Teal blue graphic

Salary sacrifice childcare vouchers can be discontinued during maternity leave

In breaking news, the Employment Appeal Tribunal (EAT) in Peninsula Business Services Ltd v Donaldson has held that it is not discriminatory to discontinue childcare vouchers paid by way of salary sacrifice during maternity leave, which is contrary to the view held until now.

Childcare vouchers

The question over whether employers are obliged to continue to provide childcare vouchers during a woman's maternity leave is one which has vexed employers and lawyers alike. The debate focuses on whether or not childcare vouchers are part of an employee's "remuneration", which legislation provides does not continue during maternity leave, or are instead a "non-cash benefit", which legislation provides must continue.

To date, the majority view was that employers were obliged to continue to offer childcare vouchers for employees on maternity leave, even during periods when the employee is in receipt of statutory maternity pay or nil pay. Whilst, until now, there were no test cases to confirm this position, it was supported by HMRC guidance which provides that childcare vouchers, whether provided by way of salary sacrifice or otherwise, are a non-cash benefit and therefore must continue to be provided throughout maternity leave.

Tribunal decision

Ms Donaldson complained to the employment tribunal that it was discriminatory for her employer to make entry to its childcare voucher scheme conditional on acceptance that those vouchers would be suspended during period of maternity leave. The tribunal agreed that this was discrimination. Her employer then appealed to the EAT. 

EAT decision

The EAT analysed the various applicable pieces of legislation together with the HMRC guidance. It allowed the appeal and dismissed Ms Donaldson's claim. 

The reasons for this were many:

It cannot have been the intention of Parliament for employers to have to continue to provide childcare vouchers during maternity leave.


The EAT noted that, whilst the HMRC guidance suggests that the receipt of childcare vouchers should be continued during maternity leave, this has no legislative force. Moreover, it could not have been the intention of Parliament for employers to have to continue to provide childcare vouchers during maternity leave.

If employers were required to continue to provide childcare vouchers during maternity leave this would produce both a windfall for the employee, and impose a cost upon the employer. The effect of this would be to discourage employers from offering a childcare voucher scheme, which cannot have been intended.

Childcare vouchers are remuneration and therefore do not need to be continued during maternity leave.

The EAT found that childcare vouchers are not a benefit provided by employers in addition to salary.  If they were they would be a non-cash benefit which legislation compels employers to continue to supply during maternity leave.  

Rather, childcare vouchers provided by way of salary sacrifice are in fact a diversion of the employee's existing salary, which is used to purchase the vouchers. The employer does not provide the vouchers itself: its role is to redirect the money which would otherwise have gone into the employee's take-home pay into the hands of the voucher provider, such that the employee benefits from the resulting tax relief.

As such, childcare vouchers should properly be regarded as remuneration, which legislation provides does not have to been continued during a period of maternity leave.

The fact that childcare vouchers are deemed to be a "non-cash benefit" by the relevant tax legislation for the purposes of personal taxation, does not deprive the vouchers of being part of remuneration for the purposes of what does and does not have to be continued during maternity leave.

Comment

This decision represents a major shift in the current view on employer's obligations around the provision of childcare vouchers during maternity leave. What it confirms is that, for an employee on maternity leave and in receipt of statutory maternity pay, an employer is not obliged to continue the provision of childcare vouchers.  

Whilst the decision focuses on employers that pay statutory maternity pay only, it is also applicable to those offering enhanced maternity pay. The principle remains that the EAT has confirmed that childcare vouchers should be viewed as making up an employee's remuneration such that they do not have to be continued during maternity leave. However, the relative cost of maintaining the vouchers where an employer pays enhanced maternity pay will most likely be less, and so employers may consider that they wish to continue to provide them, for employee relations reasons.

We would be more than happy to advise you on the effect of this decision on your business' practices. Please contact Stuart McBride on +44 (0)333 006 0329 or stuart.mcbride@TLTsolicitors.com

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Insights & events View all