How is parental leave calculated?

How is parental leave calculated?
How is parental leave calculated?How is parental leave calculated?

Parental leave is an employee benefit that provides leave from employment to care for a child following birth or adoption. During the period of agreed leave, the job is protected and, subject to eligibility criteria being met, provides a statutory payment to the parent during the period of leave. Parental leave is usually available to both mothers and fathers.

What parental leave is available?

There are different types of leave that are available by law. These are:

-       Maternal leave

-       Paternal leave

-       Shared parental leave

-       Adoption leave

-       Parental bereavement leave


Statutory Maternity Pay (‘SMP’)

Statutory Maternity Leave can be taken for up to 52 weeks. The first 26 weeks of leave is known as Ordinary Maternity Leave, the subsequent leave, up to the maximum allowed 26 weeks, is known as Additional Maternity Leave.

Statutory Maternity Pay is paid for a period of up to 39 weeks and starts from when an employee leaves their employment, not necessarily from the date of the birth. SMP starts automatically if the mother has to take absence from work for a pregnancy-related illness, up to 4 weeks before the baby or babies are due.

Statutory Maternity Pay is calculated as follows:

-       90% of the mother’s average weekly earnings, before tax for the first 6 weeks of leave

-       For the remaining 33 weeks of leave, if the whole period is taken, £156.66 or 90% of average weekly earnings, whichever is lower

The employer pays SMP in the same way as they would normally pay earnings. They will deduct tax and National Insurance contributions (‘NICs’) before the payment is made. Holiday continues to accrue for the parent during their period of leave.

Eligibility criteria for receiving SMP is:

-       Employees must have an employment contract

-       Employees must give employers the correct notice that they intend to take parental leave

-       Be on the employers’ payroll in the ‘qualifying week’ – this is the 15th week before the expected week of birth

-       Provide proof that they are pregnant – usually a doctor’s letter or MATB1 maternity certificate

-       Earn at least £123 a week, gross, in an 8 week ‘relevant period’

-       Have been continuously employed by the employer for at least 26 weeks before the qualifying week

If the baby is born early, leave starts the day after the baby is born. Employees must give the employer a signed document from a doctor or midwife that confirms the date of birth, or provide a copy of the birth certificate.


Statutory Paternity Pay (‘SPP’)

Statutory Paternity Leave and Pay is available for fathers for 1 or 2 weeks when they take time off when their partner is having or has had a baby; when they’re adopting a child or having a baby through a surrogacy arrangement.

Leave must be taken in one go and must start after the birth and end within 56 days of the birth.

The statutory weekly rate for SPP is £156.66, or 90% of an employee’s average weekly earnings, whichever is lower.

The person receiving SPP must be:

-       The father

-       The husband or partner of the mother, or adopter. This applies also to same sex couples

-       The child’s adopted or intended parent in the case of surrogacy

Fathers must:

-       Be an employee with a contract of employment

-       Give the correct notice of their intention to take statutory leave

-       Have been continuously employed by the employer for at least 26 weeks, prior to the qualifying week which is 15 weeks prior to expected due date

-       Earn over £123 per week before tax

The employer pays SPP in the same way as they would normally pay earnings. They will deduct tax and National Insurance contributions (‘NICs’) before the payment is made. Holiday continues to accrue for the parent during their period of leave.


Shared Parental Pay:

Parents can share parental leave (‘SPL’) and, those that are eligible, can share 50 weeks of leave, of which 37 weeks are paid leave. This is known as Shared Parental Pay (‘ShPP’). SPL and ShPP must be taken in the first year after the child has been born. In the case of adoption, SPL and ShPP must be taken within the first year after the baby is placed with their adoptive parents.

Parents may also be eligible for SPL and ShPP if they are using a surrogate to have a baby, if they are fostering a child they intend to adopt, or if they are adopting a child.

SPL can be taken in one block or can be taken in blocks, as long as it’s within the first year. Parents can choose to take the time off together, or they can take it at different times.

Employees can take SMP/SPP then SPL/ShPP if the combined term is less than a year.

If a mother has taken 26 weeks of Ordinary Maternity leave and 26 weeks of SMP, for example, they are then able to share the remaining 26 weeks of SPL and the remaining 13 weeks of ShPP with their partner.

Eligibility for birth parents differs from the eligibility criteria for parents who are adopting or using a surrogate.

ShPP is 90% of average weekly earnings or £156.66, whichever is lower.


Adoption leave:

Adoption leave eligibility has to take into consideration some dates when the parents have received notification from the adoption agency. These are Matching Date – when the adoption agency tells the parent that they have been matched with a child; and Matching Week, which is the week in which the Matching Date occurs. Placing week is the week in which the child or children are placed with the family on a permanent basis, even prior to the adoption being formally completed.

Statutory Adoption Pay is paid for up to 39 weeks.

SAP is calculated as:

- 90% of the employee’s average weekly earnings for the first 6 weeks

- £156.66 from 5 April 2022 or 90% of their average weekly earnings, whichever is lower, for the remainder of the leave period

Employees are required to provide a copy of the Matching Certificate and tell their employer of the child’s expected placing date.

Employers need to collect data on:

-       employee’s gross pay and dates when they have been paid

-       The employee’s commencement of employment date

-       Confirm that the employee’s gross earning are liable to Class 1 National Insurance contributions (‘NICs’)

-       Average weekly earnings must exceed £123 per week for a qualifying period of 8 weeks before the Matching Week

Not all employees will qualify for both adoption leave and adoption pay.

Employees must provide their employer with the correct notice that they want to be paid SAP, which is 28 days. If the time between matching date and placing date is less than 28 days, the employer must be notified as soon as the employee is made aware of the placing date.

The employee must have a contract of employment and have been in continuous employment with the employer for a minimum of 26 weeks up to the matching date.The employee must also have earned a minimum of £123 per week in an 8-week period and provide the employer with proof of the adoption.


Statutory Bereavement Pay:

Bereavement leave and pay may be possible if a child dies before they are 18 years old, or if the baby dies after the 24th week of pregnancy. This is eligible for death or stillbirths after 6th April 2020 for England, Scotland and Wales and after 6th April 2022 for Northern Ireland.

Employees are eligible to take bereavement leave upon death or still birth if:

-       They are the biological or adoptive parent

-       The parent of a child born to a surrogate

-       The partner of the child’s parent

To take Parental Bereavement Leave, the employee must:

-       Be an employee

-       Provide notice to the employer to take bereavement leave

-       Be employed up to the day that the child died or was stillborn

-       Earn on average minimum of £123 per week

Employees can take 2 weeks leave from the first day of employment for each child who has died or been stillborn. Parents can take:

-       2 weeks together

-       2 separate weeks of leave

Bereavement leave must be taken within 56 weeks of the death or stillbirth. If employees are already on statutory leave – Statutory Maternity leave, for example, Parental Bereavement leave can be taken at the end of the end of the existing leave period, but doesn’t need to be taken immediately after the leave has been completed.


Sure Start Maternity Grants

Parents may also be eligible for a one-off payment of £500 to help contribute towards the cost of having a baby. The grant does not need to be repaid and parents must claim the grant within 6 months of the baby being born. Receiving a Sure Start Grant will not affect other benefits or tax credits.

Eligibility for the grant is:

-       First time parents

-       Multiple birth and have children already

-       The parents receive certain benefits

More information can be found here


How does PayCaptain help?

PayCaptain automatically calculates parental leave payments and deductions, once the proof of eligibility documentation has been provided to the employer. The payroll solution automatically calculates average weekly earnings and ensures that the employee is eligible from their type of employment and start date.

Small businesses can recover 100% of statutory leave payments, plus 3% small employers’ relief. Larger businesses can recover 92% of payments. This is calculated automatically and reduces the employers’ liability and the amount owed to HMRC. All information is recorded and submitted on the Employers Payment Summary (‘EPS’).

A company normally qualifies for small employers’ relief if their liability for National Insurance contributions was £45,000 or less in the last complete tax year, prior to the employee’s qualifying week.  

In summary, employees are eligible for leave and payments if they meet certain criteria. The employer has a legal obligation to protect the employee’s job during the period of leave for childbirth, adoption and bereavement and make payment of a statutory sum if they have met the eligibility criteria.

To learn more about how PayCaptain can help your business and improve the financial well-being of your employees, please contact us for an informal, no-obligation chat. We’ll be happy to demo PayCaptain for you.