Umbrella Company Maternity Pay
Navigating the intricate landscape of UK tax legislation is no easy feat, especially for contractors. Amidst the myriad of regulations, one term stands out prominently: Umbrella Companies. But how does umbrella company maternity pay work?
In this comprehensive guide, we delve deep into the heart of umbrella companies. Whether you’re an aspiring contractor or a seasoned veteran seeking clarity, this guide aims to empower you with the knowledge to make informed decisions and remain compliant.
What Is Maternity Pay?
Maternity pay refers to the financial support provided to employees during pregnancy and following childbirth. It is designed to enable mothers to take time off work to care for their newborn while maintaining a degree of financial stability.
In traditional employment settings, maternity pay is often a standard benefit employers offer, with entitlements outlined in employment policies and legislation. For contractors and freelancers operating through umbrella companies, no such arrangement exists.
Umbrella Company Maternity Pay
As an umbrella company contractor, the Government considers you a full-time employee. You’re therefore entitled to the same benefits as a permanent employee, including statutory maternity pay (‘SMP’).
You can claim SMP for up to 39 weeks, and the amount you’re entitled to is based on your earnings:
- First 6 weeks: 90% of your average weekly earnings
- Following 33 weeks: The lower of 90% of your average weekly earnings and £172.48.
Average weekly earnings are calculated using an average of the eight weeks leading up to the 15th week before the baby is due. Your maternity will be paid through your umbrella company’s PAYE system, subject to income tax and NI deductions as usual.
To qualify for maternity pay under an umbrella company:
- You need to provide your umbrella company with a MAT B1 certificate or similar proof of pregnancy;
- You need to have been employed continuously by the umbrella company for at least 26 weeks up to the 15th week that the baby is due, and
- Your average weekly earnings must be at least £123.
If you meet these eligibility criteria, your maternity pay can start any time within 11 weeks of the due date.
Health and Safety Risk Assessments
As employees of their umbrella companies, contractors are entitled to a range of rights while pregnant, including the requirement for employers to perform health and safety risk assessments during the pregnancy.
While this may not have much impact on a software developer, it could significantly impact a drilling engineer. As soon as you tell the client you’re pregnant, health and safety regulations could prohibit you from working offshore.
Umbrella Company Paternity Pay
Statutory paternity pay (‘SPP’) is calculated the same way as SMP, paid the same way, and is subject to the same taxes. The eligibility criteria are also the same.
You can take up to 2 weeks’ leave, although it all needs to be taken in one go. The leave can start any time after the birth but must end within 56 days of the birth (or due date if the baby is early).
The Maternity Allowance
If you do not qualify for statutory maternity pay, you should consider the Maternity Allowance [JF1] instead. Payment timings and amounts are similar to maternity pay; however, you do not need to be employed to qualify.
You qualify for the Maternity Allowance if you’ve been registered as self-employed for at least 26 weeks in the 66 weeks before your baby is due.