Maternity leave salary sacrifice warning

EMPLOYERS have been warned that staff who are about to go on maternity leave may decide to increase the amount that is being sacrificed from their salary for pension contributions in the hope that the payments will continue to be met by the organisation.

The warning follows amendments to the Sex Discrimination Act, which came into force in October, and effectively stipulate that employers must provide the same non-cash contractual benefits to women on additional maternity leave as they do for women on ordinary maternity leave, extending the period to 52 weeks.

There are conflicting views about whether pensions qualify as a non-cash benefit for this extended period and some legal advisers say employers that want to cover themselves legally should accept that pension contributions may have to continue to be provided where the employee has opted to make her own contributions via salary sacrifice.

The cost of doing so could be significant if the employee suddenly decides to increase the amount of salary that she is sacrificing in exchange for pension contributions.

David Hewison associate director (employment tax and incentives) at Smith & Williamson, warned: “If a woman would like to save rather a lot towards her retirement, for instance, and had sacrificed away 30% of her pay, that could hurt quite a lot during her period of maternity pay.”

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But his Smith & Williamson colleague, Inez Anderson, director (employment tax and incentives), said moves by employers to cap contributions could be interpreted as sexual discrimination if they are introduced in response to changes in legislation on maternity leave.

“If there is anything reducing the flexibility for a particular group of people, it would leave employers open to attack under the discrimination legislation,”she said.