As an employer, managing statutory payments is a significant responsibility. While you’re required to provide various statutory payments to your employees, you may not be aware that you can recover some of these costs from the government.
This blog post explores the employer compensation schemes available for the 2025/26 financial year, helping businesses understand how to reclaim eligible statutory payments and reduce their financial burden.
The Statutory Payment Recovery Scheme
The Statutory Payment Recovery Scheme allows eligible employers to reclaim a substantial portion of certain statutory payments made to employees. This system helps to ease the financial pressure on businesses, particularly small and medium-sized enterprises.
What statutory payments can be recovered?
For the 2025/26 financial year, employers can recover the following statutory payments:
1. Statutory Maternity Pay (SMP)
Employers can recover 92% of all SMP payments made to employees. The current SMP rate for 2025/26 is £187.18 per week (or 90% of the employee’s average weekly earnings if lower) for up to 39 weeks after the first 6 weeks (which are paid at 90% of average weekly earnings).
2. Statutory Paternity Pay (SPP)
Similar to SMP, employers can recover 92% of SPP payments. The current rate is £187.18 per week for up to two weeks.
3. Statutory Adoption Pay (SAP)
Employers can reclaim 92% of SAP payments made to employees. The rate and duration mirror those of SMP.
4. Statutory Shared Parental Pay (ShPP)
92% of ShPP can be recovered. The current rate is £187.18 per week for up to 37 weeks.
5. Statutory Parental Bereavement Pay (SPBP)
Employers can reclaim 92% of SPBP payments. The current rate is £187.18 per week for up to two weeks.
Small employer relief – enhanced recovery rates
Small employers (those whose total Class 1 National Insurance contributions in the previous tax year were £45,000 or less) benefit from enhanced recovery rates.
Instead of reclaiming 92%, small employers can recover 108.5% of all statutory payments. This additional percentage is designed to compensate small businesses for the administrative costs associated with processing these payments.
Methods of recovery
Through PAYE
The most common method of recovery is through the PAYE system.
Employers can reclaim statutory payments by reducing their monthly PAYE and National Insurance contributions to HMRC. This is done through your regular payroll process:
- Calculate the amount of statutory payment made to employees for the period
- Apply the appropriate recovery rate (92% or 108.5% for small employers)
- Deduct this amount from your monthly PAYE and NI payment to HMRC
Direct Claims
If the amount you can recover exceeds your PAYE and NI liability for the period, you can apply to HMRC for a direct payment of the excess. This ensures that even employers with low PAYE and NI liabilities can still benefit from the recovery scheme.
Statutory Sick Pay (SSP) recovery changes
It’s important to note that the general SSP Percentage Threshold Scheme, which previously allowed employers to reclaim some SSP costs, was abolished in April 2014. However, during the COVID-19 pandemic, a temporary SSP rebate scheme was introduced.
As of the 2025/26 financial year:
The COVID-19 SSP rebate scheme has ended
There is currently no general scheme for recovering standard SSP costs
Employers must bear the full cost of SSP, which stands at £118.75 per week for 2025/26
Record-keeping requirements
To make successful recovery claims, employers must maintain detailed records of all statutory payments. These records must be kept for at least three years after the end of the tax year to which they relate and should include:
- Proof of employee eligibility for the statutory payment
- Evidence of payment amounts
- Calculations used to determine payment levels
- Dates of payments
- Recovery calculations
New digital reporting requirements for 2025/26
Starting in the 2025/26 tax year, HMRC has enhanced the digital reporting requirements for statutory payment recovery. Employers must now:
- Report recovery claims through their payroll software or HMRC’s online services
- Provide itemised breakdowns of different statutory payment types being recovered
- Submit supporting documentation electronically when requested
Planning and budgeting tips
Forecast statutory payments
Review your workforce demographics and anticipate potential statutory payments for the coming year. This helps with cash flow planning and ensures you’re prepared for temporary staff replacements.
Optimise recovery timing
Consider the timing of your recovery claims to maximise cash flow benefits. Many employers find it beneficial to reclaim statutory payments as soon as they’re eligible rather than waiting until the end of the tax year.
Review small employer status
If your business is near the £45,000 NI contribution threshold, review your position carefully. Strategic planning of staff costs and structure might help you maintain small employer status and benefit from the enhanced 108.5% recovery rate.
Utilise payroll software effectively
Ensure your payroll software is configured correctly to calculate recoverable amounts automatically. Most modern payroll systems can track statutory payments and calculate recoverable amounts, significantly reducing administrative burden.
Common mistakes to avoid
Miscalculating recovery amounts
Double-check your calculations, especially when dealing with employees on variable pay or partial weeks of statutory pay.
Missing recovery deadlines
Claims must be made within set timeframes. For PAYE-based recovery, this is usually within your regular PAYE settlement period.
Insufficient record-keeping
Inadequate records can lead to rejected claims during HMRC audits. Maintain comprehensive documentation for all statutory payments and recovery calculations.
Overlooking Small Employer Relief
Many smaller businesses fail to check if they qualify for the enhanced 108.5% recovery rate, missing out on valuable additional compensation.
Example scenario
A medium-sized retail business with 50 employees has five staff members take maternity leave during the 2024/25 financial year. By efficiently managing their statutory payment recovery process:
- Total SMP paid: £36,660
- Amount recovered (92%): £33,727
- Administrative cost of processing: £1,200
- Net cost to business: £4,133
By implementing an automated recovery system through their payroll software, they reduced administrative costs by 60% and ensured no eligible recovery was missed.
In conclusion
The Statutory Payment Recovery Scheme represents a significant opportunity for employers to reduce the financial impact of their statutory obligations.
For the 2025/26 financial year, understanding the recovery rates, eligibility criteria, and procedural requirements is essential for maximising your benefit from these schemes.
By implementing effective processes for tracking, calculating, and reclaiming statutory payments, businesses can significantly reduce the net cost of employee absences while continuing to support their workforce through important life events.
Remember that while this guide provides general information about statutory payment recovery, specific circumstances may vary.
