Work and Families Bill

This has been a very interesting debate. There is no doubt that the Government have given a great deal of consideration to the matter because the average earnings calculation for statutory maternity pay is an area that causes controversy and debate for both employers and employees. The noble Baroness described circumstances in which a woman could lose out if her earnings had been depressed during the period when the calculation was made or she has missed out on a bonus. The Government have talked to experts in the HR and payroll area over a considerable period of time to see whether there is a magic formula that will allow us to work out average weekly earnings that are as fair and simple as possible. The problem, as I am discovering in my time at the Department for Work and Pensions—it is the same with all benefits and the same with the Child Support Agency in calculating how much maintenance should be paid—is that being as fair as possible can often increase the complexity. That is one of the dilemmas here. The proposal, certainly as I see the amendment, would be very complex for employers to handle. I recall the comments of the noble Baroness, Lady Miller, about the impact on business. Given that we need to consider that impact at all times, that would be a real concern in relation to the amendment. In response to the comment by the noble Lord, Lord Razzall, about collusion between employer and employee, I can see that there may be circumstances in which that takes place. Large employers must meet 8 per cent of their employees’ payments, which one would hope would be some inhibition to such collusive behaviour—clearly one could not condone such behaviour. We believe that the changes suggested by the amendment would create additional complications and potentially lead to anomalies. The aim of the average earnings calculation is to arrive at a reasonable reflection of the woman’s earnings during her pregnancy in order for her to receive earnings-related SMP, which is a proportion of those earnings. One aim of the scheme is to keep it as simple as possible for employers to operate and for all to understand how it works, with, I emphasise, the minimum room for disputes. The calculation of a woman’s normal weekly earnings is set out in Regulation 21 of the Statutory Maternity Pay (General) Regulations 1986. In summary, a woman’s average weekly earnings are typically calculated over the eight-week period up to and including the last pay day before the qualifying week. The calculation may differ slightly from that to take into account different pay periods but it will generally take account of the woman’s earnings between the fourth and sixth months of her pregnancy. The calculation uses earnings actually paid in a defined period, rather than earnings which might be payable for that period or excluding some earnings but not others. Simply, the reason for that is that it allows employers to avoid complicated rules that might lead to disputes over entitlement. In practice, the amendment would mean that employers would have to examine each payment of earnings paid in the calculation period and work out the period actually covered by each individual payment. If the period covered was more than the eight-week calculation period itself, the payment would have to be divided into daily amounts, and only that part of the payment which fell in the eight-week period could be used to average the woman’s earnings for statutory maternity pay. That illustrates that a good deal of complexity would be added to the calculation. Of course, I accept that the aim of the amendment is to ensure that the calculation does not take account of earnings which are untypically high because, for example, of a one-off bonus, or overtime payments or perhaps arrears of pay which happen to be paid in the calculation period. The other side of the coin is dealing with earnings that are untypically low, perhaps because of sickness or other absence. Once one goes into it, one sees how complex the administration could be. We have looked at other ways that this may be assessed. In our consultation in 2002, in the run up to that year’s Employment Act, we explored other means of assessing pay perhaps on the basis of an average over 26 weeks, for example. During the latest Work and Families Bill consultation, we worked with the DTI’s advisory group of HR experts and HMRC’s payment and administration group of payroll and software experts and looked at a wide range of suggestions. We have picked up some of them. That has resulted in the changes contained in this Bill: moving to an any-day start for the payment of SMP and MA; the facility for employers to pay SMP on a daily basis, if that fits better with their own payroll arrangements; and the option for a woman to return to work for a few days, as we have already debated, during her maternity pay period to keep in touch, without losing statutory maternity pay. That consultation confirmed that there is consensus that the existing calculation provides the best balance between a representative reflection of a woman’s average weekly earnings and a straightforward calculation for employers. I fully accept that there are some who gain and some who lose. The outcome is a little rough and ready. However, on the whole the system works well; it is clear; and it avoids the need for difficult judgment as to what is or is not included in the assessment. On balance, we think it right to keep it as it is.