Statutory Maternity Pay – First ever tax tribunal decision on SMP issuesWednesday, October 28th, 2009
In the introduction to last week’s newsletter, we referred to a tax tribunal decision that was likely to affect the way in which employers determine the start date of a maternity pay period. We have now been able to examine the ruling in detail and its implications do indeed require careful consideration. One unfortunate problem with the judgement is that the tribunal judge appears to have failed to apply his reasoning correctly in one aspect of the decision, but it is the reasoning around the relevant legislation that is significant, not the final outcome of the case.
This case is all about the police maternity pay scheme. However, as will become clear later in this article, the tribunal judge’s decisions have broader application to any situation where a woman in absent from work for any reason at the start of the 11th week before the EWC.
On 14 September 2009, the First-tier Tribunal Tax Chamber (formerly known as the General Commissioners) gave its decision in the case North Yorkshire Police and Mrs Deborah Wade v The Commissioners for HM Revenue and Customs. This was the first judicial decision on a matter concerning statutory payments since administration of the SMP/SAP/SPP schemes was transferred to the Inland Revenue (now HMRC).
Mrs. Wade is a police officer and, between 2005 and 2008, was absent twice on maternity leave. She was entitled to Statutory Maternity Pay (SMP) for both periods of leave and, in addition, qualified for paid maternity leave under the Police Occupational Maternity Scheme. This occupational scheme provides up to six months leave before the expected date of childbirth (EWC) and up to nine months leave after the EWC. During the first three months of contractual leave, police maternity pay (PMP) is paid by the employer. It is possible, therefore, for women police officers to take a 13-week period of paid police maternity leave before starting the 52-week period of statutory leave and to receive full police pay and allowances for the first 13 weeks, followed by 6 weeks SMP at the higher rate, followed by 33 weeks SMP at the standard rate. If the police leave and the statutory leave overlap, the greater of the PMP and SMP is paid for each week of the overlap, not both payments.
Mrs. Wade sought, appropriately enough, to take full advantage of this arrangement and, for both pregnancies, she started her contractual police leave before the 11th week before the EWC, the earliest date that a woman can start her statutory leave. All of the relevant dates for the two pregnancies are listed in the judgement but those relating to the first absence illustrate the relationship between the contractual police scheme and the statutory scheme.
To maximise her maternity payments, it was important to Mrs. Wade that there be as long a period as possible between the start of PMP and the start of SMP. Based on the dates provided, there were 12 weeks between the start of her paid police leave and the start of the EWC, the date she had chosen to start her MPP. This would mean that she would receive 12 weeks full pay under the police scheme before payments of SMP began.
However, the Police Federation, on Mrs. Wade’s behalf, made enquiries about when the MPP should start in these circumstances but found that other police employers interpreted the rules differently. When consulted, HMRC settled on the 11th week initially but later changed its decision to the 4th week before the EWC. Similar contradictory views were also given for the second pregnancy. Mrs. Wade found that none of the authorities thought it should start on her requested date, the start of the EWC. If, in fact, the MPP started in the 11th week before the EWC, it would have a significant effect on her payments.
So, this was the question for the First-tier tribunal judge to decide. Where there is a contractual maternity pay scheme with rules that allow paid leave to start earlier than the statutory scheme, when does the statutory MPP start?
Before considering the judge’s reasoning, it will be helpful to review the statutory rules. They are set out in the Social Security Contributions and Benefits Act 1992 (SSCBA) and the Statutory Maternity Pay (General) Regulations 1996 (SMP Regs) and may be summarised as follows.
Three of these rules were relevant in the tribunal case, namely the default rule, the notice rule and the pregnancy-related rule, and much of the judge’s reasoning was based on the circumstances in which the notice rule and the pregnancy-related rule apply instead of the default rule. However, the leaver rule is a good example of how, given a particular set of circumstances, the default rule has to apply because none of the other rules applies. If a woman leaves the employment after the start of the 11th week before the EWC, the MPP starts on the following day. But, what if she qualifies for SMP but leaves before or at the start of the 11th week? The leaver rule does not apply so the default rule applies instead. The MPP starts on the first day of the 11th week.
Concentrating now on Mrs. Wade’s circumstances, an employer has to consider the situation of a woman who is entitled to SMP at the earliest from the start of the 11th week before the EWC. The default rule applies at that point unless one of the other rules applies instead. In Mrs. Wade’s situation, the question for the employer was: does the notice rule apply? Two conditions had to be met; she must have already given notice of the date on which she wanted the MPP to start and, “in conformity with that notice”, she must have been in a position to cease work on that date. Mrs. Wade had certainly given notice to start the MPP, from the start of the EWC. But, was she in a position to cease work on that date? No, she wasn’t; she was already absent on police maternity leave and could not therefore comply with the second condition. So the notice rule did not apply. As a result, the default rule applied and her MPP started at the 11th week before the EWC.
This was also the situation for the second of Mrs. Wade’s pregnancies. As she again started her police maternity leave before the 11th week, the notice rule did not apply and, as required by the default rule, her MPP therefore started at the 11th week.
The tribunal judge also considered what the situation would have been if Mrs. Wade had started her police leave after the start of the 11th week. Would the notice rule have applied in that situation? Yes it would; she had given notice of a date to start her MPP and, because she was still working, she was in a position, as at the start of the 11th week, to cease work “in conformity with that notice”. However, by then starting her police maternity leave, she created the situation whereby, at the start of the 4th week before the EWC, she was “absent from work wholly or partly because of pregnancy”. Therefore, at that point, the pregnancy-related rule applied and her MPP had to start on the day following the first day of absence from work in the 4th week. (We would respectfully suggest that the judge’s statement that the MPP would start “at the beginning of the 4th week” is strictly incorrect; it starts on the day after the first day in that week that she is absent from work.)
These two situations are at the centre of the tribunal judge’s reasoning, leading up to his decisions on when the MPP started for each pregnancy. Curiously, after reasoning soundly on the legislation, the judge appears to have applied his approach wrongly to one of the two situations. Using the dates shown above for Mrs. Wade’s 2005 pregnancy, it is clear that she had already started her police leave before the start of the 11th week. Accordingly, the default rule applied and the MPP started at the 11th week. However, the judge inexplicably states that her police leave started after the start of the 11th week and, as a result, decides that the MPP starts at the 4th week. (We have written to the HMRC press office about this apparent error in the judgement but assume that the parties to the case have already noticed it.)
Mrs. Wade’s second pregnancy, in 2007, differed only in that she gave notice to start her MPP from the 4th week before the EWC, rather than from the EWC, and started her police in the 17th week before the EWC hoping to benefit from 13 weeks’ full pay before the MPP started. However, because she again started her police leave before the start of the 11th week, the judge appropriately decided that her MPP started from the 11th week.
Effect of decision on maternity leave rules
This tax tribunal case considered only the social security legislation that applies to SMP, i.e. the SSCBA and the SMP Regulations. The judge was deciding how the statutory rules apply to the start of the maternity pay period. He was not concerned with the closely related employment legislation, in the Employment Rights Act 1996 (ERA) and the Maternity and Parental Leave etc Regulations 1999 (MPL Regs). The structure of the two sets of legislation – the social security rules for SMP and the employment rules for maternity leave – are intended to fit together so that both the MPP and ordinary maternity leave (OML) start on the same day. This is important because it ensures that a woman receives SMP for each of the first 39 weeks of maternity leave.
Unfortunately, the rules governing the start of the MPP in Mrs. Wade’s specific circumstances have no equivalent in employment law. Although her MPP started in the 11th week, the rules for the start of maternity leave would appear to require her OML to start on the date on which she had given notice to start it. This discrepancy arises because the default rule for MPP has two conditions, namely that a woman must (1) give notice of the date, and (2) stop working for the employer “in conformity with that notice”, whereas the default rule for OML has only one condition, namely that a woman must simply give notice of the date on which she intends her OML to start. Whether or not she is in a position to stop work “in conformity with that notice” is not a stated requirement for OML purposes.
It seems, therefore, that, if we apply the default rule for OML to Mrs. Wade’s situation, her OML should have started on the date she asked for it to start (although, in the case of the first pregnancy in 2005, it would have started from the day following the birth because the baby was born earlier than the her selected start date). But the judge’s application of the social security rules meant that her MPP started from the 11th week before the EWC. The MPP and the OML would not, therefore, have run concurrently.
We have also asked HMRC to comment on this discrepancy and to indicate whether the legislation will be changed in due course to bring the two sets of rules into line. So far, HMRC has stated only that “we are examining the implications of the judgement in the case of North Yorkshire Police and The Commissioners for HMRC and Mrs Deborah Wade carefullyand will comment on our website shortly”. There is no indication as yet whether any of the parties to the case intend to appeal against either of the two decisions.
Guidance for employers
Published guidance for employers, such as that in HMRC’s E15 booklet, generally tells employers that a woman’s MPP and OML start on the date she has chosen, but that they both may start earlier if the baby is born earlier or if the woman has a pregnancy-related absence. A different approach is taken by the tribunal judge in Mrs. Wade’s circumstances, namely that, at the start of the 11th week, the employer should decide whether the conditions for the notice rule are met and, if they are not, he should apply the default rule and begin the MPP immediately.
We prefer the approach to guidance that says that the MPP and OML start on the earliest of a list of dates, each date reflecting one of the statutory rules. The following Table, which uses this approach, incorporates Mrs. Wade’s situations. Other than in these newly considered situations, it is clear that the intention of the matching legislation is for the MPP and OML to start on the same date. The Table also highlights
- the discrepancy in the notice rule (i.e. a double condition for MPP but a single condition for OML),
- that OML is not relevant when the leaver rule applies for MPP purposes, and
- that the MPP and OML start on different dates in the situations considered by the tribunal judge.
|References: SSCBA = Social Security Contributions and Benefits Act 1992
SMP Reg = Statutory Maternity Pay (General) Regulations 1986
ERA = Employment Rights Act 1996
MPL Reg = Maternity and Parental Leave etc Regulations 1999
|Having qualified for maternity leave and pay in the 15th week before the EWC, a woman starts her MPP on the earliest of the following dates:||Having qualified for maternity leave and pay in the 15th week before the EWC, a woman starts her ordinary maternity leave on the earliest of the following dates:|
|(1) the day following the day on which the baby is born or, in the case of a stillbirth, the day following the day, not earlier than the 25th week of pregnancy, on which the baby is born – SMP Reg 2(3), SSCBA 171(1)||(1) the day following the day on which the baby is born or, in the case of a stillbirth, the day following the day, not earlier than the 25th week of pregnancy, on which the baby is born – MPL Reg 6(2), ERA 235(1)|
|(2) the day from which she has given notice for it to start, if that day is later than the 12th week before the EWC and she ceases work on that day – SMP Reg 2(1)||(2) the day from which she has given notice for it to start, not earlier than the start of the 11th week before the EWC – MPL Reg 4(2)(a) and 6(1)(a)|
|(3) the day following any day, falling on or after the start of the 4th week before the EWC, on which she is absent wholly or partly because of pregnancy or confinement – SMP Reg 2(4)||(3) the day following any day, falling on or after the start of the 4th week before the EWC, on which she is absent wholly or partly because of pregnancy – MPL Reg 6(1)(b)|
|(4) the day following any day, falling after the start of the 11th week before the EWC and before the start of the MPP, on which she leaves her employment – SMP Reg 2(5)||(4) not relevant (no leave because she has left the employment)|
|(5) the start of the 11th week before the EWC if she leaves her employment after the start of the 15th week before the EWC but before the start of the 11th week before the EWC – SSCBA 165(2)||(5) not relevant (no leave because she has left the employment)|
|(6) the start of the 11th week before the EWC if she has given notice for it to start but cannot comply with that notice because she has ceased work before the start of the 11th week (e.g. because she has started contractual maternity leave, or is on long-term sick or extended leave) and is unlikely to return to work before the birth – SSCBA 165(2)||(6) no equivalent – by default, maternity leave starts from the date she has given notice for it to start – MPL Reg 4(10(a)(iii) and 6(1)(a)|
|(7) the start of the 4th week before the EWC if she has given notice for it to start but cannot comply with that notice because she has ceased work on or after the start of the 11th week (e.g. because she has started contractual maternity leave, or is on maternity-related long-term sick) and is unlikely to return to work before the birth – SMP Reg 2(1) and 2(4)||(7) no equivalent – by default, maternity leave starts from the date she has given notice for it to start – MPL Reg 4(10(a)(iii) and 6(1)(a)|
There is, in fact, another situation that is prompted by the tribunal judge’s reasoning but not discussed by him. In the 6th situation in the Table, the reason why the woman has ceased work before the start of the 11th week is not relevant. In Mrs. Wade’s case, it was because she had already started contractual maternity leave. The default rule would equally have applied if she had been absent on long-term sick or on extended leave of some other kind, with no expectation of her returning before the date she had given notice to start her MPP.
However, the approach in the 7th situation, where the MPP starts at the 4th week before the EWC, can only apply if she is absent “wholly or partly because of pregnancy or confinement”. So, if her absence was due, for example, to extended holiday leave, or to sickness that is unrelated to her pregnancy, her MPP would not start at the 4th week (because the pregnancy-related rule is not met) or on the date she gave in her notice (because the notice rule is not met) but on the day following the day on which the baby is born (because the confinement rule then applies). In contrast, it seems that, in this situation, the employment law notice rule would require the OML to start from the date she gave in her notice for it to start (unless the baby arrived earlier).
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