Why spreading your Maternity Pay makes you better off
Some employers offer the option to spread or ‘smooth’ maternity pay evenly over your entire maternity leave. The idea is that you get the same total amount, only spread evenly over each month rather than the typical decreasing monthly amounts. This makes it easier for you to budget throughout your maternity leave.
Here we see that this is not really true ??" there is another benefit to spreading: Your take-home pay is not only spread; it is often more as well. Sometimes 10% more.
Just give me the answer: Yes ??" you could actually get more money:
If you are given the option to spread your maternity pay, probably you will be financially better off by doing so (unless you qualify for Universal Credit), because deductions from pay (e.g. tax and student loan repayments) may be lower.
Working out exactly how much is complicated and depends on things you wouldn’t expect, like when in the year your baby is born. That’s why we built the maternity.money calculators, to give you an answer that is specific to your circumstances.
One small note of caution: any financial upside of spreading your maternity pay will almost certainly be cancelled out if you end your maternity leave early. If you think there is a chance you will go back to work sooner than the period you have spread your pay over, you should probably not spread your pay.
What do we mean by spreading maternity pay?
Most occupational maternity pay schemes start with a relatively high level of pay that steps down at various points.
For example, the main NHS scheme is:
- 8 Weeks Full Pay
- 18 Weeks Half Pay Plus Statutory Maternity Pay (£151.20)
- 13 Weeks Statutory Maternity Pay (£151.20)
- 13 Weeks Unpaid
However, many NHS trusts offer the option to “spread” this pay evenly over the 52 weeks maternity leave. The idea is you total up the gross pay you would receive, and then divide it equally over 12 months.
So let’s look at an example for a Made Up Mum:
- Maternity leave for 52 weeks from 30/9/2019
- Salary: £17,000
- Pension: 9.3%
- Maternity Policy as above
Because we are going to be looking at net pay it is important to look at pay across the whole tax year (April to April). Because our maternity leave falls across two years, we will look at Total Net Pay across those two tax years (19/20, 20/21).
|Total Gross Pay||27228||27228|
By spreading, you get less gross pay at the start of maternity leave and more at the end. But the total gross pay whether you smooth or not remains the same (£27,228).
What about take home (net) pay?
So, the total gross maternity pay is equal, what about take home pay? Because the tax system treats income differently depending on when it turns up, things look different for take home pay.
First let’s take our Made Up Mum and see if there is a difference:
|Total Net Pay||£ 22,695||£ 23,499|
In this particular scenario, not only does spreading your maternity pay give you a more even income, you get also get an extra £804 of take-home pay!
This is (roughly) a 10% increase in maternity pay.
Why does this happen?
When your pay is more even over multiple tax years you may pay less tax, and make smaller student loan repayments, because a smaller amount of your income is above the various thresholds.
Because this is about the amount of your pay above certain thresholds, the amount you get paid changes the size of the effect.
The graph below shows that spreading maternity pay always (for Made Up Mum) results in more take home pay, but the size of that difference varies considerably with how much you get paid, and whether you have a student loan.