Maternity leave and your workplace pension scheme
Maternity or parental leave can significantly affect workplace pension schemes, including how contributions are calculated, auto enrolment eligibility, and the use of salary sacrifice arrangements.
On this page we break down the statutory rules and practical implications for you and your employees.
Key information
- Paid maternity or parental leave is pensionable.
- During the period of ordinary and any additional paid maternity or parental leave, personal contributions are based on the actual earnings the individual is receiving.
- Employer contributions are based on the level of earnings immediately before parental leave.
- Statutory maternity/adoption pay can be payable for up to 39 weeks (subject to eligibility). Other statutory parental payments have different maximum durations.
- It’s possible to use salary sacrifice, also known as salary exchange, during periods of maternity or parental leave but it’s not possible to exchange earnings below the statutory minimum.
What is maternity or parental leave?
Maternity leave is a period of authorised time off work for a parent around the birth or adoption of a child. It allows them to take time to adjust to the changes in family life without losing their job. This leave can be paid or unpaid, and its length depends on your workplace policies and legislation.
We’ll use ‘parental leave’ in this article as an umbrella term for child‑related leave and pay (maternity, paternity, adoption and shared parental leave).
How does paid parental leave affect employees’ pension contributions?
When a person takes paid parental leave, they can choose to continue to contribute to their pension through deductions from their pay. Employees can choose to base personal contributions on the actual earnings they receive.
During paid parental leave, employer contributions are based on the level of earnings immediately before parental leave. If the person decides to stop paying contributions, you can also stop contributions.
If they decide to take a period of unpaid leave after the paid period ends, this usually will not count as pensionable service. When they return to work, they may be able to pay additional contributions to cover the period of unpaid leave when they weren't contributing.
You’ll need to tell your pension provider of changes in your employees' contributions to ensure records are kept up to date.
Automatic enrolment and parental leave
If your scheme is being used to meet your automatic enrolment duties and an employee goes on parental leave, as with other schemes, they can continue to pay contributions while they are on leave.
During the period of paid parental leave, personal contributions will be based on the actual earnings the individual is receiving. Employer contributions will be based on the level of earnings immediately before parental leave.
Using certification for your auto enrolment scheme
You might need to take action if you’re using certification as a way of setting out the minimum percentage of contributions for you and your employees.
In most cases although earnings may change, the percentages used to calculate employee contributions should stay the same. But, if your employee decides to make contributions that are lower than your certified minimum, you’ll need to tell your pension provider.
Remember, you’ll need to include any employees who’ve decided to make contributions that are lower than your certified minimum when renewing your certificate. Read more about pension scheme certification.
Parental leave and salary exchange
Salary exchange is an agreement with your employee to exchange part of their salary for a non-cash benefit, in this case an additional employer pension contribution.
An effective salary exchange arrangement varies the contract of employment. This means it is entirely a matter between you and your employee, and the agreement is not covered by pensions or tax law.
It’s still possible to use salary exchange, during periods of paid parental leave. But it is not possible to exchange earnings to a level that would lead to a breach of the UK Government’s rules on National Minimum Wage or the payment of Statutory maternity pay.
You’ll need to check if the employees’ contract of employment states that the salary exchange arrangement ends on parental leave. If it doesn’t, you’ll need to remember that if their salary is exchanged for an employer pension contribution, that contribution needs to continue if the employee subsequently goes on paid parental leave.
It is unclear whether the agreement should remain in effect during unpaid leave, and you should check if this is specified in your employees’ salary agreement. You may want to seek legal advice if you’re unsure.
As with any amendment to an employee’s terms and conditions of employment, we recommend that you seek expert legal advice to ensure that the agreement meets the needs of both you and your employee.
Other things to remember about parental leave for employees
- The UK government confirms the statutory amount you should pay employees on parental leave and how long you should pay it for.
- However, an employee could have special conditions in their employment contract that might affect the duration, or payment amounts during parental leave.
More about making contributions