Payroll teams have a critical role to play in ensuring compliance with employment legislation—especially when it comes to leave and pension entitlements. One area where errors frequently arise is during maternity leave, particularly in relation to pension contributions. With the recent introduction of neonatal leave laws, it’s more important than ever that payroll professionals understand their responsibilities. In this article, we’ll cover the key issues around maternity leave pension contributions, common payroll pitfalls, and what the new neonatal leave legislation means for your business.
Maternity Leave & Pension Contributions: A Quick Refresher
When an employee goes on maternity leave, their statutory rights extend beyond just pay—they also include pension contributions. Under UK law, while an employee is on paid maternity leave (Ordinary Maternity Leave and the first 13 weeks of Additional Maternity Leave), both employer and employee pension contributions must continue.
Here’s how it breaks down:
Employer Contributions: Employers must continue to pay their usual pension contributions based on the employee’s normal salary—not the reduced maternity pay.
Employee Contributions: These are based on the actual maternity pay received, unless the employee chooses to top it up.
To avoid this common mistake it is important to ensure your payroll system is configured to calculate employer pension contributions using the employee’s full salary, even while they are on reduced pay. Failing to do so can result in underpayment and compliance issues with The Pensions Regulator.
Other Common Payroll Mistakes to Avoid
Even the most experienced payroll departments can make mistakes, particularly when juggling statutory payments, pensions, and varying lengths of leave. Here are some of the most common pitfalls:
1. Incorrect Pension Calculations
As mentioned, this is a major area of concern. Many payroll systems default to calculating employer contributions based on actual earnings unless manually overridden.
To avoid this payroll mistake it is essential to regularly audit your maternity cases to ensure contributions are based on normal pay. Consult your payroll software provider if necessary to ensure correct configuration.
2. Failure to Track Leave Accurately
Maternity leave often overlaps with other types of leave (e.g., shared parental leave), and inaccurate tracking can lead to misapplied entitlements.
Fix: Use a robust HR/payroll system with integrated leave tracking and clear workflows for managing transitions between leave types.
3. Omissions in Record-Keeping
Failing to maintain accurate records of communications, pay changes, and pension adjustments can cause issues during audits or employee disputes.
It is important to keep a detailed log of correspondence, calculations, and approvals related to maternity and any associated leave.
The New Neonatal Leave Law: What You Need to Know
In April 2025, the UK Government introduced Neonatal Care (Leave and Pay) legislation. This law gives eligible employees up to 12 weeks of paid leave if their baby requires neonatal care soon after birth.
Key Features:
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Applies to parents of babies who are admitted to neonatal care within 28 days of birth and who remain in care for at least 7 continuous days.
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Leave is in addition to maternity, paternity, and shared parental leave.
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Pay will be aligned with Statutory Parental Pay rates.
Payroll Considerations:
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You’ll need to update your leave policies and payroll software to accommodate this new leave type.
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Accurate record-keeping and employee communication will be crucial, as this leave can overlap with other entitlements.
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Prepare to handle new statutory pay codes and eligibility checks within your systems.
Ensuring compliance with maternity and neonatal leave policies is not just about ticking boxes—it’s about supporting your employees during some of the most significant moments in their lives. By avoiding common payroll mistakes and staying ahead of new legislation, you can protect your business from legal risks and build a more supportive, inclusive workplace.
Need to Speak to Our Payroll Outsourcing Team?
If you’re unsure whether your current payroll setup is compliant with maternity or upcoming neonatal legislation, now is the time to act. Speak to our payroll outsourcing team who can work with you to review your internal processes and ensure everything is watertight.