An employer doesn't have to pay an employee during maternity leave, adoptive leave, parental leave and carer's leave. Many do, but others don't. In line with good corporate governance practice, larger employers invariably have a detailed policy in place dealing with the provisions of pension benefits during the various forms of statutory leave. However, smaller employers are less likely to have developed detailed practices and usually deal with employment matters as and when they arise.

A prudent employer should take time out to develop a comprehensive policy on statutory leave, covering the treatment of all benefits, including pension benefits, for employees on statutory leave. In our experience, employers who take time to consider these issues and develop a policy can gain a competitive advantage, as they are more likely to attract and retain staff, and they will not need to spend valuable management time fire-fighting issues that could have been avoided.

An employer should ensure that each element of pension benefit is considered in the context of statutory leave, as it may decide to offer different treatment depending on the nature of the benefit arising. For example, during some periods of statutory leave, death-in-service benefits may be provided but not the ongoing accrual of benefits.

A review of the following should be undertaken:

• the nature of the pension promise,
  
  
• eligibility terms,
  
  
• rate of employer contributions,
  
  
• continuity of employee contributions,
  
  
• ability to make additional voluntary contributions,
  
  
• accrual of pensionable service while on statutory leave,
  
  
• death benefits,
  
  
• any pensions provisions contained in the employee handbook,
  
  
• the relevant documentation governing the pension schemes under which employees participate, and
  
  
• the practice to date operated by the employer/trustees.

The preparation of a policy will involve a review of the terms and conditions of employment for each member of staff, pay practices for employees on statutory leave, the nature of each period of statutory leave, the nature of the employer's business, and the employee's seniority and importance to the business. Each employer needs to assess what pension benefits must be provided as a matter of law and which ought to be provided as a matter of policy to suit the needs of their business.

The provision of these benefits may need to be assessed in conjunction with the trustees of the pension plan and reviewed at regular intervals. It may be necessary to update the pension deed and booklet to reflect the updated policy. We find that those employers who go to the trouble of explaining their policy on the provision of pension benefits during statutory leave reap the rewards of their labours. Their employees value the fact that their employer has taken the time to develop a programme to meet the needs of the workforce.

Ignorance of legal obligations
Many employers are unaware of their statutory obligations in respect of employees on statutory leave. Employment protection laws in this area are complex. For example, maternity protection is covered under two areas, the Maternity Protection Acts 1994 and 2004 and the Pensions Act 1990. There may be different pension consequences for employees on maternity leave depending on whether or not the employee is paid by the employer during such leave.

Ignoring the issue until it is too late
While employers may be aware of their basic obligations, the issue of pension benefits is often overlooked or ignored until an employee raises a query. An employer who adopts a wait and see approach is likely to run into difficulties that could result in extra cost and undue delays.

Not developing an appropriate policy
Failure to implement a policy on statutory leave can lead to disharmony in the workplace, resulting in loss of key staff and an increase in the risk of an employee taking action to rely on a promise that may not have been entirely understood at the time it was made or which is too costly to implement.

For further information, please contact Fiona Thornton or Gillian Dully.

Winter 2006.