Employers may discontinue salary sacrifice childcare vouchers during maternity leave

The recent Employment Appeal Tribunal decision in Peninsula Business Services Ltd v Donaldson has provided much needed clarification as to whether childcare vouchers, provided as part of a salary sacrifice scheme, must continue to be provided to employees on maternity leave when they are only receiving Statutory Maternity Pay. It was held that it is not discriminatory for employers to cease providing childcare vouchers in such a situation as childcare vouchers are remuneration.

During a period of maternity leave, employees are entitled to continue to benefit from the terms of their employment subject to one significant exception: remuneration.  Women on maternity leave are entitled to continue receiving benefits, such as private healthcare and holiday, but anything that is classed as “remuneration” does not have to be provided during maternity leave.

The 2014 guidance issued by HMRC entitled “Statutory Maternity Leave – salary sacrifice and non-cash benefits” regarded childcare vouchers provided under a salary sacrifice scheme as a “non-cash benefit” and indicated that childcare vouchers must continue to be provided during maternity leave.  However, once an employee is receiving only Statutory Maternity Pay, an employer is not permitted to reduce the employee’s pay to cover the cost of the childcare vouchers.  This meant that the only way that employers could provide the childcare vouchers was effectively for the employer to pay for the cost of the childcare vouchers.

Peninsula Business Services Ltd (PBS) operated a salary sacrifice scheme under which childcare vouchers were provided.  Under the scheme, receipt of the vouchers was suspended during maternity leave. Ms Donaldson refused to join the scheme as she would not accept receipt of the vouchers being suspended during maternity leave. Ms Donaldson brought various discrimination proceedings against PBS.

Whilst Ms Donaldson’s claim was initially successful in the Employment Tribunal, the Employment Appeal Tribunal (EAT) overturned this decision.  The EAT held that it is not discriminatory to suspend receipt of childcare vouchers which are provided through salary sacrifice arrangements during maternity leave.

The EAT judgment referred to the HMRC Guidance and said that it had no legislative basis for asserting that childcare vouchers have to be provided during maternity leave. The EAT examined how salary sacrifice schemes operate and held that such schemes should be viewed as diverting salary from one form of payment to another. Therefore, childcare vouchers obtained through salary sacrifice should be seen as remuneration, just like basic salary, which, in effect, the vouchers replace.

It could not, said the EAT, have been Parliament’s intention to require employers to continue providing childcare vouchers during maternity leave when there is no salary from which to make the necessary sacrifice. This would give employees on maternity leave a windfall benefit and would result in a clear cost to the employer, which would discourage employers from offering childcare vouchers at all.

The EAT said that the position is different where childcare vouchers are provided not as part of salary sacrifice, but instead as an additional benefit. In this scenario, the vouchers are not remuneration and should continue to be provided to employees on maternity leave.

This is a helpful decision for employers who may wish to revisit whether they will continue to provide childcare vouchers during all or part of maternity leave.  However, the EAT did state that it may not have identified all provisions that may be relevant and its conclusions are therefore somewhat tentative.  This means that, before making any changes, employers should bear in mind that the EAT findings may be subject to challenge in the future.

For more information on any of the issues raised, please contact Shaun Hogan, shaun.hogan@stevens-bolton.com or any other member of the Employment, Immigration and Pensions team at Stevens & Bolton

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