When HMRC announced increased support for small employers, it sounded like good news. And on the surface, a rise in the Small Employers’ Relief compensation rate from 8.5% to 9% from April 2026 is a step in the right direction. But once you dig into what that means in real terms, for real businesses, with real employees on statutory leave… the numbers are worth a closer look.
What the headline says:
HMRC confirms small employers’ relief (SER) rate of compensation for statutory sick pay and other benefits will increase from 6 April 2026.
This means that employers who qualify will be able to reclaim a higher percentage from HMRC to offset their costs as the rate increases by a percentage point to 9%.
For eligible businesses, the increased rate represents a modest but meaningful improvement in cashflow support. It also reflects HMRC’s continued efforts to ease the administrative and financial burden on smaller employers as the statutory pay landscape evolves.
Sounds great! 🥳🎉
What HMRC says:
SPM182000 – Paying and Recovering – SMP (Statutory Maternity Pay)/SAP (Statutory Adoption Pay)/SPP (Statutory Paternity Pay)/ShPP (Shared Parental Pay)/SPBP (Statutory Parental Bereavement Pay)/SNCP (Statutory Neonatal Care Pay): Small Employers’ Relief (SER) definition of small employer
Employers can qualify for SER for SMP/SAP/SPP/ShPP/SPBP/SNCP.
A small employer is one whose total gross Class 1 NICs, including primary (employee) and secondary (employer) liability, is at or below a set annual threshold, in the qualifying tax year. The current threshold is £45,000.
For this calculation, gross Class 1 NICs exclude:
Class 1A, Class 1B, and any NICs rebate.
The rules for determining who is a small employer for SER are laid down in:
- SMP (Compensation of Employers) and Miscellaneous Amendment Regulations 1994 (SI 1994/1882)
- SMP (Compensation of Employers) and Miscellaneous Amendment Regulations (Northern Ireland) 1987 (SR1987/30)
- Section 7(3) Employment Act 2002.
- Regulation 3 of the Statutory Paternity Pay and Statutory Adoption Pay (Administration) Regulations 2002 SI2002/2820.
- Article 8 of the Employment Order (Northern Ireland) 2002.
- Regulations 3 to 8 of the Statutory Paternity Pay and Statutory Adoption Pay (Administration) Regulations (Northern Ireland) 2002 SR2002 No 379
The qualifying tax year for SMP, SAP, SPP, ShPP, SPBP and SNCP is defined as the last complete tax year before the employee’s Qualifying Week (QW), Matching Week (MW), Official Notification Week (ONW) or Relevant Week (RW).
It is the employer’s responsibility to check the QW/MW/ONW/RW of each employee’s SP to see if they can be classed as a small employer, for each payment.
➡️ To work out if an employer who has been in business for less than 12 months in the qualifying year is entitled to SER:
- Calculate the total gross Class1 NIC liability in the year, excluding Class1A and Class1B NICs and deducting any NIC rebate due for those months,
- Divide the result by the number of months the employer has been in business, and
- Multiply the monthly figure by 12 to give the equivalent annual figure.
- If the annual figure is equal to or less than the threshold for the relevant tax year, the employer is a small employer for SER.
If the employer determines that they qualify for SER, they can get:
- 100% of the SP, and an additional amount as compensation for the NICs they pay on the SP. The Compensation rate for 26-27 is 9%. The compensation rate for 2025-26 is 8.5%. The compensation rate for 2024-25 and earlier years was 3%.
All payments of SMP/SAP/SPP/ShPP/SPBP/SNCP made in the same tax months the employer is entitled to recover should be added together and then they should calculate 100% plus the compensation rate due for the tax year, of that total figure.
Urmmmmmmm….. 🤷♀️🫥🤯
What this means:
If one of your team are entitled to any of the following:
- Statutory Maternity Pay
- Statutory Paternity Pay
- Statutory Adoption Pay
- Shared Parental Pay
- Statutory Parental Bereavement Pay
- Statutory Neonatal Care Pay
- And you are a small employer – which applies if your total Employee and Employer liability is below £45,000 last tax year.
Then you can claim an additional 9% of the total you have paid to your employee for their statutory leave to help with the cost and impact on your business.
The actual impact:
If you employed nine people full time on the real living wage, you would just fall under the small employer criteria. One employee on maternity leave for the full year would result in an additional payment of £817.39 as an employer to help with the recruitment and training of a temporary member of staff. This is an increase of £45.41 through this announcement…
The real headline:
HMRC are increasing support by £45.41 to employers with less than 10 employees if one of the team are on statutory maternity leave for a year ‘as part of efforts to ease financial burden on smaller employers.’
The total HMRC support is now £817.39 to cover temporary recruitment advertising and training, administrative support with processing statutory pay and annual leave entitlement for the employee costing of £3464.72.
This employer has also been impacted by £4,269.46 of additional national insurance costs in the last 12 months and their employee is surviving on a wage of £9,082.15 for the year while caring for their new baby.
Additional costs to employer: at least £7,000
Reduction in income for the employee: £14,581.85.
HMRC receives from the organisation’s employment: £49,426.06
You can read more about payroll changes, and dates to be aware of, in our recent blog post: Payroll changes from April: what employers need to know
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