Q&A: statutory maternity pay, redundancy and PAYE

When an employee is made redundant and is receiving statutory maternity pay (SMP), Lizabeth Lay, tax & payroll adviser at Croner Taxwise explains the employer liability for payments, tax code calculations and PAYE compliance issues 

Question: We have an employee who is being made redundant and is entitled to statutory maternity pay (SMP). Do we have to continue paying SMP after the redundancy?

Answer: The simple answer is yes.

As an employee receiving SMP at the time they are made redundant, the employer must discharge their full liability by either continuing to pay SMP to the employee based upon what would have been their normal pay period or by paying the SMP as a lump sum payment.

When SMP continues to be paid in the same way and at the same time when the employee stops working you should agree with them whether they require a form P45 or not.

 If they do then deduct tax on the remaining statutory payments using code 0T (S0T, if they are taxed at the Scottish rate) on a ‘week 1’ or ‘month 1’ basis.

If they do not require a form P45 then use their usual tax code for the statutory payments.

If the employee requests their form P45 upon termination or before all of the SMP has been paid it is an indicator that the employee has or will be starting work for a new employer that she did not work for during the qualifying week (QW) and you will be able to explore this further.

Where the employee requests their form P45 after termination but before all SMP has been paid or the form P45 is to be issued because you have made all payments of SMP then record the final payment date as their leaving date.

A lump sum payment of SMP can be paid to the employee where both the employer and the employee agree to payment in this way.

There are however risks associated with lump sum payments as both the employer and the employee may pay more in national insurance contributions (NICs) and the employee may pay more tax (although any overpaid tax would be repaid at the end of the tax year).

Also, if the employee starts work for another employer after the qualifying week but before the birth of the baby, the liable employer remains liable to pay SMP throughout the maternity pay period (MPP) for any complete weeks the employee does no work for that employer.

If the employee ends her employment with that employer, SMP will resume until the end of the maternity pay period.

If the employee were to start work for a new employer after the baby is born, but before the end of the maternity pay period, who did not employ them in the qualifying week, their entitlement to SMP will stop.

As an employer, in either of these circumstances, you would have overpaid wages which will then need to be recovered from the employee. It is also necessary to recalculate and repay to HMRC any SMP recovered incorrectly.

For an employee who undertakes any work in a self-employed capacity during their maternity pay period, such work will not affect their payment of SMP.

About the author

Lizabeth Lay MSC FCIPPDIP is a tax & payroll adviser at Croner Taxwise advice lines Tel: 0844 892 2470. 

This article first appeared in Tax Question of the Week by Croner Taxwise

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