- Blog
- |People management
- >Employment law
- >Alabaster ruling
The Alabaster Ruling & How it Relates to UK Maternity Leave - A Guide
UK statutory employment rights guide
If an employee receives a pay rise at any time between the start of the relevant period and the end of statutory maternity leave, then SMP must be recalculated for that individual, taking into account the pay rise. The legislation is otherwise known as backdated pay awards during SMP, or the Alabaster ruling, and was based on a European Court of Justice decision from 2004, which passed into UK legislation in April 2005.
In this guide, we’ll help employers to understand the time periods involved in Alabaster calculations, how to calculate the additional pay, and how PayFit can help make both Alabaster and SMP processes much smoother
What is the Alabaster ruling, and when does it apply?
The Alabaster ruling, also known as ‘backdated pay awards during SMP’, came about after a case between an employee of the same name, and Barclays Bank PLC. Ms Alabaster commenced maternity leave in January 1996, having been given a pay increase in December of the previous year. However, this was not included in her maternity pay calculation. Ms Alabaster was able to successfully argue that even though Barclays had paid her in accordance with the terms of SMP, this was in breach of the Equal Pay Act, and European law.
The European Court of Justice found that the SMP regulations, as they were at the time, failed to properly comply with EU law. Therefore in 2005, UK SMP regulations were amended, and the Alabaster rule passed into UK law.
It applies whenever a pay rise is processed at any time from the start of the relevant period and the end of statutory maternity leave. But how do you know when these are? Read on to find out.
The crucial time periods to be aware of for Alabaster calculations
Ensuring Alabaster payment compliance is all about knowing what various maternity pay-related terminology means, and when it refers to.
Some key phrases and time periods to be aware of:
Relevant period - the 8-week period before the qualifying week;
Qualifying week - 15 weeks before the expected week of confinement (EWC);
EWC - the Sunday on or before the baby’s due date.
This means that the start of the relevant period is at least 23 weeks before the EWC. It should also be noted that the end of statutory maternity leave is 52 weeks after maternity leave starts.
How to work out what additional pay is owed to the employee
Firstly, check the employee's relevant period. As explained above, this is the 8-week period that falls before the qualifying week. Gather the employee's payslips that fall in the relevant period.
Next, recalculate the employee's gross pay using the increased salary. To calculate the new average weekly earnings, multiply the number of payslips used to equal a full year's earnings. For example, if using two monthly payslips, multiply by 6 to get 12 months earnings.
Divide the value from the previous step by 52 weeks to determine the weekly pay.
Then, calculate 90% of this weekly pay, and work out the difference between the new weekly pay and the employee's original pay rate. This is because the employee receives 90% of their average weekly earnings for the first 6 weeks, then the following 33 weeks is calculated at the statutory rate, or 90% of their average weekly earnings, whichever is lower.
Multiply the difference calculated in the previous step by the number of weeks that were paid at the lower average weekly earnings.
Don't forget you only need to calculate the difference for weeks that have been paid. If the employee is still receiving SMP, the remaining weeks will be calculated at the correct rate.
You now have the difference to pay to the employee this month.
Deborah started maternity leave on 1st April 2024. Her baby was due on 6th April 2024 and she received a pay rise on 1st June to £30,000.
The EWC is Sunday 31st March 2024 (the Sunday on or before the due date).
The Qualifying week therefore starts on 24th December 2023.
The relevant period is the 8 weeks that fall before this date, so 29th October to 24th December.
Deborah has already been paid 8 weeks of maternity pay between April and May.
Calculate the old rate
The old rate is calculated as follows:
On 31st October, Deborah is paid a salary of £2000 and a bonus payment of £500. On 30th November, the employee is paid a salary of £2000 only.
The earnings in the relevant period were £2000 + £2000 + £500 = £4500.
The average annual earnings were calculated as £4500 x 6 = £27,000.
The average weekly earnings were calculated by dividing the annual value by 52 - £519.2307 (note that this value is rounded to four decimal places).
The statutory rate is 90% of the average weekly earnings - £467.30.
Calculate the new rate
The new rate is calculated as follows:
On 31st October, the employee is paid a salary of £2500 and a bonus payment of £500. On 30th November, the employee is paid a salary of £2500 only.
The earnings in the relevant period are £2500 + £2500 + £500 = £5500.
The average annual earnings are calculated as £5500 x 6 = £33,000.
The average weekly earnings are calculated by dividing the annual value by 52 - £634.6153 (note that this value is rounded to four decimal places).
The statutory rate is 90% of the average weekly earnings - £571.15.
Therefore the difference between the old and new rate is £571.15-£467.30= £103.85.
In this scenario, the increase only affects the first six weeks of SMP so the difference is £103.85 x 6 weeks = £623.10.
How PayFit helps make fiddly SMP and Alabaster calculations a breeze
As part of automating all parental leave calculations, PayFit can be used to simplify Alabaster calculations too. Maternity pay settings can be customised to ensure that both the average monthly earnings during the relevant period can be specified manually, as well as the default SMP amount adjusted to reflect the Alabaster rule.
The remaining SMP due is re-calculated automatically, and as the value will have been entered in PayFit as SMP, you’ll be able to reclaim the additional amount from HMRC. And this will handily show on an Employer payment record within your reports dashboard, so you don’t forget to claim this back.
Better yet, any new rates, including SMP, are coded into PayFit before the start of every new tax year, so resulting calculations and payments will always be correct.
Find out more by arranging a short demo on the link below.
