash benefits
Company car
Mobile phone
Insurance (for example, medical, dental, critical illness, travel, car and so on)
Childcare vouchers
Holiday
On-site creche
Living accommodation or other assets provided to the employee for non-business use Gym membership
Pension (although this is still a grey area and employers do not have to pay contributions for the last 13 weeks of unpaid AML)
Case Study
Kellogg’s feeds family focus
Kellogg’s offers a number of family-friendly perks to its workforce. Ahead of last year’s legal changes, it carried out a review of its maternity policy. It already offered a generous package, with women on maternity leave receiving 18 weeks on full pay followed by 21 weeks on statutory maternity pay.
Dave Lowe, compensation and benefits business partner, says: “The only change was to fund childcare vouchers [during additional maternity leave].”
The company also pays employer pension contributions up until week 39 of maternity leave. Legally, women are entitled to 10 keeping-in-touch days while on leave, which are growing in popularity. “Both the business and women on maternity leave have said they are useful,” adds Lowe.
Moreover, some of its factory sites hold family days and every Christmas Eve, staff and their children are invited to headquarters for a carol concert. Anyone can request to change their working hours, and parents can ‘bank’ savings for childcare vouchers, which are converted once parents have selected a provider.