How Does the Alabaster Ruling affect SMP?
What is Statutory Maternity Pay and How is it Calculated?
Statutory Maternity Pay (SMP) is a fundamental legal right for employees who are expecting a baby. Employees, depending on eligibility, can receive up to 39 weeks of maternity pay. SMP is divided into two phases; the first 6 weeks, where the employee earns 90% of their Average Weekly Earnings (AWE) before tax, and then the following 33 weeks of maternity pay, which is either £187.18 at the 25/26 rate or 90% of their average weekly earnings, whichever is lower.
Employers can reclaim 92% of employees’ Statutory Maternity Pay (SMP), or they can reclaim 108.5% if the business qualifies for Small Employers’ Relief.
Statutory Maternity Pay is calculated based on an employee’s AWE during something known as the “8-week period”. This is an eight-week calculation leading up to the 15th week before the baby is due.
When calculated, AWE should include:
- Basic salary
- Any bonuses or regular overtime
- Any commission earned as part of normal pay
- Any tips or service charges which are paid through PAYE
To be eligible for Statutory Maternity Pay, employees must:
- Receive average weekly earnings of at least £125 per week (25/26) in the “8-week period”
- Be continuously employed by the same employer for at least 26 weeks by the end of the 15th week before expected childbirth
- Provide at least 28 days’ notice and a MAT1B form
This calculation can become very complex, especially when considering flexible contracted hours, seasonal work and zero-hour contracts. Working with a professional Payroll Services provider such as MSP Payroll can make processing SMP easier and more accurate – reducing the risk of penalties and employee disgruntlement.
Speak to us today and find out how we can manage your maternity pay obligations for you.
What is the Alabaster Ruling?
The Alabaster Ruling is an addendum to the Statutory Maternity Pay (General) Regulations 1986 and reflects a ruling against Barclays Bank in 1997 (amended in 2005) that SMPs are subject to increases in pay through pay rises or similar, whenever a pay rise is applied at any time between the eight-week relevant period and the end of the SMP. Alabaster protects employees who take maternity leave and ensures they receive pay in line with the Equal Pay Act.
Alabaster applies to all forms of qualifying wage increases, including a new contract or promotion, an annual salary increase or increases to commissions if paid through PAYE. NOTE: The increase is backdated to the start of the SMP, which means the 90% calculated in the first 6 week period of maternity leave should be based on the new salary level.
For example:
An employee begins SMP with an AWE of £500 and then receives an annual salary increase of 10% during maternity leave. The first six weeks (90%) of SMP must now be recalculated at 90% of £550, not £500. If this creates a shortfall in the employee’s wages, then the company should make an extra payment (which often displays as Alabaster on the payslip) to cover the missing wages. This shortfall payment is treated as gross pay and is subject to the usual contributions required by PAYE.
How does the Alabaster Ruling Affect Shared Parental Leave?
Shared Parental Leave (SPL) allows parents to split up to 50 weeks of leave and up to 37 weeks of pay following the birth or adoption of a child. Depending on the circumstances, the Alabaster Ruling can affect the pay of one or more parents as Shared Parental Pay (ShPP) is reliant on the correct calculation of Statutory Maternity Pay.
The Alabaster Ruling directly affects Statutory Maternity Pay and not Shared Parental Pay; however, in order to take SPL, one parent must curtail their maternity leave and therefore their SMP, the balance of leave, and pay is then shared. If a pay rise occurs during the relevant period and SMP has been paid without adjustment, then the employee will have been underpaid up until the point SMP ended for the move to SPL. Ideally, any shortfall created by the Alabaster Ruling should be paid in the month the pay rise has occured, to retain the accuracy of wages.
It should also be noted that the Alabaster ruling only applies if the pay rise is effective from anytime between the start of the relevant 8-week period for Statutory Maternity Pay and the end of SMP leave. This means if that employee ends SMP to move onto Shared Parental Leave, they will no longer be eligible for an Alabaster payment.
A pay increase will only trigger the Alabaster Rule for the birth mother; Statutory Paternity Pay and ShPP are not covered by the Alabaster Rule. Only one person in the relationship can claim SMP, with the other partner being eligible for paternity leave.
Calculating SMP accurately as part of Shared Parental Pay is complex and can be easy to fall foul of. Speak to us today and ask us about our support for SMP and ShPP.
Calculating SMP and the Alabaster Rule for Different Employment Types
Employees who are seasonal, fixed-term or have fluctuating hours may still be eligible to receive SMP and will therefore also be subject to the Alabaster Ruling.
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Seasonal and Fixed Term Staff
A seasonal worker who meets the lower earnings limit and has been continuously employed for 26 weeks by the 15th week before expected delivery will be eligible for SMP. HMRC produce an excellent SMP pay table each year which will help calculate the 26th week based on the information provided by the employee’s MATB1.
If a contract is extended or there is a pay increase (including to minimum or living wage rates), and it occurs within the relevant period for Alabaster then the SMP will need to be recalculated.
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Hospitality Staff or Wages Bolstered By Tips
Restaurant, bar and pub workers may receive a portion of their taxable income through tips, service charges and gratuities paid through PAYE. For the purposes of calculating average weekly earnings, “all earnings paid in the relevant period must be included”. Therefore if a worker receives a pay increase on their base rate, their SMP must reflect the increase in salary PLUS their average tips/service charges as calculated from the average of the 8-week relevant period.
The Pitfalls and Penalties of the Alabaster Ruling
There are several unpleasant repercussions which stem from failing to correctly apply Alabaster to SMP calculations. These may include:
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HMRC Audit
SMPs are subject to audit by HMRC. Any incorrect payment calculations will require back payments and may also result in further investigation in particularly serious cases.
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Employment Tribunals
If an employee has raised a miscalculated payment internally and it hasn’t been resolved correctly, they have the right to make a claim through an employment tribunal. This will not only result in payment being required, but also may result in reputational damage and a knock on effect of overall employee satisfaction.
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Additional Financial Repercussions
Employers found in breach of Alabaster by a tribunal or HMRC audit may also be denied reimbursement from HMRC under the small employer relief scheme.
Your internal payroll processes must be robust and prepared for complex SMP scenarios. Outsourcing to a payroll professional such as MSP Payroll can reduce the risk and remove the complications. Speak to us today.
A Best Practice Approach to SMP and Alabaster
Common pitfalls when managing payroll usually occur when failing to monitor pay rises, especially for employees on maternity leave. Often misclassifying or ruling out payments from commissions or tips or not correctly applying eligibility criteria correctly to employees can create the biggest headaches.
To mitigate against this, we recommend:
- Regularly auditing your SMP processes to check calculations, especially after a company-wide pay increase.
- Separate Occupational Maternity Pay and SMP to ensure the right calculations are made as standard.
- Provide regular and up-to-date training for payroll and HR teams
- Create clear documentation covering SMP, how it is calculated and who to speak to for queries or in the event of a dispute.
- Partner with a payroll services expert – we can help with all payroll services, significantly reducing your risk of non-compliance, audits or tribunals.
How MSP Payroll can help
At MSP Payroll, we support UK businesses with accurate, compliant payroll management, from standard salaried staff to complex seasonal or sales-based teams.
Our team monitors regulatory changes, performs proactive audits, and ensures that policies like Alabaster are applied properly. We also provide full support with reclaiming SMP through HMRC and explaining the calculations to employees where required.
Contact us here and find out how we can help.
The Alabaster Ruling: Frequently Asked Questions
What is the current Statutory Maternity Pay rate?
The current rate for Statutory Maternity Pay is 90% of Average Weekly Earnings for the first 6 weeks, followed by £187.18 per week or 90% of gross AWE, whichever is lowest.
What is the eight-week relevant period?
The 8-week relevant period, also known as the Alabaster Window, is the period of eight weeks up until the 15th week before the baby is due to be born. It is classified as the period between the last normal payday before the qualifying week and the last normal payday eight weeks prior.
Can the Alabaster Ruling apply after SMP has started?
If a pay increase is backdated or occurs during maternity leave – then yes, the Statutory Maternity Pay must be recalculated and topped up.
Do Cash Tips Apply for SMP Calculations?
No, only tips, service charges and that are paid to the employee through PAYE and are subject to National Insurance are applicable for AWE calculations.
What does Alabaster mean on a payslip?
This means a recalculated additional SMP payment has been applied to the employee’s remuneration. This shows the payroll software, or provider, has calculated a shortfall in SMP and taken steps to ensure organisational compliance.
The Alabaster Ruling: Related Topics