It is not possible to contract out of a right to statutory maternity pay ‘(SMP’). Sometimes companies get a departing employee to sign a compromise agreement. Such an agreement can not make the employee sign away her rights to SMP. The most it can do is record that SMP has been paid.
There follows a reminder of when someone is entitled to SMP. An employee will be entitled to SMP if:
SMP is, therefore, payable to a woman who is or has been an employee and who meets the other qualifying conditions. The relevant guidance states “an employee will still be eligible for SMP if she leaves employment for any reason after the start of the Qualifying Week. In such cases, if her maternity leave has not already begun, SMP starts to accrue on the day after employment ends or at the start of the eleventh week before the EWC, whichever is later (regulation 2(5), SMP Regulations).”
Thus, if an employee leaves employment after qualifying for SMP she is still entitled to it. In some cases when an employee leaves, an employer agrees to a compromise (now called a ‘settlement’) agreement with the departed employee. As we said earlier, it is not possible to contract out of the entitlement to SMP in a compromise agreement or in any other way. This means, for example, that if an employer gives a lump sum to an employee who has been made redundant at a point when she has qualified for SMP and that agreement ostensibly settles all claims including claims for SMP, the employee is still entitled to SMP. The only exception to this is where the compromise agreement is simply recording that SMP has been paid. HMRC will accept that SMP has been paid under a compromise agreement if the agreement identifies the SMP separately and if tax and NICs have been paid in respect of the payment.
Thus, as it is not possible to contract out of the obligation to pay SMP the most a company can do in the context of a compromise agreement is to record that it has been paid in one lump sum in such an agreement. HMRC have issued specific guidance which says it will accept that SMP has been paid pursuant to a compromise agreement if the agreement records that fact properly and if the tax and NIC treatment is correct. We suspect that the HMRC guidance was designed to deal with companies having paid a lump sum who try later to claim that that lump sum included SMP.
The HMRC guidance is ‘SPM21040’ and states that the company will still be liable to pay SMP unless the compromise agreement “stipulates and it is visible that the final payment includes the full entitlement of any [SMP] due”.
Specifically, it says “If an employee agrees to accept a compensation package on termination of her employment when she goes on maternity leave, the employer will only have met their liability to pay SMP if:
One further point to note is that SMP is only payable to a woman who has ceased work. If an employer pays the SMP in a lump sum at the outset when the employee leaves there is a possibility that the woman might start a new job. If she does so during the maternity pay period she will not be entitled to SMP. This would mean that the employer has wrongly paid it and therefore it would not be able to claim all of it or most of it back from HMRC.
We have previously raised this with HMRC who told us that it would cooperate with the Company in recovering the SMP from the employee. However, this can’t be taken as a definitive statement of HMRC policy. As such, although many companies pay SMP in a lump sum to a departed employee best practice would be to pay it weekly or monthly throughout the period and to remind the employee of her obligation to inform the Company if she commences new employment.