Childcare vouchers and maternity leave
The question of whether childcare vouchers provided under a salary sacrifice scheme should be paid to an employee on maternity leave has long been a vexed issue however in the recent case of Peninsula Business Services Limited v Donaldson, the Employment Appeals Tribunal has offered an opinion.
By way of background, many employers provide employees with childcare vouchers as a benefit of their employment, usually by way of a “salary sacrifice” arrangement. During maternity leave, an employee is entitled to the benefit of all the terms and conditions of her employment that would have applied had she not been absent, except her remuneration. Remuneration is defined as “sums payable to the employee by way of wages or salary” and to date, there has been no certainty as to whether childcare vouchers should be treated as “remuneration” or as a non-cash benefit. Despite the uncertainty, HMRC’s guidance on the issue provides that childcare vouchers are non-cash benefits rather than “remuneration”, even if they have been provided by way of salary sacrifice and should therefore be maintained during maternity leave.
In this case Ms Donaldson received the benefit of a childcare voucher scheme by way of salary sacrifice. The employer made it a condition of entry to the scheme that in the event of the employee being on maternity leave the provision of the benefit would be suspended and salary would be treated as returning to its previous level for that period. Ms Donaldson considered the scheme to be discriminatory and brought claims for detriment and discrimination. Ms Donaldson argued that childcare vouchers should be provided during maternity leave and that by requiring employees to forego this entitlement the employer had subjected her to a detriment for asserting her right to take maternity leave and indirectly discriminated against her on grounds of sex. The employment tribunal upheld Ms Donaldson’s claims and held that the childcare vouchers were not remuneration but a non-cash benefit which the employer had an obligation to maintain during maternity leave.
The employer appealed against the decision. It argued that childcare vouchers provided under a salary sacrifice scheme were not a non-cash benefit, but remuneration and the vouchers needed to be paid for and money had to be earned before the employer and employee could receive the benefit of the vouchers. The employer argued that an employee in receipt of SMP only, from which no deduction can lawfully be made, has no salary from which a sacrifice can be made.
The EAT allowed the appeal and dismissed all Ms Donaldson’s claims. In doing so, it remained cautious that it may not have identified all the relevant legal provisions and said that it expressed its conclusions “somewhat tentatively”. The EAT considered that properly analysed, childcare vouchers were remuneration and so an employer did not have to continue to provide them during maternity leave.
Although this Judgment does not offer any definitive answer as to how childcare vouchers should be treated for the purposes of remuneration, it will certainly be considered as being persuasive. That said employers should still approach the issue with care until such time as further clarification is provided.