In this article
We've put together this handy guide to help you understand how SMP and pensions work. Keep in mind that everyone's situation is different, so if you need clarification on what you should be paying your employee, it's always a good idea to seek advice and guidance to make sure you're following the correct process.
Can you use salary sacrifice with statutory maternity pay?
No, you cannot use salary sacrifice with statutory maternity pay. You must pay the total amount of statutory maternity pay without any deductions.
What happens when a salary sacrifice scheme employee goes on maternity leave and receives maternity pay?
Generally, the terms of a salary sacrifice arrangement should continue as if the employee was still working. This means that the employer's contribution to the pension scheme should be based on the employee's salary before going on maternity leave.
What about employee pension contributions?
The employee should continue making their pension contributions as usual, but the amount they contribute will be based on their actual pay received during maternity leave, not their regular salary. If they are in a salary sacrifice scheme, their pension contribution cannot be taken from their statutory maternity pay.
Sometimes, the employer may choose to pay the entire pension contribution. For example, if the employee was contributing 5% to the pension and the employer 3% before going on maternity leave, the employer could decide to pay the full 8% as if the employee was on full pay.
Why can net pay arrangement and relief at source pensions be deducted from statutory maternity pay, but salary sacrifice pensions cannot?
Net pay arrangement and relief at source pension contributions are considered authorised deductions from pay, similar to taxes or national insurance.
A salary sacrifice arrangement, whether for a pension, childcare vouchers, or something else, is not a deduction from pay. It involves changing the employment contract, so it cannot be taken from statutory payments.