Employers do not have to provide childcare vouchers during maternity leave

The EAT has ruled that employers who provide childcare vouchers under a salary sacrifice arrangement are not obliged to provide them during maternity leave.

Speedread

Employers who provide childcare vouchers under a salary sacrifice arrangement have no statutory obligation to provide them during maternity leave. Childcare vouchers provided under such arrangements are remuneration, not a non-cash benefit, and remuneration does not have to be continued during maternity leave.  HMRC guidance which indicates that childcare vouchers provided under salary sacrifice arrangements are non-cash benefits (which do have to be continued) is incorrect.   However, if childcare vouchers are provided on top of salary, rather than under salary sacrifice arrangements, employers must continue to provide them during maternity leave.

Facts

In Peninsula Business Services Ltd v Donaldson, Peninsula offered its employees childcare vouchers under a salary sacrifice arrangement. It was a condition of entry to the scheme that vouchers would be suspended if an employee went on maternity leave. Ms Donaldson was pregnant. She considered that the entry condition was discriminatory and refused to join. 

During maternity leave an employee is entitled to all the terms and conditions of her employment other than remuneration. Remuneration is defined as sums payable to the employee by way of wages or salary. 

Ms Donaldson argued that childcare vouchers are not remuneration and therefore have to be continued during maternity leave. The employment tribunal agreed.  Peninsula appealed. It argued that HMRC guidance (which states that childcare vouchers, even if provided by way of salary sacrifice, are a non-cash benefit which must be continued during maternity leave) is incorrect. 

Decision

The EAT allowed Peninsula’s appeal. It ruled that childcare vouchers provided by way of salary sacrifice should be regarded as remuneration which does not have to be continued during maternity leave. In reality salary is not being sacrificed but is instead being diverted, before it reaches the employee’s pay packet, in order to purchase vouchers. 

There is no legislative basis for the assertion in the HMRC guidance that childcare vouchers provided under a salary sacrifice scheme must continue to be provided during maternity leave.

However, the EAT considered that the position is different if an employee is entitled to childcare vouchers on top of their salary (i.e. where they are not provided under a salary sacrifice arrangement). In such a case, the voucher would be regarded as a non-cash benefit which would have to be continued during maternity leave.

Implications

The issue of whether employers are obliged to continue childcare vouchers provided under a salary sacrifice arrangement has been the subject of much debate. Many employers will have followed the HMRC guidance and will have continued to provide them. Whilst this case decides that employees have no statutory entitlement to receive childcare vouchers whilst on maternity leave, this does not mean that employers who have been providing them can now stop doing so. Employees may have express or implied contractual rights to receive them and any change to this entitlement going forward would need to be agreed. It is also important to remember that this case only applies where childcare vouchers are provided under salary sacrifice arrangements and not where they are provided on top of salary.

Whilst it is useful to have a decision on this issue from the EAT, it expressed its conclusions “somewhat tentatively” as it was aware that there might be legislative and other considerations which it had not taking into account. There were also policy reasons behind its decision. Parliament could not have intended that employers would have to continue to provide salary sacrifice childcare vouchers during maternity leave. This may not be the final word on the subject as it remains to be seen whether Ms Donaldson will pursue an appeal to the Court of Appeal.