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Distinction between ordinary and additional maternity leave removed

The Government has published new regulations which make important changes to maternity rights. These will affect women whose expected week of childbirth (EWC) begins on or after 5 October 2008.

Currently there are important distinctions between the first 26 weeks of absence on ordinary maternity leave (OML) and the subsequent 26 weeks of additional maternity leave (AML). During OML a woman is entitled to the benefit of all the terms and conditions of her employment apart from “remuneration”, which is defined as sums payable to an employee by way of wages or salary (although obviously not maternity pay). Such terms and conditions might include life assurance, private medical or permanent health insurance, private use of a company car or mobile phone, gym membership and non-cash vouchers (such as childcare vouchers) including, arguably, those given to the employee as part of a salary-sacrifice scheme. During AML, however, entitlement to such terms and conditions of employment is generally suspended.

This distinction has now been removed for women with an EWC on or after 5 October 2008. Employers will be required to continue to provide all contractual benefits, except pay, throughout the whole period of maternity leave, both OML and AML and whether such leave is paid or unpaid. No contrary contractual agreement between employer and employee can override this requirement.

The position with regard to pension contributions is more complex and is currently generating considerable debate. The new regulations reflect the Government’s view that the employer must maintain pension accrual or employer pension contributions only during paid maternity leave (currently 39 weeks). This is the position under Schedule 5 of the Social Security Act 1989. However this still leaves open the question of whether an employee has greater rights than Schedule 5 provides. For example, it is difficult to describe payments made by an employer to a pension arrangement (whether an occupational pension scheme or a personal pension/stakeholder) as “remuneration” under the above definition. The employer contributions are paid to the pension scheme to provide a benefit, in the same way as the employer pays a life insurance premium or a gym subscription. The better view, therefore, is that pension accrual and/or employer pension contributions amount to a contractual benefit which may now need to be continued during the whole period of maternity leave (both paid and unpaid).

We say “may” because, where contractual benefits are concerned, the employee potentially remains bound by any obligations arising under the terms and conditions governing such benefits, except where they are inconsistent with her right to take maternity leave (see the Employment Rights Act 1996, sections 71 and 73). Thus an obligation to contribute towards the benefit continues to apply, subject to appropriate modifications.

In the case of a contributory pension scheme, the accrual of pension and/or the payment of employer pension contributions during maternity leave are likely to be conditional upon the employee paying the employee contributions required by the rules of pension arrangement, subject to the provisions of Schedule 5 of the Social Security Act 1989. In other words, pension accrual and/or employer pension contributions must at least continue during paid maternity leave and, during the same period, the employee’s own contributions must be calculated by reference to maternity pay actually received. During unpaid leave, no pension accrual and/or employer pension contributions will be required, save where the employee pays the required employee pension contributions, for example on a return to work. Many occupational pension schemes already reflect this position in their scheme rules.

Non-contributory pension arrangements cannot be restricted on the same basis. The Pregnant Workers Directive and European case law (notably Boyle v Equal Opportunities Commission) support the view that the accrual of pension rights under a non-contributory occupational pension scheme (i.e a scheme wholly financed by the employer) during maternity leave cannot be made conditional upon the woman receiving contractual pay or maternity pay during that period. In other words, a non-contributory pension arrangement is a contractual benefit which must continue during the whole period of maternity leave, both paid and unpaid.

Particular issues arise in flexible benefit schemes, incorporating salary sacrifice, and pension arrangements which offer a variety of contribution structures. More guidance and case law is inevitable and the terms and conditions of an employer’s actual arrangements will also be material. In short, however, our current views on the basic principles are as follows:

Employees who sacrifice salary in return for an employer contribution to a pension arrangement effectively participate on a non-contributory basis. The sacrificed salary is no longer remuneration, but has been exchanged for a contractual benefit which should therefore, in the absence of relevant conditions, continue during the whole maternity leave period.

Employers who make employer contributions to a pension arrangement, which are not conditional upon the employee paying anything, should continue to make such contributions during the whole maternity leave period. These include employers who offer a base level of employer contribution, which is payable whether or not the employee makes contributions of her own, for example before contribution matching applies.

Employer contributions which are conditional on the employee paying a particular contribution should continue during paid maternity leave and during unpaid leave if full employee contributions are maintained. During paid maternity leave, the employer should maintain the same level of contribution as if the employee was working normally (e.g. the relevant percentage of normal salary) although the employee’s contribution will be adjusted to reflect maternity pay actually received (e.g. the relevant percentage of maternity pay).

Care should also be taken of non-contributory death in service trusts (which are technically pension schemes) many of which continue to restrict death in service benefits to periods of paid maternity leave, save where otherwise agreed between the insurance company and the employer. It would make sense, in our view, to agree with the insurance company to extend the policy to cover the whole maternity leave period, both paid and unpaid.

We appreciate that these views may be more sophisticated than much of the official guidance currently available and the wording of the actual regulations. Given the uncertainty many employers will continue to take a pragmatic view and follow such guidance unless and until it is changed. Further case law and legal developments are very likely in the short to medium term. In the meantime, employers are well advised to consider the nature of their specific arrangements and to seek advice on the potential risks associated with them in the context of these improved maternity rights.

This lawbite is for general guidance only and is not a substitute for legal advice.