Suspending childcare vouchers during maternity leave is lawful

Suspending childcare vouchers provided through salary sacrifice is lawful
Suspending childcare vouchers provided through salary sacrifice is lawful

Employers do not have to provide childcare vouchers during maternity leave when offered through salary sacrifice, the Employment Appeal Tribunal (EAT) has held in Peninsula Business Services Ltd v Donaldson.

However, the EAT cautioned employers that childcare vouchers provided on top of an employee’s salary must continue during maternity leave.

Peninsula’s scheme provides employees with a reduced salary in return for tax-saving childcare vouchers, which are provided by a childcare voucher company.

However, employees can only join the scheme if they agree to a condition to suspend their membership during various types of leave. These include maternity and paternity leave, and sick leave when the employee is entitled to only statutory sick pay.

The claimant sought to join the childcare voucher scheme while she was pregnant. However, she was refused entry to the scheme because she would not agree to this condition.

She brought a claim in the employment tribunal, on the basis that the requirement discriminates against women on maternity leave.

Maternity leave legislation provides that employees’ contractual benefits, with the exception of normal wages, must continue during maternity leave.

In Donaldson v Peninsula Business Services, the employment tribunal relied on HM Revenue & Customs (HMRC) guidance to conclude that it is unlawful for Peninsula to make agreement to suspend membership during maternity leave a prerequisite of joining a scheme that it otherwise bestows as a benefit.

The HMRC guidance states that “non-cash benefits, such as childcare vouchers that can be used only by the employee and are not transferable…must continue to be provided during ordinary maternity leave and additional maternity leave”.

Peninsula appealed to the EAT against the employment tribunal’s ruling. The EAT has now held that it is not discriminatory for an employer to have a rule in its childcare voucher scheme that employees’ membership is suspended during maternity leave.

Childcare voucher schemes: the future

Childcare vouchers will be phased out from 2017 once the new Tax-Free Childcare scheme is phased in. Under the new arrangements, employers will not be involved: the scheme will operate directly between parents and the Government.

This is the case as long as the vouchers are provided in return for a deduction from pay. Such an arrangement is not a “benefit” for the purposes of maternity leave legislation and can be stopped during maternity leave.

The EAT’s rationale was that, if it upheld the employment tribunal decision, scheme members on maternity leave would be provided with a windfall and an additional cost would be imposed on the employer.

Employers could be discouraged from offering childcare vouchers in the first place.

However, the EAT made a distinction between childcare voucher schemes that operate via salary sacrifice, and schemes where the employer provides childcare vouchers in addition to employees’ pay.

The provision of childcare vouchers in addition to pay does count as a “benefit” and must continue during maternity leave, according to the EAT.

Stephen Simpson, principal employment law editor at XpertHR, commented: “Generous employers with childcare voucher schemes that provide vouchers as an extra benefit on top of basic pay need to check their schemes. They still have to provide this benefit during maternity leave.

“Employers that deduct money from employees’ wages to pay for the vouchers are safe now. According to this judgment, which as an appeal decision is binding, they don’t have to subsidise childcare vouchers for women on maternity leave.”

Read more details of the case and its implications for employers…