Employment Law

Pension Contributions During Maternity Leave - Clarification Needed.

Following judicial review proceedings brought against the Government by what was then the Equal Opportunities Commission, legislative changes were required in order to make the Sex Discrimination Act 1975 (SDA) fully compliant with the EC Equal Treatment (Amendment) Directive.

On 23 July 2008, regulations came into effect making changes relating to the terms and conditions of employment during maternity leave and these apply to employees whose expected week of childbirth begins on or after 5 October 2008. One requirement is that there should be no difference between the contractual non-cash benefits allowed to women who are on ordinary or additional maternity leave. Previously, employers were only obliged to provide such benefits during ordinary maternity leave - i.e. for the first 26 weeks. No contractual agreement made between the employer and the employee can override the new requirement.

Non-cash benefits are benefits to which the employee is entitled under her contract of employment, apart from sums payable by way of monetary wages or salary. Examples of non-cash entitlements include items such as company cars, mobile phones, living accommodation, accrued contractual holiday entitlement, medical insurance and employer-provided health checks.

Statutory Maternity Pay (SMP) used to be payable for the first 26 weeks of maternity leave - i.e. for the same period during which the employer was obliged to provide contractual non-cash benefits prior to these changes. Currently, SMP is payable for 39 weeks, although the Government has stated its intention to increase this to 52 weeks.

Given the changes to the SDA, one would expect employers' occupational pension contributions, as a non-cash benefit, to be payable throughout the period of additional maternity leave for an employee whose expected week of childbirth commences on or after 5 October 2008. However, guidance provided by HM Revenue and Customs states that employers need not continue to make employers' occupational pension contributions during unpaid additional maternity leave, nor do they need to count unpaid additional maternity leave as 'reckonable service for the purposes of occupational pension contributions'. Likewise, guidance provided by the Department for Business, Enterprise and Regulatory Reform (DBERR) states that the employer need not continue pension contributions during unpaid additional maternity leave unless the contract of employment provides otherwise.

Perhaps HMRC and the DBERR do not consider pension contributions to be a non-cash benefit? Social Security legislation requires that paid maternity leave has to be pensionable, so when SMP becomes payable for the full period of ordinary maternity leave plus additional maternity leave, then one would expect pension contributions to be payable for the entire period. Meanwhile, there appears to be a discrepancy between employment law and social security legislation that requires clarification.

For advice on making sure your policies and procedures take account of the changes to the SDA, please contact: