Paying for paternity leave needn’t be taxing

Employers can recover the cost of paternity and family related payments.

Businesses of all shapes and sizes are required to make mandatory statutory payments to their employees to cover various payments that they are legally entitled to. These include Statutory Maternity Pay, Statutory Paternity Pay, and Statutory Shared Maternity/Parental Pay and Statutory Adoption Pay.

The current levels of these statutory payments are as follows:

Statutory Maternity Pay/Adoption Pay

.  the first 6 weeks payable at 90% of average weekly earnings before tax.

.  the remaining 33 weeks payable at £148.68 or 90% of any lower actual weekly earnings.

Statutory Paternity Pay

.  currently £148.68 or 90% of any lower actual weekly earnings for one or two consecutive weeks’ leave.

Paternity leave for employees was introduced back in 2003 and is designed to enable fathers or the partner of a woman having a child (including same-sex partners) the right to take up to two weeks of paid leave once the baby is born and within 56 days of the birth.

Many businesses believe that having to make these statutory payments are a drain on their finances and profits. These employment rights are viewed negatively by many businesses as opposed to being embraced and promoted.

It is also worrying that many fathers are discouraged from taking up these employment rights to time off.  Firstly, the fact that these payments are capped means that many fathers who are often the breadwinner cannot afford to take time off to look after their new born which will attract a much lower rate of pay in taking time off.

Some fathers also find out that they do not qualify for these rights for example where they change jobs and do not have sufficient continuity of service or are self-employed contractors.

Reimbursement

Some fathers are also worried that if they assert their rights to their entitlements to statutory payments and time off it will affect their entitlement to a company bonus or in the worst- case scenario prove detrimental to their career. It is also unlawful to treat an employee unfavourably because they wish to assert these statutory rights.

However, medium and large businesses can actually claim back 92% of the value of these statutory payments that they have paid out. Reimbursement is achieved by deducting the gross amounts of these payments paid from the total amount of national insurance contributions due for the relevant tax month. The additional costs over and above this level however remain a cost to the business.

Small businesses and micro-businesses may also qualify for Small Employer’s Relief where up to 103% of these statutory payments can be reimbursed. Up to 100% of the value of these reimbursements are made as ‘Recovery’ and a further 3% of the value as ‘Compensation’. To qualify these businesses need to have paid less than £45,000 in Class 1 National Insurance Contributions in the last tax year.

If a business is unable to afford to make these statutory payments, then they can even apply to HMRC for an advance payment. It is advisable to apply up to four weeks before the first payment is required.

These advance payments are however repayable by the business which needs to send an Employment Payment Summary for each pay period that statutory payments are reclaimed, even where an advance payment is made by HMRC. Unfortunately, a similar scheme (a percentage threshold scheme) for claiming back statutory sick pay in certain circumstances was abolished on 6 April 2014.

Economic sense

It therefore makes no economic sense for businesses to discourage fathers from taking full advantage of their rights to these statutory payments and the associated time off on the basis that most if not all of these payments can be claimed back.

There are a minority of businesses out there who do actively promote a great work/life balance and who actually top up these statutory payments for example to the actual contractual salary and who offer more paid time off. These businesses are to be applauded and when you think about it – it is a way to ensure that these businesses retain key members of staff and to make them feel that they are worthwhile and appreciated.

Steven Eckett is a Partner and Head of Employment at Meaby & Co. He can be contacted for advice on 020 7703 5034 or by e-mail [email protected]

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• paternity pay running a business employment law employee rights