As a reminder to all employers, following on from Budget 2013, maternity benefit will become taxable as of 1 July 2013. In our previous editions of the Bottom Line Express, and through our regularly updated Peninsula Ireland Blog, we did outline our subscribers that under the current system women do not have to pay any tax on the €6,812 maternity benefit payments they receive the 26 week period after the birth of their child. However, from 1 July 2013 they will have to hand back up to €2,700 to the Revenue because the payments will be taxed up to a rate 41% from that date.
Widening the Tax Base
The new system is designed to have a more even spread across the sector and that all women will be grouped and treated the same when it comes to paying tax on the maternity leave entitlements. Many women actually get more in their take-home pay while they are on maternity leave due to the way the system is currently set up. The State pays a maximum of €262 per week to a woman on maternity leave for six months or a total of €6,812. Around 90% of women on maternity leave get this amount. But many public and private sector employers opt to give a “top up” to ensure that a woman gets her full wages, and tax is only paid on this “top-up” payment, meaning that women on maternity leave often end up with more in their pay packet.
Negative Impact?
Employers may see a turnaround in their employees’ views towards the maternity leave entitlements once this change has been implemented in July. Every pregnant employee is entitled to 26 weeks Ordinary Maternity Leave for which they will receive the aforementioned maternity benefit. In addition, the employee is entitled to 16 weeks Extended Maternity Leave but such employees are not entitled to any payment/benefit during this time. It is currently the case that a large number of pregnant employees opt to take the Extended Maternity Leave but one would have to question whether or not this will continue when the employee is subject to the maternity tax for the first 26 weeks and will be unpaid completely for the additional 16 weeks. This is especially the case when you factor that the majority of employees do not get a top up on their maternity leave benefit. This may force the maternity employee back into the workplace at an earlier date that they had originally intended. No matter what the circumstances are, an employer must ensure that the employee’s maternity leave includes the core period of two weeks before the birth and four weeks after. If an employee works during this core period then the employer will be viewed as being in serious breach of the Maternity Protection acts.
Temporary Cover
Several employers will recruit a temporary replacement that will cover the pregnant employee’s maternity leave. It is important to ensure that you issue this temporary replacement with the correct contract of employment which (a) is legally compliant, and (b) affords the employer. It is commonplace that an employer would use a temporary “fixed-term” contract to cover the 26 weeks maternity leave. This would appear fine at first glance but the problem with this is that through this contract you are committing to providing 26 weeks continuous employment to this temporary employee. Therefore, difficulties can arise should the pregnant employee decide to return from maternity leave at an earlier date. If this occurs then the employer is legally obliged to retain the temporary for the full 26 week period and to dismiss early could result in the employee being entitled to compensation. In order to give you the flexibility as an employer you are best placed to issue this temporary employee with a “specific purpose” contract. The specific purpose contract is far more flexible in that it does not guarantee a fixed amount of time in employment and will simply state that the temporary employment will come to an end when the pregnant employee returns from maternity leave. This is much more flexible and means that an employer will not have to take a risky termination option should the pregnant employee return early and it also means that additional contracts won’t have to be issued after the 26 week period should the employee opt to take extended maternity leave.
If you have any questions on the new taxation rules or on maternity leave issues in general then please do not hesitate to contact one of our experienced Employment Law Consultants 24 hours a day on 01 855 50 50.
