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A guide to the Alabaster ruling

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Summary

Alabaster is the name given to the European Court of Justice case, which can affect the way an employee's average weekly earnings for statutory maternity pay (SMP) are calculated when an employee is awarded a pay rise.

Description

Prior to this case, if an employee received a pay rise whilst pregnant, it could only be counted towards her average weekly earnings for SMP purposes if the pay rise was backdated to the set period.

Following the judgment, the employee's SMP takes into account any pay rise that takes effect anytime between the start of the eight-week set period for calculating SMP and the end of the woman’s statutory maternity leave.

Resolution

The following steps contain everything you need to help you make adjustments to support this ruling.

How the set period and the average weekly earnings are calculated
When an employee takes maternity leave and receives SMP, the first six weeks are paid at the higher rate, which is 90% of their average weekly earnings. A set period is used to calculate the average weekly earnings, and HMRC regulations define the set period as the period between:

 

Date 1 - The last normal pay day on, or before the Saturday of the qualifying week (QW), this is the 15th week before the week the baby is due. This pay day is Date 1 and is the end of the set period, and

Date 2 - Find the last normal pay day falling not less than eight weeks before the pay day at Date 1. Date 2 is the day after this pay day and is the start of the set period.

The Alabaster ruling comes into force if an employee is awarded a pay rise at any point from the start or the set period up to the end of the maternity leave. In Sage Instant Payroll the average weekly earnings don't change as the earnings in the set period haven't changed, therefore manual adjustments must be made.


Make adjustments for the Alabaster ruling if maternity leave has not yet started
  1. Based on the awarded pay rise, manually calculate and make a note of the employee's new average weekly gross pay for the set period.
  2. Pay Employees > Maintain employees' pay > click the required employee > Statutory Maternity Pay.
  3. Dates tab > Average Weekly Gross Pay box > enter the amount you calculated in step 1.
  4. To save the details > Confirm details.

Make adjustments for the Alabaster ruling if maternity leave has already started

This method involves manually calculating the total additional maternity pay owed to the employee. You must then set the employee to receive manual SMP payments, then process the SMP manually for the remainder of the maternity pay period (MPP). You should include the additional SMP owed to date in the next payment then pay SMP at the newly calculated rate, where applicable, for the rest of the MPP.

Note: Sage Instant Payroll does not validate manual SMP payments or count the number of weeks SMP has been paid. It is therefore your responsibility to ensure the payments you make, and the number of weeks paid are correct.

  1. Based on the awarded pay rise, manually calculate and make a note of the amount of additional SMP the employee is owed.
  2. Pay Employees > Maintain employees' pay > click the required employee > Payments > Statutory Maternity Pay.
  3. Details > in the I want to pay 's maternity pay using the drop-down list > choose manual > Close Message.
  4. To save your changes > Confirm details.
  5. On the Maintain Employees' Pay screen > in the Amount column for Statutory Maternity Pay > enter the value of SMP you want to pay your employee this pay period > Save details.

    Note: This value should be the value of SMP for the current period plus the additional SMP due to the employee to date, calculated in step 1.

  6. Ensure that all other payments and deductions are correct for your employees > to return to the Pay Employees screen > Close Maintain Employees' Pay screen.

You have now calculated the additional SMP due to the employee, and manually processed this with their next payment. You can now carry out your normal processing routines, including finishing payroll. In subsequent pay periods, you must manually enter the correct value of SMP due and keep a record of when the MPP ends.


The following steps contain everything you need to help you make adjustments to support this ruling.

How the set period and the average weekly earnings are calculated
When an employee takes maternity leave and receives SMP, the first six weeks are paid at the higher rate, which is 90% of their average weekly earnings. A set period is used to calculate the average weekly earnings, and HMRC regulations define the set period as the period between:

 

Date 1 - The last normal pay day on, or before the Saturday of the qualifying week (QW), this is the 15th week before the week the baby is due. This pay day is Date 1 and is the end of the set period, and

Date 2 - Find the last normal pay day falling not less than eight weeks before the pay day at Date 1. Date 2 is the day after this pay day and is the start of the set period.

The Alabaster ruling comes into force if an employee is awarded a pay rise at any point from the start or the set period up to the end of the maternity leave. In Sage Instant Payroll the average weekly earnings don't change as the earnings in the set period haven't changed, therefore manual adjustments must be made.

Make adjustments for the Alabaster ruling if maternity leave has not yet started
  1. Based on the awarded pay rise, manually calculate and make a note of the employee's new average weekly gross pay for the set period.
  2. Pay Employees > Maintain employees' pay > click the required employee > Statutory Maternity Pay.
  3. Dates tab > Average Weekly Gross Pay box > enter the amount you calculated in step 1.
  4. To save the details > Confirm details.
Make adjustments for the Alabaster ruling if maternity leave has already started

This method involves manually calculating the total additional maternity pay owed to the employee. You must then set the employee to receive manual SMP payments, then process the SMP manually for the remainder of the maternity pay period (MPP). You should include the additional SMP owed to date in the next payment then pay SMP at the newly calculated rate, where applicable, for the rest of the MPP.

Note: Sage Instant Payroll does not validate manual SMP payments or count the number of weeks SMP has been paid. It is therefore your responsibility to ensure the payments you make, and the number of weeks paid are correct.

  1. Based on the awarded pay rise, manually calculate and make a note of the amount of additional SMP the employee is owed.
  2. Pay Employees > Maintain employees' pay > click the required employee > Payments > Statutory Maternity Pay.
  3. Details > in the I want to pay 's maternity pay using the drop-down list > choose manual > Close Message.
  4. To save your changes > Confirm details.
  5. On the Maintain Employees' Pay screen > in the Amount column for Statutory Maternity Pay > enter the value of SMP you want to pay your employee this pay period > Save details.

    Note: This value should be the value of SMP for the current period plus the additional SMP due to the employee to date, calculated in step 1.

  6. Ensure that all other payments and deductions are correct for your employees > to return to the Pay Employees screen > Close Maintain Employees' Pay screen.

You have now calculated the additional SMP due to the employee, and manually processed this with their next payment. You can now carry out your normal processing routines, including finishing payroll. In subsequent pay periods, you must manually enter the correct value of SMP due and keep a record of when the MPP ends.

 

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