Maternity leave can raise challenges for a smaller business as it can leave the business without a valued employee for a sustained period, even if the reason is personally a very happy one for that employee.

One of the main challenges is around maternity leave pay. Who pays maternity leave? Do all companies have to pay maternity leave? There can be many questions like these, so we have created this guide to help you understand your obligations as employers and how the system works for small businesses, including:

  • Do all companies or employers pay maternity leave?
  • Who pays maternity leave?
  • Do employees receive sick or holiday pay during or after maternity leave?
  • Do employees need to pay back maternity pay if he/she leaves?

So here's a quick guide to the essentials on maternity leave pay in the UK.

Do all companies pay maternity leave?

Any pregnant employee is entitled to up to 52 weeks of maternity leave. This is made up of Ordinary Maternity Leave for the first 26 weeks and then Additional Maternity Leave for the last 26 weeks.

New mothers don’t have to take the full 52 weeks but must take at least two weeks of leave after the birth, or four if they work in a factory. The earliest that leave can be taken is 11 weeks before the expected week of birth unless the child is born early.

But do all companies have to pay maternity leave? More specifically, do small businesses have to pay maternity leave?

The answer is that anyone qualifies for statutory maternity leave if they are pregnant, earn on average at least £123 a week, give the correct notice and have worked for you continuously for at least 26 weeks prior to the 15th week before the expected week of childbirth.

Who pays maternity leave?

You as a business are responsible for paying maternity leave payments.

Statutory maternity pay can be paid for up to 39 weeks and is usually 90% of their average weekly earnings for the first six weeks and then either £172.48 or 90% of their average weekly earnings, whichever is lower, for the following 33 weeks. This pay is also tax and National Insurance deductible.

It’s worth noting that if you don’t pay the correct amount of statutory maternity pay, you will face civil penalties from HMRC and that their employment rights are protected during maternity leave and caregiving.

It’s also possible to offer more than the statutory amounts of pay and leave through a company maternity scheme. Maternity pay should be paid at the same time as the employee’s regular wages and should start as soon as maternity leave begins.

For smaller businesses it’s possible to reclaim 92% of statutory maternity pay from HMRC, even rising to 103% if you are eligible for Small Employers’ Relief - if you paid less than £45,000 in Class 1 National Insurance - including maternity allowance - contributions in the previous tax year.

All you need to do is submit an Employer Payment Summary each month and your payroll software can help you work out how much you are able to reclaim. You can also request support from HMRC if you are struggling to make statutory maternity payments.

For more information on small business tax relief that you could be eligible for, check out our small business tax relief guide.

Do employees receive sick or holiday pay during or after maternity leave?

Two questions employees often ask when going off on maternity leave are “can I get sick pay after maternity leave?” and “can I take holiday pay during maternity leave?” both of which are questions employers need the answers to as well.

Your employees’ employment rights remain in place while they are on parental leave (maternity, paternity and adoption pay), but there are some differences from normal working times. They can still accrue holiday entitlements while on leave, including bank holidays, but they cannot take a holiday or get holiday pay during maternity leave.

They can arrange with you to take holidays before or after their leave and if they intend to take additional annual leave after their maternity leave, that should be discussed with you at the earliest opportunity.

Another difference is that employees cannot claim sick pay while on maternity leave, though it may be possible to claim it if they are still on maternity leave but their statutory maternity pay has finished.

They will be able to claim sick pay as normal when back at work as long as they are not still getting statutory maternity pay on their first day sick, in which case they would need to wait until they had been back at work for 8 weeks to qualify for sick pay.

Do employees need to pay back maternity pay they leave?

Another common question is “do you have to pay back maternity pay if you leave?”. It’s not uncommon for employees on maternity leave to decide that they don’t want to return to work when it ends. There can be many reasons for this but they have every right to do this as long as they follow the usual procedures.

If they give notice during their maternity leave and their notice period runs during that leave, they can remain on leave without ‘working their notice’. The situation is different if they resign after the end of their maternity leave, in which case they would be expected to work their notice.

However, if they resign before the end of the maternity pay period, you as their employer cannot ask them to repay any of their UK maternity leave pay or maternity allowance and they should continue to receive it for the full period.

For more information on maternity leave and maternity pay, you can check GOV.UK here or read more about all things smaller business on the Dojo Blog.