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The Neonatal Care (Leave and Pay) Act 2023: What Employers and Payroll Providers Need to Know

The Neonatal Care (Leave and Pay) Act 2023 is a significant step forward in supporting working parents with premature or sick babies. Coming into force in April 2025, the Act introduces a statutory right to neonatal leave and pay, ensuring that parents of babies requiring extended hospital care can take time off work without the financial strain of lost income.

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For payroll providers, accountants, and employers, this new legislation will require adjustments to payroll processes, HR policies, and compliance frameworks. Let’s explore what this means and how businesses should prepare.





What Is the Neonatal Care (Leave and Pay) Act 2023?


The Act provides up to 12 weeks of additional leave and statutory pay for employees whose babies spend at least seven consecutive days in neonatal care within the first 28 days after birth. This is on top of existing parental leave entitlements such as Maternity Leave, Paternity Leave, and Shared Parental Leave. The aim is to reduce the stress and financial hardship for parents who need to be with their newborn during an extended hospital stay.


Who Is Eligible?


To qualify for neonatal leave, employees must:


✅ Be parents of a baby admitted to hospital for at least seven consecutive days within the first 28 days of life.


For statutory neonatal pay, employees must also:


✅ Have at least 26 weeks of continuous service with their employer.✅ Earn at least the lower earnings limit (as with other statutory payments).


This means that while all employees will have a day-one right to unpaid neonatal leave, statutory neonatal pay will have similar eligibility conditions as other statutory payments like Statutory Maternity Pay (SMP) and Statutory Paternity Pay (SPP).

 

Reclaiming for Employers


Similar to other statutory payments like Statutory Maternity Pay (SMP) and Statutory Paternity Pay (SPP), employers will be able to reclaim some or all of the cost of Statutory Neonatal Pay (SNP). The amount reclaimable will depend on the size of the business and its National Insurance (NI) contributions in the previous tax year.

  • Larger employers will be able to reclaim 92% of the statutory neonatal pay paid to employees.

  • Smaller businesses may be entitled to reclaim up to 103%, meaning they could recover more than they actually pay out.


What This Means for Payroll Providers and Employers


  1. Payroll System Updates

    Payroll software will need updates to handle neonatal pay calculations, reporting, and HMRC submissions. If you're running payroll for clients, be prepared to guide them on these changes.


  2. HR Policy Adjustments

    Employers will need to update their employment contracts and leave policies to include neonatal leave rights. Payroll teams should ensure these changes are reflected in payroll processing.


  3. Budgeting for Statutory Payments

    Like SMP and SPP, statutory neonatal pay will be recoverable from HMRC, though the mechanics of this are yet to be finalised. Businesses should factor this into their financial planning.


  4. Employer Support and Communication

    Employers should be proactive in educating employees about their rights under the new law and ensure line managers and HR teams understand how to handle requests.


What’s Next?


While the Act has been passed, we’re still awaiting detailed regulations on how neonatal pay will be administered and reimbursed via HMRC. Employers and payroll providers should stay updated on guidance to ensure compliance ahead of April 2025.

At Your Payroll Manager, we’ll be keeping a close eye on developments and advising our clients on best practices. If you have any questions about how this will impact payroll processing, feel free to reach out!


Final Thoughts


The Neonatal Care (Leave and Pay) Act 2023 is a welcome change that provides much-needed support to working parents. However, it also introduces new payroll and compliance challenges for employers. Preparing early will ensure a smooth transition and compliance with the new regulations.



📌 Need help preparing for the changes? Get in touch with our Founder Austin on austin@yourpayrollmanager.co.uk to ensure your payroll processes are ready for April 2025! 🚀

 

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