What pension contributions should a company make to an employee on maternity leave under a salary sacrifice arrangement?
We have had a few queries lately about the pension contributions for employees on maternity leave where the pension contributions are paid by the employer under a salary sacrifice arrangement.
Under salary sacrifice agreements, an employee gives up a proportion of their salary and this amount is then paid by the employer into a company pension scheme. The effect of this is to reduce employer and employee National Insurance contributions.
Where you are using salary sacrifice there is a contractual variation to terms and conditions, as the employee is in effect agreeing to receiving a lower salary. There are various implications associated with doing this including how you deal with salary increases and other benefits which are linked to salary i.e. bonus, salary increases and commission payments and to which salary amount these will apply.
Pension contributions via salary sacrifice raise a query in relation to what should be paid by way of pension contribution for employees on maternity leave, particularly for the unpaid periods of leave. Two pieces of legislation govern pension contributions during maternity leave:
- The Equality Act 2010 which ensures that pension contributions continue during ordinary maternity leave (whether paid or not) and during additional maternity leave to the extent that the employee is being paid (the maternity equality rule); and
- The Maternity and Parental Leave etc Regulations 1999 which provide that an employee on maternity leave is entitled, during the period of leave, to the benefit of all of the terms and conditions of employment which would have applied if she had not been absent, except for her remuneration which is replaced by statutory maternity pay. Remuneration is defined as sums payable to an employee by way of wages or salary. The question is whether enhanced employer contributions to pension are part of remuneration and so need not be provided during maternity leave.
Unfortunately, the answer to the question as to the contributions that an employer must make to an employee on maternity leave is not entirely clear, but our advice is to adopt a cautious approach. To avoid any risk, you should continue payment of pension contributions throughout maternity leave in the same way as other contractual benefits. This would also extend to any other type of leave where contractual benefits continue to apply, such as sick leave.
If you would like further advice, please contact the ELiAction team on 01494 817193 or email firstname.lastname@example.org