Childcare Vouchers

Welcome back to another Case of the Week. Before we begin I would like to draw the attention of anyone who isn’t tired of hearing about George Osbourne to our pieces explaining his performance against election promises and the impact of the latest budget.

Remember last week when i mentioned it would be timely to have a case on sex discrimination? Well we have one this week but unfortunately it isn’t as inspiring as hoped for.

Today’s questions:

Do employers have to provide childcare vouchers during maternity leave?

Does this apply to vouchers offered via salary sacrifice?

Ms Donaldson, the Claimant, was employed by Peninsula Business Services, the Respondent. The Respondent offered a salary sacrifice scheme whereby employees gained tax free childcare vouchers in exchange for a reduced salary.

A salary sacrifice scheme is an agreement between an employer and an employee to change the terms of the employment contract to reduce the employee’s cash pay in return for a non-cash subsidy which is partially, or wholly, exempt from tax and NICs.

A condition of the Respondent’s salary sacrifice scheme was that employees had to agree to suspend their membership during various types of leave, including, maternity, parental and sick leave. The Claimant, who was pregnant, tried to join the scheme but would not agree to suspend her membership during maternity leave.

Maternity Discrimination

The Claimant believed this condition was discriminatory so brought a claim before the Tribunal. The ET allowed the claim, directing itself to the Maternity and Parental Leave Etc. Regulations 1999 and accompanying guidance from HMRC. It ruled that the Claimant was entitled to expect non-pay benefits to continue throughout the duration of maternity leave.

The Respondent appealed on the grounds that the ET had wrongly interpreted the HMRC guidance. As the scheme exchanged pay for vouchers it was not a non-pay benefit, and instead non-pay remuneration therefore it could be legitimately withdrawn during leave.

The EAT allowed the appeal, however, it cautioned employers that childcare vouchers provided on top of an employee’s salary must continue during maternity leave.

The takeaway point:

Yes, employers do have to continue childcare vouchers during maternity leave, unless they are part of a salary sacrifice scheme. The reason for this is that as part of salary sacrifice scheme the vouchers are no longer a benefit and instead become remuneration.

This decision could also explain why a vague plan to review salary sacrifice schemes was included in the budget. The decision could also be to do with reducing the amount of schemes that get tax and NICs advantages. Nonetheless, it may be an area that is reformed in the near future.