Maternity and paternity pay when you are the small employer paying it

When a member of a five-person team announces a baby, two reactions run at once: genuine delight, and a quiet calculation about what it will cost. The second one is worth doing properly, because the answer is usually far less alarming than the guess — and because the parts that genuinely bite are not the ones owners worry about.

These are the 2026/27 figures, and the mechanics that decide whether the money is a real cost or a cash-flow loop.

Who qualifies

For statutory maternity pay, an employee needs 26 weeks' continuous employment with you by the qualifying week — the 15th week before the week the baby is due — and average weekly earnings of at least the lower earnings limit, which is £129 a week for 2026/27, measured over the eight weeks up to that qualifying week. They must give you at least 28 days' notice of when they want the pay to start, and a MATB1 certificate from their midwife or GP as evidence.

If they do not qualify, you do not simply say no. You complete form SMP1 within seven days of deciding, which lets them claim Maternity Allowance from the DWP instead. Missing that step is a small administrative failure that costs the employee real money.

Statutory paternity pay follows the same 26-week service test measured to the same qualifying week, and the same earnings floor. It is available to fathers and to a partner of any gender, including a same-sex partner, an adopter's partner, or the intended parent in a surrogacy arrangement.

What you actually pay

SMP runs for up to 39 weeks. The first six weeks are paid at 90% of average weekly earnings with no cap. The remaining 33 weeks are paid at £194.32 a week, or 90% of average weekly earnings if that is lower. Statutory paternity pay is up to two weeks at £194.32 or 90% of average weekly earnings, whichever is less.

Put a real salary through it. An employee on £30,000 has average weekly earnings of about £576.92. The first six weeks at 90% come to roughly £3,115. The following 33 weeks at £194.32 come to £6,413. Total statutory maternity pay: about £9,528 across nine months.

It is paid through payroll in the normal way, with tax and National Insurance deducted, and it counts as earnings for pension auto-enrolment — employer pension contributions continue based on the employee's normal pay, not the reduced amount, which is the one genuine extra cost people miss.

What comes back, and when

Most employers recover 92% of statutory parental payments. If your total Class 1 National Insurance for the previous tax year was £45,000 or less — which covers the overwhelming majority of small businesses — you qualify for Small Employers' Relief and recover 109% instead, up from 108.5% the previous year. The extra 9% is there to compensate you for the employer National Insurance you pay on the statutory payments themselves.

On our £9,528 example, that is about £10,385 recovered. The statutory pay is not really a cost at all for a small employer. It is a loop.

You reclaim by reporting the recovery on an Employer Payment Summary each month and offsetting it against the PAYE and National Insurance you would otherwise pay over. If your monthly PAYE bill is too small to absorb it — common when one person on a small team is off — you can apply to HMRC for advance funding and receive the money up front rather than carrying it.

The statutory pay is a loop, not a cost. What you are actually buying is cover, and cover is where the real money goes.

The bits that catch people out

Leave and pay are separate. An employee is entitled to 52 weeks of maternity leave regardless of whether they qualify for a penny of pay, and two of those weeks are compulsory — four if they work in a factory. Holiday continues to accrue for the entire 52 weeks and has to be taken or carried over, so budget for a return that starts with several weeks of annual leave. That interacts with your own holiday year and carry-over rules, so check the leave year dates early.

There are ten keeping-in-touch days available, which can be worked without ending maternity leave or pay, and they are genuinely useful for a handover. They are optional on both sides and you agree the pay for them separately.

Redundancy protection is wider than most owners realise. The protected period during which an employee at risk must be offered a suitable alternative vacancy in priority to others now runs from the point you are told about the pregnancy through to 18 months after the birth. Do not run a restructure over that period without advice.

And the return-to-work right is specific: after ordinary maternity leave the employee returns to the same job. After additional maternity leave it can be a suitable alternative role, but only if returning to the same job is not reasonably practicable.

The cash-flow reality

You pay first and recover monthly, so plan the sequence rather than the total. Model the three months around the handover, when you may be paying statutory pay, cover, and overlap for training all at once. That overlap — not the statutory pay — is the number that shows up in the bank, and it belongs in the forecast alongside the other numbers worth knowing cold.

For cover, a fixed-term contract for maternity cover is entirely legitimate. State the reason and the expected end in the written statement, remember the cover employee accrues their own holiday and statutory rights, and keep the returning employee's role genuinely open. The same care applies to any longer absence — the mechanics of managing sickness absence rhyme with this one.

The checklist

Get the MATB1 and diarise the qualifying week. Run the average weekly earnings calculation from actual payroll figures over the eight-week period. Confirm eligibility in writing, or issue SMP1 within seven days. Set the recovery percentage correctly in payroll — 109% if your Class 1 National Insurance was £45,000 or less last year. File the Employer Payment Summary monthly, not annually. Apply for advance funding if your PAYE bill will not absorb the recovery. Agree keeping-in-touch days before leave starts. And put the return date, the accrued holiday and the handover in the same calendar, because they always arrive together.

Common questions

Can I really recover more than I pay out in statutory maternity pay?

Yes, if you qualify for Small Employers' Relief. Where your total Class 1 National Insurance for the previous tax year was £45,000 or less, you recover 109% of statutory maternity, paternity, adoption, shared parental and neonatal care pay for 2026/27, rather than the 92% larger employers get. The additional 9% exists to cover the employer National Insurance you pay on those statutory payments, so it is compensation rather than profit. The recovery is claimed through your Employer Payment Summary each month and offset against the PAYE you owe. Set the relief flag correctly in your payroll software — getting it wrong understates your recovery all year.

What if the employee decides not to come back?

That is their right, and it does not entitle you to reclaim the statutory maternity pay — SMP is not repayable if someone resigns during or after leave, and any contract term saying otherwise is unenforceable as regards the statutory element. Enhanced contractual maternity pay is different: many employers make the enhancement repayable if the employee does not return for a minimum period, but that has to be written into the contract clearly and agreed in advance. The employee gives notice in the normal way, and their notice can run during leave. Accrued holiday still has to be paid out on termination.

Can I hire someone on a fixed-term contract to cover the leave?

Yes, and it is the normal approach. Say in the written statement that the contract is to cover a specific absence and give the expected end point, since maternity leave dates can move. The cover employee has full employment rights from day one for things like the written statement, statutory sick pay, holiday and discrimination protection, and fixed-term employees must not be treated less favourably than comparable permanent staff. Ending the contract when the substantive employee returns is potentially a fair dismissal for some other substantial reason, provided you handle it properly — put the position in writing at the outset rather than at the end.

Does statutory paternity pay apply to partners who are not the father?

Yes. Statutory paternity pay and leave are available to the biological father and to the spouse, civil partner or partner of the mother or adopter, including a same-sex partner, as well as the intended parent in a surrogacy arrangement. The test is the relationship with the child and the mother or adopter, not gender. The employee needs 26 weeks' continuous service by the qualifying week and average weekly earnings at or above £129 a week for 2026/27. They can take one or two consecutive weeks, and since April 2024 the two weeks can be taken separately and at any point in the first year after birth.