Childcare vouchers and maternity leave

The Maternity and Parental Leave Regulations were amended in 2008 to comply with a European ruling in a case brought against the government by the Equal Opportunities Commission.

The ruling said that UK law should be amended to give employees on additional maternity leave (AML) the same rights as those on ordinary maternity leave (OML) in respect of the terms of their employment contract that they are entitled to benefit from.

This change has had implications in respect of benefits, including childcare vouchers, which is the focus of this article. This is a topical issue, as the British Chamber of Commerce (BCC) is reported by the BBC to have advised employers concerned about the costs of this change to consider withdrawing from the childcare vouchers scheme – though it said it provides information only.

Q What is the position on maternity pay?

A Employees who qualify for maternity pay are entitled to get it for 39 weeks of their maternity leave. For the first six weeks, maternity pay is 90% of normal weekly pay. For the remaining 33 weeks, it is paid at the lower rate of either 90% of normal weekly pay or the prescribed rate, which is currently £123.06 per week.

Q What about benefits during maternity leave?

A During OML, a mother is entitled to the benefit of the terms of her employment contract except for the terms providing for her remuneration. Remuneration is defined as “sums payable to the employee by way of wages or salary”. Consequently, all non-cash benefits (for example, health club membership) will continue to apply to the employee during OML. These provisions also apply during AML in respect of babies due on or after 5 October 2008.

Q What is the childcare vouchers scheme?

A The government’s childcare vouchers scheme allows employers to offer vouchers to employees in return for a tax break on their value. The vouchers are usually provided as part of a salary sacrifice, where an employee’s salary is reduced by the value of the vouchers.

Q Why is there confusion over this benefit?

A Confusion arose as to whether the vouchers are counted as remuneration or as a benefit when dealing with maternity rights. If childcare vouchers are remuneration, then employers would have to include the value of the vouchers when calculating maternity pay but would not have to continue to provide the vouchers during maternity leave. But if the vouchers are a benefit, employers would not have to include the value of the vouchers when calculating maternity pay, but would have to continue to provide the vouchers during maternity leave.

Q Are they really a benefit?

A The prevailing view is that the vouchers are a benefit and employers should to follow this view to avoid any possible future claims from employees of sex discrimination or detriment suffered as a result of taking maternity leave. Revenue and Customs also views the provision of childcare vouchers as a non-cash benefit, rather than remuneration. The Department for Business Innovation and Skills (formerly BERR) is expected to publish guidance over the summer in an attempt to end the uncertainty.

Q Must employers pay for vouchers during unpaid maternity leave?

A Some BCC members are concerned they have to provide vouchers as a benefit, not only during OML, but now also during AML, including during the unpaid final 13 weeks of AML. This means employers will be providing the vouchers but not recovering the cost of doing so through salary sacrifice, as the employee will not be receiving any salary that can be sacrificed. Employers providing contractual maternity pay above statutory maternity pay can deduct the value of the vouchers from maternity pay, providing the actual amount of pay does not fall below statutory maternity pay.

Q What’s the penalty for not paying for vouchers?

A An employer who fails to provide the vouchers during unpaid maternity leave may face claims under the Sex Discrimination Act or the Maternity and Parental Leave Regulations if the vouchers are held by a court to be a benefit that the employee is entitled to throughout her maternity leave.

Q Can employers compel employees to give up vouchers?

A Employees concerned at the effect of the scheme on their level of maternity pay may choose to opt out of receiving the vouchers but the employer cannot compel the employee to opt out of receiving the benefit.

Nick Hobden, partner, and Ben Stepney, trainee solicitor, Thomson Snell & Passmore

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