Statutory Payments Explained: Part One

Statutory payments form the backbone of employee compensation in the UK, yet many businesses struggle to navigate these mandatory financial obligations correctly. In fact, recent HMRC data shows that thousands of companies face penalties each year for mishandling these essential payments.

Understanding statutory payments is crucial for every UK business, from managing statutory sick pay to calculating maternity leave entitlements. This article breaks down everything you need to know about statutory pay requirements, including current rates, calculation methods, and compliance obligations. Whether you’re a new business owner or an experienced manager, you’ll find practical insights to ensure your company meets all legal payment obligations whilst avoiding costly mistakes.

This blog is part one of a three part series. In subsequent blogs we will cover how to implement a payroll system to manage statutory pay, common pitfalls to avoid and how to deal with new rights.

Understanding Statutory Payments in the UK

Legal requirements mandate employers to provide various types of statutory payments to eligible employees. Specifically, these payments include:

• Statutory Sick Pay (SSP)
• Statutory Maternity Pay (SMP)
• Statutory Paternity Pay (SPP)
• Statutory Adoption Pay (SAP)
• Statutory Shared Parental Pay (ShPP)
• Statutory Parental Bereavement Pay (SPBP)

Definition and types of statutory payments

Statutory payments are legal entitlements that employers must provide when qualifying conditions are met. Furthermore, these payments are subject to tax and National Insurance contributions, requiring appropriate deductions.

Legal framework and employer obligations

Employers can typically reclaim 92% of statutory payments, whilst small employers may be eligible for 103% reimbursement. Accordingly, businesses must maintain detailed records for three years.

The current weekly payment rates are:

• SSP: £116.75 for up to 28 weeks.
• SMP: 90% of average weekly earnings for first 6 weeks, then £172.48 or 90% of earnings (whichever is lower) for remaining weeks.
• SPP, ShPP, SPBP: £172.48 or 90% of average earnings (whichever is lower).

Recent changes in statutory payment regulations

Notable updates to statutory payment regulations include:

• From April 2024, paternity leave could be split into two non-consecutive weeks.
• The notification period for paternity leave has been reduced to 28 days from 15 weeks.
• Starting April 2025, the minimum earnings threshold for SSP eligibility will increase to £125 per week.
• The government plans to remove the Lower Earnings Limit requirement for SSP eligibility – this is definitely one to keep an eye on…

Essential Statutory Payment Calculations

Calculating statutory payments correctly ensures both compliance and fair compensation for employees.

Understanding statutory sick pay calculations

The current SSP rate stands at £116.75 per week for up to 28 weeks. Consequently, employers must start payments from the fourth day of illness, as the first three days serve as waiting days. To qualify, employees must earn at least £123 weekly.

Maternity and paternity payment rates

Maternity pay follows a two-tier structure:

• First 6 weeks: 90% of average weekly earnings.
• Remaining 33 weeks: £184.03 or 90% of weekly earnings, whichever is lower.

Moreover, paternity pay is structured differently, offering £184.03 weekly or 90% of average earnings (whichever is lower) for up to two weeks.

Holiday pay for statutory holiday entitlement

Employees are entitled to 28 days/5.6 weeks’ holiday annually (assuming they work on a full-time basis). Part-time workers or those who work irregular hours are entitled to a pro-rated amount of holiday.

Of course, when an employee takes their holiday, they are entitled to still be paid. However, it’s not just as simple as paying the employee’s basic salary entitlement anymore and the reason being is the recent introduction of the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (Employment Rights Amendment Regs 2023), SI 2023/1426.

These regulations have now put into effect the outcome of a raft of employment tribunal cases which considered what should be included in the calculation for holiday pay. It’s no longer a simple payment of the basic salary.

For the first 20 days/4 weeks holiday entitlement an employee is entitled to receive what is considered to be their ‘normal’ rate of pay. The idea being that the employee will receive the same amount of pay during their holiday as they would had they been working.

If an employee simply receives a basic salary with no other payments, this is their normal rate of pay. The complication arises where an employee is entitled to receive additional payments such as:

• Regular overtime payments
• Commission
• Payments related to length of service
• Professional qualification allowances

Given that the nature of these payments can fluctuate, employers will be obliged to consider the average wage over the prior 52 weeks relevant to that particular holiday.

For the remaining “additional” holiday entitlement of 8 days/1.6 weeks, employers are not obliged to pay ‘normal’ pay they can simply pay the basic salary.

Should an employee then receive contractual holiday entitlement over and above 28 days/5.6 weeks, then the rate of pay can be determined by the employer but cannot be less than the basic salary.

As an employer you will therefore need to carefully consider:

1. What additional payments do you pay to your staff over and above their basic salary;
2. Where you have overtime, commission or bonus schemes in place, you may well need to review the holiday pay for the affected staff;
3. You will also need to make a commercial decision as to how you will make payments across the different types of holiday entitlement. For example, you may decide to just pay one rate of pay i.e. normal salary for the whole entitlement. Or you may want to split this out into normal pay and basic pay.
4. If you do decide that you wish to pay different amounts of holiday pay as linked to the relevant entitlement, then this needs to be clearly expressed ideally in the employee’s employment contract or other contractual document. So please do review what your documents say to ensure compliance.

Where you have staff that are part-time or work irregular hours, whilst the same principles arise, the calculations for arriving at their entitlement do differ slightly.

If you’d like help with your employment contracts, please get in touch.

Conclusion

Understanding statutory payments is a complex but necessary requirement for any business. However, it’s not necessary that you do it all yourself. At WCL, our role is to help you gather the necessary confidence to navigate the world of statutory pay with ease. Of course, we are always here to help!

In our next blog we will cover setting up your payroll system and how to avoid common pitfalls.