Salary Sacrifice & Maternity Leave: What Employers Must Know

At Cloud Payroll we understand salary sacrifice is a powerful tool for both employers and employees offering tax efficiencies, increased pension contributions, and access to valuable benefits. But when an employee goes on maternity leave, the rules around salary sacrifice change significantly. Many employers are unaware of their obligations, and mistakes can lead to costly compliance issues.

This guide breaks down what salary sacrifice means during maternity leave, how it interacts with Statutory Maternity Pay (SMP), and what employers must legally provide.

What Is Salary Sacrifice?

Salary sacrifice is an agreement where an employee gives up part of their gross salary in exchange for a non‑cash benefit. Common examples include:

• Pension contributions

• Electric car schemes

• Cycle to Work

• Childcare

• Health or dental plans

Because the sacrifice reduces taxable pay, both employer and employee often benefit from lower tax and National Insurance.

But salary sacrifice is only valid when the employee is earning enough to sacrifice. And that’s where maternity leave complicates things.

Salary Sacrifice During Maternity Leave: The Legal Position

When an employee goes on maternity leave, their pay typically reduces in stages:

1. Full pay (if offered by the employer)

2. Statutory Maternity Pay (SMP)

3. Unpaid maternity leave

Salary sacrifice interacts differently with each stage.

1. During Full Pay

If the employee is still receiving full contractual pay, salary sacrifice continues as normal. The employer deducts the agreed sacrifice from the employee’s pay and provides the benefit.

2. During Statutory Maternity Pay (SMP)

This is where employers often get caught out.

Key rule: Salary sacrifice cannot reduce SMP.

SMP is calculated based on average earnings before maternity leave. Once maternity leave begins, SMP cannot be reduced by salary sacrifice deductions.

So what happens to the benefit?

The employer must continue providing the non‑cash benefit in full, at their own cost, for as long as the employee is receiving SMP.

This is a legal requirement under maternity protection regulations.

Why?

Because salary sacrifice is treated as a contractual benefit. During maternity leave, employees are entitled to all contractual benefits except wages. SMP is not a wage it’s a statutory payment so benefits must continue.

Example

An employee sacrifices £300 per month for an electric car. During SMP, her pay is £187.18 per week (2025/26 rate).

You cannot deduct £300 from SMP. But you must continue providing the car. The employer absorbs the cost.

3. During Unpaid Maternity Leave

Once SMP ends, the employee may take additional unpaid maternity leave.

Employer obligations:

• The employer must continue providing the benefit until the end of maternity leave, even if the employee is receiving no pay.

• The employee cannot make salary sacrifice contributions because there is no salary to sacrifice.

• The employer must continue funding the benefit in full.

This applies to all non‑cash benefits included in the salary sacrifice agreement.

What About Pension Contributions?

Pensions are treated differently from other benefits.

Employer pension contributions must continue based on the employee’s pre‑sacrifice salary.

This applies during:

• Full pay

• SMP

• Unpaid maternity leave

Employee pension contributions:

• Are based on actual pay received

• Often reduce to zero during SMP or unpaid leave

• Cannot be deducted from SMP if it would reduce SMP below the statutory minimum

If the employee wants to maintain their pension contributions, they can choose to make voluntary payments—but they cannot be required to.

Can an Employee Opt Out of Salary Sacrifice Before Maternity Leave?

Yes and many do.

Employees can change or end a salary sacrifice arrangement when they experience a “lifestyle change”, which includes:

• Pregnancy

• Maternity leave

• Significant changes in income

This is often advisable for high‑value benefits like electric cars, where the employer would otherwise bear the full cost during maternity leave.

Employers should:

• Allow the employee to opt out

• Document the change

• Update payroll and benefit providers

• Recalculate SMP based on the revised salary

Employer Checklist: Staying Compliant

✔ Continue all non‑cash benefits during maternity leave

Even when the employee is only receiving SMP or unpaid leave.

✔ Do not deduct salary sacrifice from SMP

SMP cannot be reduced.

✔ Fund the benefit yourself during low‑pay or no‑pay periods

This is a legal requirement.

✔ Continue employer pension contributions

Based on pre‑sacrifice salary.

✔ Allow employees to amend or end salary sacrifice before maternity leave

This protects both parties.

✔ Keep clear documentation

HMRC expects written evidence of any changes to salary sacrifice agreements.

Why This Matters

Getting salary sacrifice wrong during maternity leave can lead to:

• Unlawful deduction of wages claims

• Breach of maternity rights

• HMRC compliance issues

• Tribunal risk

• Reputational damage

Employers who understand their obligations not only stay compliant they also demonstrate fairness and support for their workforce at a crucial time.