How to deal with a pay rise for employees receiving maternity pay

What you need to do in Sage 50 Payroll if an employee is affected by the alabaster rule.

If an employee is awarded a pay rise that takes effect any time between the start of the eight week set period and the end of their maternity leave, it affects their pay. 

You must take this into account when you calculate their entitlement. This is sometimes known as the Alabaster rule.

You can find more information from HMRC's website.

How you deal with this in Sage 50 Payroll depends on whether or not the employee's maternity leave has already started.

How the set period and the average weekly earnings calculate

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, which 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 - 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.

Sage 50 Payroll calculates this average for you based on the dates you enter in the employee record.

If an employee is awarded a pay rise at any point from the start of the set period up to the end of the maternity leave, you need to recalculate their average earnings. In Sage 50 Payroll the average weekly earnings don't change as the earnings in the set period haven't changed, therefore you need to make manual adjustments.

---

Make adjustments for a pay rise if maternity leave hasn't 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. Double-click the relevant employee.
3. Go to the Absence tab, then select the S.M.P. button.
4. Enter the value you calculated in Step 1 in the Average Weekly Gross Pay field.
5. Select OK, then Save.
6. Close the employee's record.

When you start to process the employee's maternity pay, the new average earnings entered in step 4 are used to calculate their entitlement.

---

Make adjustments for a pay rise if maternity leave has already started

If the maternity leave has already started, use one of the following methods to make an adjustment.

 NOTE: You need to apply pay rises retrospectively from the beginning of the maternity period, not from the period the pay increased. 

• Roll back method - This method involves rolling back the employee up to and including their first SMP payment. You must then manually recalculate the earnings for the set period and amend the Average Weekly Gross Pay value in the employee's record. Reprocess the pay for that employee up to date then calculate the difference between the net pay the employee has already received and the net pay you've now reprocessed. You can then use a post tax, post national insurance (NI) payment to pay the difference to the employee in their next pay period.
• Manual SMP method - This method involves manually calculating the total additional maternity pay owed to the employee. You must 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: Making the adjustment using the manual SMP method may result in the employee paying slightly more NI. This is because the additional SMP is paid in a lump sum, rather than calculated over the whole MPP as with the roll back method.

Make the adjustment using the roll back method

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. Roll back the employee up to and including the week or month of the first SMP payment.
3. Double-click the relevant employee.
4. Go to the Absence tab, then select the S.M.P. button.
5. Enter the amount you calculated in Step 1 in the Average Weekly Gross Pay field.
6. Select OK, then Save.
7. Close the employee's record.
8. Reprocess the employee's pay from the first pay period of SMP back up to date, using the same processing dates you used originally.
   

   NOTE: The first six weeks of SMP payments are higher than they were originally, due to the awarded pay rise.
   

9. If you made changes to a prior tax year, submit an 'amend a previous tax year' submission to send the corrected values to HMRC. For help with doing this, visit our submit an adjustment to HMRC for a previous tax year article.
10. Re-submit the latest employer payment summary (EPS).
11. Compare the net pay the employee received originally for the reprocessed period, to the new amounts of net pay and make a note of this value.

Calculate the amount you owe the employee and arrange to make this payment to them. If you'd like to record this payment on their next payslip, follow the pay in next period section below.

Pay in next period

1. Go to Company, then Pay Elements.
2. To set up a new payment select New, then enter the following information:

   Description	Enter a description for the extra pay to appear on the employee's next payslip, for example, SMP adjustment.
   Status	Variable
   Hours/No	1
   Rate	Enter the amount of extra net pay that's due, calculated in step 8.
   This payment is subject to:
   All options	Clear

   Note: In the remaining boxes, enter any settings you require.

3. Select OK then Close.
4. Double-click the relevant employee to open their record.
5. Go to the Employment tab, then select the Pay Elements button.
6. Click the finder button and select the new payment from the drop-down list.
7. Click OK to add the payment.
8. Select Save then Close.
9. When you process the employee's next pay, the new payment for SMP adjustment appears showing the amount of extra pay the employee is due. Process the payroll as normal, including this amount.
   

   NOTE: When you pay the employee the following pay period, remember to change the Hours/No for the SMP adjustment to zero.

You must also reprint your monthly P32 reports for the tax months that you've reprocessed and pay any additional amount due to HMRC with your next payment.

Make the adjustment using manual SMP

CAUTION: Sage 50 Payroll doesn't validate manual SMP payments or count the number of weeks SMP has been paid. It's 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. Double-click the required employee.
3. Go to the Absence tab, then select the S.M.P. button.
4. Select the Manual Statutory Maternity Pay Calculations check box, then click OK.
5. Click Save then Close.
6. Ensure that your process date is set correctly for your next pay period.
7. Select the required employee, then click Enter Payments.
8. Go to the Summary tab, then click the finder button to the right of the SMP box.
9. Enter the value of SMP you want to pay your employee this period then click OK.
   

   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.

10. Ensure that all payments and deductions are recorded and the pay is correctly then click Close.

You can now update the records and carry out your normal processing routines. In subsequent periods, you must manually enter the correct value of SMP due and keep a record of when the maternity pay period ends.

Read more about how to process manual SMP.

---