Julie Gunnell
Associate Director of Growth Payroll
Pension contributions during maternity leave continue to generate employer queries and payroll corrections. A common misconception is that both employee and employer pension contributions reduce when pay falls during maternity leave.
In reality, whilst employee contributions are generally based on actual pay received, employer contributions may need to continue based on normal pre-leave earnings, depending on the pension arrangement.
Understanding contribution rules during maternity leave
If an employee is receiving maternity pay or is in the first 26 weeks of leave, employer pension contributions will generally continue to be based on their normal pre-maternity leave earnings, even where their actual pay has reduced.
Employee contributions will however, be based on maternity pay, not the employee’s pre-maternity leave earnings. This could lead to a lower contribution compared to what the employee is used to.
Once the employee moves into a period of unpaid maternity leave after the 26th week of leave, there is generally no statutory requirement to continue pension contributions unless the employer's pension scheme rules or maternity policy provide for this.
Employees may have options to cease active pension membership, subject to scheme rules. Employers should take care before changing employer contributions, as statutory maternity protections may require employer contributions to continue during paid maternity leave even where employee contributions reduce.
Employees are often surprised by how pension deductions work during maternity leave, making clear communication before leave starts particularly important.
How is salary sacrifice affected during maternity leave
Salary sacrifice arrangements can require special consideration during maternity leave. Employers should ensure that pension contributions are calculated in line with scheme rules and maternity legislation, particularly where contributions are based on a reference salary rather than actual pay.
Under pension salary sacrifice schemes, employees give up part of their salary and the employer pays the same amount as an employer pension contribution, in addition to any other employer contributions that might be provided.
Since the salary sacrifice contributions are classified as employer contributions, during maternity leave, employers must generally continue these pension contributions (as well as any other employer contributions). These must be based on normal pre-maternity pay throughout the first 39 weeks of maternity leave during which the employee is receiving pay.
Once an employee enters a period of unpaid maternity leave, the employer's obligation to make pension contributions will depend on the pension scheme rules and the organisation's maternity policy. Employers should review their arrangements carefully to ensure compliance.
as there are further complications resulting from taking salary sacrifice contributions from statutory payments.
Practical steps for employers
- Review maternity, shared parental leave and family leave policies.
- Check how pension contributions are calculated during periods of reduced pay.
- Ensure payroll, HR and pension providers are applying contributions consistently and in line with scheme rules.
- Review any salary sacrifice arrangements before maternity leave begins.
- Clearly explain the impact on pension contributions before an employee starts maternity leave.
- Check pension scheme rules where an employee enters a period of unpaid maternity leave.
We’re here to help
If you have any questions relating to maternity leave, please get in touch with a member of our specialist team or speak to your usual Azets adviser.