Maternity leave and sacrifice

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    The law changed in 2008 on what benefits employers must provide to employees on maternity leave. Employers often provide benefits under salary sacrifice arrangements. This guidance looks at what impacts salary sacrifice arrangements have on Statutory Maternity Pay (SMP); and at what non-cash benefits employers should provide to their employees during statutory maternity leave.

    Parallel changes in the law took place in 2008 on what benefits employers must provide to employees on adoption leave. The remainder of this note applies equally to adoption cases as it does to maternity cases.

    What is salary sacrifice?

    Salary sacrifice is not a term that you will find in legislation. It describes a legally- binding change in the contractual arrangements between employer and employee – most commonly where the employment contract is amended to reduce the employee’s entitlement to cash salary, and a non-cash benefit is provided. The value of the non-cash benefit may equate to the amount of salary ‘sacrificed’. The effect of the salary sacrifice must be that the employee has given up the right to some of their cash pay.

    The variety of non-cash benefits can be considerable. Their treatment for tax and National Insurance Contributions (NICs) purposes varies – they can be subject to tax under PAYE or under the P11D (Expenses and Benefits) procedure; they can be subject to NICs under Class 1, Class 1A or Class 1B. Indeed some can be exempt from tax or NICs, in whole or in part. It is important to look at the relevant rules that set-out the charge to tax and NICs on each provided benefit.

    Salary sacrifice arrangements are covered by employment and contract law. Employers should consider taking legal or HR advice when making amendments to employment contracts.

    What must the employer continue to provide to a woman when she is on statutory maternity leave?

    o Employers must continue during AML (as well as OML) to provide any non-cash benefits that they have agreed to provide as a term of the employment contract.
    o These non-cash benefits are what she is entitled to under her contract of employment, apart from sums payable by way of monetary wages or salary. These non-cash entitlements would include:
    o company cars, mobile phones, living accommodation or other assets provided to the employee for non-business use, without being transferred to the employee
    o medical / dental / critical illness / travel / car insurance provided under company insurance policies; employer-provided health checks
    o non-cash vouchers, such as childcare vouchers which can only be used by the employee for qualifying childcare and are not transferable
    o the right to accrue contractual annual leave (employees are already entitled to the statutory minimum amount of annual leave per year, regardless of whether or not they take any maternity leave).

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