How is statutory maternity pay calculated when there is a salary-sacrifice arrangement in place?

Under a salary-sacrifice arrangement, the employee gives up the right to receive part of the cash pay due under the employment contract in return for a non-cash benefit such as contributions to a pension scheme.

To be eligible to receive statutory maternity pay (SMP), an employee must, over a defined period, have average earnings of not less than the lower earnings limit for national insurance contributions. This is calculated on gross earnings subject to class 1 national insurance contributions. If a salary-sacrifice arrangement is in place during the defined period, the employee's average weekly earnings calculation will be based on the employee's lower salary, after the reduction under the arrangement.

The salary-sacrifice arrangement could, therefore, adversely affect the amount of SMP payable; or reduce the employee's average weekly earnings to below the lower earnings limit for national insurance contributions, meaning that the employee is not entitled to receive SMP.