Statutory Payments are payments that are made to employees to cover earnings lost when they are absent from work either due to illness or because they are becoming a parent.
Whether employee or employer, the vast majority of individuals will be affected by at least one of the above situations at some point during their life span. In order to support employees if and when either of these situations does occur, the government have put in place a support system that subsidises lost earnings for a set period of time.
Currently employer’s are legally obliged to pay their employee’s a minimum rate of Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay or Statutory Adoption Pay, providing they qualify for payments by meeting criteria stipulated by HM Revenue and Customs.
The criteria differ from payment to payment, but generally an individual must be an employed earner who is liable for making secondary Class 1 National Insurance Contributions (NICs) on their wages or salary.
Some companies may also opt to run their own Statutory Payment schemes, which are often considerably more generous than the government’s offerings (company schemes must be equivalent to or above the government Statutory Payment threshold). If so, the company statutory payment policy must be outlined within a written statement of employment particulars that should be given to all employees who have worked within the company for at least one month.
This fact-sheet gives a brief summary of Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay. It is intended for guidance use only and does not cover all situations or provide a full statement of the law.
Statutory Sick Pay (SSP)
An inevitable aspect of the workplace is sickness and absence. No matter what the size of the company - large or small, employee’s requiring time off due to illness is something that all companies will experience.
If an employee is off work due to sickness they may be entitled to Statutory Sick Pay. The employer makes these payments to the employee in the same way that general wages would be paid, and they are intended to supplement the employee’s loss of earnings whilst they are unable to work.
Depending on your business structure and benefits package, your company may also offer employee’s company sick pay, which is a supplementary payment scheme that is more generous than SSP. As long as the company sick pay entitlement is above the legal requirements of SSP, a company may offer any scheme they wish. Details of a company sick pay scheme should stipulate within employment contracts and in the event that an employee does not meet the conditions of your company scheme, that you must still pay them SSP if they are eligible.
The rate of SSP is set by the government, and is payable for up to 28 weeks (it's not paid for the first 3 days an employee is absent). Employee’s who are still absent from work after this period has elapsed may then be entitled to claim Incapacity Benefit.
If a large percentage of employee’s are absent due to sickness at the same time, employers may be entitled to claim some or all of the Statutory Sick Pay they have paid out from HM Revenue and Customs.
Obligations of the employer
To summarise, it is an employer’s responsibility to carry out the following:
- Establish whether or not the absent employee meets the qualifying criteria.
- Calculate how much SSP the employee is due.
- Pay the employee the correct SSP amount.
- Maintain an accurate record of how much SSP is paid to the employee.
Qualifying criteria for SSP
Employer’s are responsible for paying SSP to employee’s who meet the following criteria:
- The employee must be employed by you and must have worked for you under their current contract.
- The employee must have been sick for four or more consecutive days; this is called a 'Period of Incapacity for Work' (PIW).
- The employee’s average weekly earnings (AWE) should be equivalent to or above the lower earnings limit (LEL) for National Insurance Contributions.
- The employee must notify you of their sickness within the time limit specified in your company sick leave policy. If you have not set out any time limits within your company policy they must contact you no later than seven days after the first day of absence.
If an employee is not entitled to claim the sickness benefit but has been unable to work for a period of at least four consecutive days, you should inform them that they may be entitled to claim Employment and Support Allowance (ESA) or Universal Credit. If an employee cannot claim SSP, you should issue them with an SSP1 form which outlines the reasons as to why they are unable to claim and may support their ESA claim.
It is the responsibility of the employer to work out how much SSP is owed to the employee. SSP is paid at a daily rate so the employer will need to work out what this is.
SSP is payable for a maximum of 28 weeks in each period, so in order to calculate when you have paid 28 weeks worth of SSP employers will need to keep a running total. An SSP2 form can be used to record sickness periods and payments.
For more information about SSP, please visit the HM Revenue & Customs website.
Statutory Maternity Pay (SMP)
Statutory Maternity Pay (SMP) is a payment made to expectant mothers to replace any earnings lost from time taken off around the time of birth.
SMP is payable for up to 39 weeks and in order to receive it, mothers-to-be must meet certain qualifying conditions.
As an employer, your obligation to pay SMP to an employee will be based on the amount of time they have worked for you and on how much they earn. It is the responsibility of the employee to provide the employer with evidence of the baby’s due date and they will also need to issue their employer with notification as to when they would like the SMP payments to begin.
All SMP payments are classified as ‘earnings’ so Income Tax payments and National Insurance Contribution deductions will need to be taken as normal. Similarly to Statutory Sick Pay and other statutory payments, employers may be able to recover either a proportion or all of the SMP payments they have made from HM Revenue and Customs.
New mothers are required to take compulsory statutory maternity leave for the first two weeks immediately after childbirth, after which it is the responsibility of both employer and employee to set a start date and discuss reintegration back into the workforce.
Qualifying criteria for SMP
An expectant mother is entitled to 26 weeks of ‘Ordinary Maternity Leave’ and 26 weeks of ‘Additional Maternity Leave’, totalling one year collectively.
An employer only needs to pay SMP if the employee meets the following conditions:
- The employee must have worked for the company continuously on either a full or part time basis for at least 26 weeks (up to and into the 15th week before the baby is due).
- The employee has provided the employer with paperwork confirming the pregnancy, and has given sufficient notice as to when they would like the SMP payments to begin.
- The employee has average weekly earnings that are equal to or above the Lower Earnings Limit (LEL) for National Insurance.
As an employer you may decide you would like to offer your staff better rates than the legal minimum, and if this is the case you will need to stipulate the terms and particulars within employee contracts and/or staff handbooks.
If for whatever reason an employee fails to meet the qualifying criteria, it is the employer’s responsibility to issue an SMP1 form, in which they can outline why they are unable to make the SMP payments to the employee in question.
Employers should also inform employees that even if they are not eligible for SMP, they may be able to claim Maternity Allowance from the Department of Work and Pensions (DWP) instead.
Calculating the SMP amount owed to employee’s can either be worked out manually or through the use of software such as an HMRC Maternity Pay calculator. If you will be using software to perform your calculations then make sure you use the latest most up to date version.
Whichever way employer’s perform their calculations, they will need to be in possession of the following information:
- due date of the baby
- planned start date for maternity leave
- planned finish date for maternity leave
- gross pay
- company start date
- confirmation that the employee’s gross earnings are liable to Class 1 NICs.
If employers are using payroll software then this will automatically do most of the legwork, performing the necessary calculations so that employer’s can establish whether or not employee’s are eligible for SMP, how much is due and how much they will realistically be able to recover from HMRC.
For further information about SMP, please visit the HM Revenue & Customs website.
Keeping a record of SMP
Employers must ensure that they complete all of the necessary forms and keep an accurate record of all SMP payments. Forms that must be kept on record include a MAT B1 Maternity Certificate, which is a form given to you by your employee to confirm that they are pregnant. This form needs to be signed by a doctor or midwife and should be issued to the employee after their 20th week of pregnancy.
To keep a record of the payments made, employers can use an SMP2 form obtained from HM Revenue and Customs or their own version. This form can be used to record the payment dates, the amount paid and any weeks in the 39-week period when SMP wasn’t paid and the reasoning behind this.
For further information about record keeping and the additional forms which need to be kept on file, please visit HM Revenue and Customs.
Statutory Paternity Pay
Any employee whose partner has a baby or adopts a child may be entitled to Paternity Pay, which will help to replace any earnings lost whilst they take time off to care for the child and support their partner. Employees may be eligible for:
- 1 or 2 weeks paid Ordinary Paternity Leave
- up to 26 weeks; paid Additional Paternity Leave - but only if the mother/co-adopter returns to work.
Ordinary Paternity Leave
Employees can receive either 1 or 2 weeks of Ordinary Paternity Leave. This leave must be taken in one go and the employee must provide their employer with a notification of the general time at which they would like their leave to begin (e.g. the day of the birth).
During this time the employee may be entitled to Ordinary Statutory Paternity Pay (OSPP), though this will depend on how long they have been in employment, how much they earn, when the baby is due or the date of adoption. They will also need to provide their employer with a declaration covering family commitment and will need to submit notice of when they would like OSPP to begin.
Additional Paternity Leave
Employees can receive between 2 and 26 weeks of Additional Paternity Leave, depending on how much unused maternity (or adoption) leave their partner has.
The employer must confirm the start and end dates when the employee claims their leave.
The statutory weekly rate of Ordinary Statutory Paternity Pay (OSPP) and Additional Statutory Paternity Pay (ASPP) is 90% of the employees average weekly earnings or a rate set by the government and reviewed regularly (whichever is lower).
Any paternity payments are officially classified as earnings, so both employers and employees should be aware that both Income Tax and National Insurance Contribution (NIC) Deductions should occur as normal.
In addition, similarly to most other statutory payments which employers are obligated to make, some costs may be able to be recovered from HMRC.
An employee will only be eligible to claim OSPP or ASPP if they are responsible in part for the upbringing of the child, are taking time off in order to provide care and support to mother and baby, and are one of the following:
- the biological father of the baby
- husband or partner to the mother (or adopter) – in a same sex couple this includes a female partner.
- child's adopter
Additional conditions that need to be met to qualify for ordinary or additional leave or pay can be found online at the HM Revenue & Customs website.
Calculating OSPP and ASPP
Working out how much OSPP is owed to an employee can be done manually or using payroll software such as the free HMRC payment calculator. This software will tell you if your employee is entitled to receive Statutory Payment, how much they are due and how much the employer may be able to recover.
Keeping a record of OSPP and ASPP
Employers are required to keep a record of the OSPP and ASPP payments they have made and must ensure that they keep the following documents on file:
- copy of the declaration of family commitment
- dates of payment and the amount paid
- date from which payment commenced
- details of any OSPP and ASPP that wasn’t paid and why not.
Statutory Adoption Pay
An employee who is adopting a child may be entitled to Statutory Adoption Pay (SAP) to cover any earnings lost when they take time off to help their child settle in.
An employee’s eligibility for these payments will be dependent on the length of time they have worked within the company, and their earnings at the time the child was placed for adoption. They will also be required to give evidence of the adoption and to ensure they make their employer aware of when they would like the SAP to begin.
Any SAP payments count as normal earnings so employers must make sure that they deduct the usual National Insurance Contribution (NICs). Similarly to the above statutory payments, employers may also be able to recover some of the costs of payments made from HM Revenue and Customs.
Qualifying Criteria for SAP
If an employee is entitled to adoption leave and SAP, employers must allow them up to 52 weeks of adoption leave and they must pay SAP for the first 39 weeks.
If your employee forms one half of a couple who are adopting a child together then only one member of that couple will be entitled to adoption leave and pay and the other may be entitled to claim Statutory Paternity Pay (OSPP).
In order to be paid SAP employees must have worked for the company continuously for a minimum of 26 weeks, into the week that the adoption agency informed the adopter that they had been paired with a child. In addition, the employee must have average earnings that are at least on a level with the Lower Earnings Limit (LEL) for NICs.
For further information about SAP, please visit the HM Revenue & Customs website.
How could an accountant help with statutory payments?
If your company chooses to do so it is perfectly acceptable to handle Statutory Payments in-house. There are various valuable tools on offer from organisations such as HM Revenue and Customs and Business Link, which will help companies’ to establish eligibility of employee’s for Statutory Payments as well as helping to calculating the amount owed.
However, without the ‘know how’ and necessary experience, the Statutory Payment procedure can be a complicated minefield.
Accounts which are clear and concise are imperative to the overall smooth running of a business, and poor and incorrect accounting practices could be detrimental to business and could even land a company with a hefty fine.
Hiring an accountant to take over these procedures will not only lift the burden of accounting administration from your shoulders, but it will also mean that staff who previously dedicated a portion of their time to payroll can now apply their skills to other areas of the business.
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