How neonatal care leave will affect your payroll and policies

From 6 April 2025, employers will need to accommodate a brand-new statutory entitlement: neonatal care leave and pay.

Introduced under the Neonatal Care (Leave and Pay) Act 2023, the legislation offers vital financial and emotional support to parents whose babies require specialist neonatal care – and it carries key implications for your payroll processes and workforce management.

What is neonatal care leave?

Eligible employees will have the right to take up to 12 weeks of neonatal care leave if their baby is admitted to neonatal care within 28 days of birth and remains in hospital for seven consecutive days or more.

• Leave entitlement is a day-one right, available from the start of employment.
• It applies across England, Wales, Scotland, and Northern Ireland.

How does neonatal care leave interact with other types of family leave?

Neonatal care leave is offered in addition to maternity, paternity, and shared parental leave. However, it's important to understand how this works in practice:

• It does not replace existing leave – If a parent is already on maternity or paternity leave when their baby is admitted to neonatal care, that leave continues as normal.
• It can be taken after other leave ends – Neonatal care leave can be used once statutory maternity, paternity, or shared parental leave finishes, giving parents additional time at home without reducing their main entitlement.
• Neonatal care pay cannot be claimed while on maternity pay – Statutory payments cannot overlap. If an employee is already receiving SMP or Maternity Allowance, neonatal care pay will not be paid at the same time. However, the leave itself can be taken later, once other entitlements have been used.

Employers should consider how they will track and coordinate multiple entitlements, especially where staff may move from one type of leave into another.

Neonatal care pay – Payroll essentials

While leave is available from day one, statutory neonatal care pay is subject to qualifying criteria:

• Length of service: Employees must have worked for you for a minimum period.
• Earnings threshold: Employees must earn at least £125 per week.

For the 2025/26 tax year, statutory neonatal pay will be £187.18 per week or 90 per cent of the employee’s average weekly earnings (whichever is lower).

This means your payroll systems must be updated to apply the correct rates and ensure compliance with eligibility checks.

What should employers do now?

Around 60,000 parents are expected to be able to qualify. To stay compliant and minimise disruption, you should start preparing now:

• Review and update payroll systems – Ensure your software is ready to process statutory neonatal care pay accurately, including earnings thresholds and pay rates.
• Update HR policies and handbooks – Clearly set out the new entitlement and how employees can request leave. Communicate changes across your workforce.
• Plan for workforce flexibility – With up to 12 weeks additional leave available, consider how you’ll manage staffing gaps. Options may include flexible working arrangements, temporary cover, or job-sharing.
• Provide employee support – Parents facing neonatal care are under immense stress. Understand the support mechanisms in place in your organisation/firm that can help support parents. Offering clear guidance on their rights, alongside additional support such as counselling services or flexible working options, can make a meaningful difference.
• Train managers and HR teams – Ensure those handling requests understand the legal framework and how to support employees compassionately and consistently.

This new entitlement sits alongside other family-friendly developments, such as enhanced flexible working rights and carer’s leave.

Staying informed will not only ensure compliance but also help position your business as a supportive, modern workplace.

For further advice on preparing your payroll and policies, contact our payroll team today.

Neil Manuel