National Minimum Wage increases and the Alabaster Rule

In April the National Minimum Wage / National Living Wage (NMW) rate increased, but did you remember the Alabaster Ruling?

What is the Alabaster Ruling

In 1996 Mrs M Alabaster submitted a case with the Employment Tribunal, (Alabaster v. Woolwich Building Society), which then moved to an Appeal Tribunal, and ended with the European Court of Justice in 2004. Here it was determined that if an employee is awarded a pay increase any time between the start of the Statutory Maternity Pay (SMP) calculation period and the end of their maternity leave (Potentially a 17month period), employers need to recalculate the employee’s Average Weekly Earnings to reflect the increase, and the SMP. This includes if the NMW uplift would have resulted in your employee receiving a pay increase.

Mrs Alabaster was awarded a total of £270.39 in backpay, but this win had a huge impact for women on Maternity Leave reinforcing the principle of equal treatment, ensuring maternity leave doesn’t disadvantage employees financially.

When does the SMP calculation period start?

8 weeks before the qualifying week, which is the 15th week before the baby is due. This is known as the ‘Relevant Period’

What types of pay rise does this include?

Any contractual pay increases including promotions or periodic increments (for example annual review), as well as any legislative increases (for example National Minimum Wage).

Ultimately a pay rise must not be withheld because of maternity leave, and a recalculation must be completed to account for pay rises awarded or pay rises that would have been awarded had your employee not been on maternity leave.

Do I need to recalculate the Average Weekly Earnings if the employee did not originally earn enough to qualify for SMP?

Yes. The recalculation may mean the employee now qualifies for SMP. If this is the case, you as the employer should assume that the employee has received Maternity Allowance (which is the same as the standard rate for SMP). You then need to pay the difference between what you have calculated their entitlement to be, and what they would have received in Maternity Allowance. If the employee did not receive Maternity Allowance, she can request a letter from the Jobcentre Plus to state this.

Can I reclaim the recalculated SMP?

Yes. An employer can usually reclaim 92% of Statutory Maternity Pay (or 108.5% if you qualify for Small Employers Relief). This would be done as usual through your monthly Employer Payment Summary (EPS) submission.

What if I pay enhanced or occupational maternity pay, which is more than the SMP due?

The Alabaster Ruling is specifically about Statutory Maternity Pay, so you will need to look at your Contract of Employment and Policies to decide if the Alabaster Ruling is to be applied. You may also be able to offset any additional amount of SMP as part of the reclaim.

What if my employee receives more than one pay increase?

You will need to recalculate the AWE, and back date any SMP owing, each time a pay increase is awarded between the start of the SMP calculation period and the end of their maternity leave.

How do I re-calculate SMP following a pay award?

At its simplest, you need to add any pay increases to the Relevant Period, to determine the new AWE rate.

Example 1

A monthly paid employee who earned £2,000 per month is awarded a pay increase of £50 per month.

	Original earnings in the relevant period	Revised earnings (+£50 per month)
1st month of Relevant Period	£2,000	£2,050
2nd month of Relevant Period	£2,000	£2,050
Total earnings in Relevant Period	£4,000	£4,100

Average weekly earnings	£461.538462	£473.076923

Weekly rate at 90%	£415.39	£425.77	Adjustment owing

Week 1	£415.39	£425.77	£10.38
Week 2	£415.39	£425.77	£10.38
Week 3	£415.39	£425.77	£10.38
Week 4	£415.39	£425.77	£10.38
Week 5	£415.39	£425.77	£10.38
Week 6	£415.39	£425.77	£10.38
Week 7	£187.18	£187.18	£0.00
Week 8	£187.18	£187.18	£0.00
Ongoing weekly rate	£187.18	£187.18	£0.00

In this scenario the first six weeks of the employee’s SMP period is to be uplifted to the rate of £425.77 per week (an increase of £10.38). She then goes on to the Standard Weekly Rate

Example 2

A monthly paid employee who is over the age of 21. Her relevant period for AWE is November and December 2024. In April 2025, the National Minimum Wage for this age bracket increased from £11.44 per hour to £12.21 per hour.

	Original earnings (£11.44 per hour)	Revised earnings (£12.21 per hour)
1st month of Relevant Period	£596.48	£636.63
2nd month of Relevant Period	£596.48	£636.63
Total earnings in Relevant Period	£1,192.96	£1,273.26

Average weekly earnings	£137.649231	£146.914615

Weekly rate at 90%	£123.89	£132.23	Adjustment owing

Week 1	£123.89	£132.23	£8.34
Week 2	£123.89	£132.23	£8.34
Week 3	£123.89	£132.23	£8.34
Week 4	£123.89	£132.23	£8.34
Week 5	£123.89	£132.23	£8.34
Week 6	£123.89	£132.23	£8.34
Week 7	£123.89	£132.23	£8.34
Week 8	£123.89	£132.23	£8.34
Ongoing weekly rate	£123.89	£132.23	£8.34

In this scenario we can see that it is not just the first six weeks of the employee’s SMP period that is impacted as the remaining 33 weeks are paid at the SMP Rate, or 90% of the AWE, whichever is lower.

Final note

It can be easily overlooked when an employee receives the increase just before going on Maternity Leave, so when setting up the Maternity Pay Schedule, remember to think “has this employee received a pay increase since the Relevant Period, or would they be due one this period”.