Guide to calculating notice pay due to employees on maternity or sick leave

Introduction

Guide to calculating notice pay due to employees on maternity or sick leave

This Hot Tip provides guidance to employers who are terminating the employment of individuals who are either on maternity, sick leave.

Calculating the notice pay of an employee who is absent from the business due to maternity or sick leave can cause employers a headache, as the employee is likely to be on a different rate of pay during their absence, e.g. reduced company sick pay, statutory sick pay (SSP) or statutory maternity pay (SMP). In some cases, such as where the absent employee is off sick and has exhausted their entitlement to SSP, the employee might be receiving no income whatsoever.

At what rate should you calculate notice pay for an absent employee? Should it always be at the full rate of pay, as if the employee were not absent, or should it be based on their current, lower rate of pay, e.g. sick pay or maternity pay?  Where the employee is receiving no payments (because they have exhausted all entitlements) is nothing payable during notice?

Typical Scenarios

  1. The employee’s contractual notice period is less than or equal to their statutory minimum notice period.

In this situation, the employee is entitled to receive full pay in respect of their notice period, regardless of whether they are receiving a reduced rate of pay or they have exhausted their entitlement to sickness or maternity pay even if they are on zero income.

  1. The employee’s contractual notice period is at least one week longer than their statutory minimum notice period AND the employee has not exhausted their entitlement to sick pay, maternity pay, SSP or SMP.

In this situation, the employee is not entitled to receive full pay in respect of their notice period. Notice pay should be calculated based on the pay which the employee is currently receiving.

For example, an absent employee receiving company sick pay at a rate of 50% of normal pay during the period equivalent to their notice period, would be entitled to a notice payment calculated at a rate of 50% of normal pay.

However, if your employment contracts state that full pay will apply during any period of notice, then the employee will be entitled to receive full pay for their notice period, irrespective of the rate of pay they are in receipt of during any period of absence.

  1. The employee’s contractual notice period is at least one week longer than their statutory minimum notice period AND the employee has exhausted their entitlement to sick pay, maternity pay, SSP and SMP.

In this situation, such as where an employee has been on sick leave for so long that they have exhausted their entitlement to SSP, the employer does not need to make any payment in respect of the notice period, unless the contract of employment states otherwise (as above).

So What Does This Mean For Employers?

The notice pay rules above seem peculiar in the context of maternity leave, where an employee would be entitled to return to work at full pay if she were not dismissed. Many believe that this is an error in the legislation, and the European Court of Justice (ECJ) appears to hold a similar view. In Meerts -v- Proost, the ECJ ruled that since the changes in remuneration levels during maternity leave are merely temporary, an employee on maternity leave is entitled to notice pay at her normal, full rate of remuneration.

Therefore, since there is significant uncertainty surrounding notice pay in the context of maternity leave, we do not recommend that you deny an employee on maternity leave notice pay at their full rate of remuneration.

In the case of employees on long-term sickness absence with generous notice provisions in their contracts of employment, employer may be able to take a robust approach under the rules above and pay notice based on what the employee is currently receiving.

Before you take action especially where you are proposing paying less than normal salary during notice you should take specialist employment law advice.  Please contact David Greenhalgh on 020 3603 2177.


This article/blog is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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