Childcare vouchers: High price to pay

Only now is the true picture of the cost of childcare vouchers to employers – since regulatory changes last October – beginning to emerge.

New mothers who went on maternity leave in October have now gone beyond the 39-week period, during which many are entitled to contractual maternity pay from their employers. Some are now in the three-month period immediately before the end of their 52 weeks of maternity leave and are not being paid by their employer.

Nevertheless, they are almost certainly entitled to their contractual benefits – including childcare vouchers – and these will likely have to be paid for in full by their employers, by dint of EU directives and amendments to appropriate UK law.

British Chambers of Commerce (BCC) policy adviser Abigail Morris said members are contacting it at local and national level for advice on the implications of offering childcare vouchers via salary sacrifice.

“They want to know the financial risks,” said Morris. “We tell them that once a new mother stops receiving maternity pay – and is still on maternity leave – the employer will have to pay the full cost of the voucher.

“Only now are some employers cottoning on to the full costs of offering childcare vouchers.” She said a recent BBC story that said the BCC was advising members to withdraw from childcare vouchers schemes was not true. “We only provide information.”

Same T&Cs

Morris said inquiries had started to come in about six months and more after changes to maternity pay and conditions were introduced on 5 October. These mean that new mothers are entitled to the same terms and conditions that would have applied had they been at work, including the final 13 weeks of the 52-week maternity leave period.

The changes were stipulated by the EU Equal Treatment Directive and the Pregnant Workers’ Directive, and resulted in amendments to the Sex Discrimination Act 1975 and the Maternity and Parental Leave Regulations 1999.

Jane Anderson, solicitor at Matthew Arnold & Baldwin, said: “There is currently uncertainty over whether an employee’s entitlement to childcare vouchers should be treated as part of the employee’s remuneration or as a non-cash benefit.

The issue is untested in the tribunals and courts, but last year Revenues & Customs published guidance that childcare vouchers are non-cash benefits rather than remuneration, even if they have been provided by way of salary sacrifice.

“If this is correct, the effect is that the value of childcare vouchers should not be included for the purpose of calculating statutory maternity pay (SMP) and the employee is entitled to the childcare vouchers during her maternity leave without sacrificing any SMP. This interpretation is debatable though, as it is supported by the fact the vouchers are non-transferable and cannot be converted to cash.”

Claim risk

As for advice to employers worried or confused about where they stand legally on childcare voucher provision, Anderson said: “Advice is not based on legislation or precedent because the situation remains unclear. However, by ceasing to pay the agreed amount of salary sacrifice into childcare voucher schemes while employees are on maternity leave, employers risk facing claims from employees for unlawful deduction from wages, breach of contract, sex discrimination, being subjected to a detriment connected with taking maternity leave, or even constructive dismissal.”

National childcare charity, the Daycare Trust, wants the government to clarify the legal situation around childcare vouchers. “We don’t want to see a mass exodus from the scheme,” said the trust’s joint chief executive Alison Graham. “It’s a very important scheme. What we need the government to do is to set out some clear guidelines so everyone knows where they stand.”

The Department for Business, Innovation and Skills seems to see little reason for clarification. A spokesman said if mothers on maternity leave were paid contractual maternity pay by their employers, and had entered into a salary sacrifice scheme for childcare vouchers, then they were entitled to receive them if and when contractual maternity pay ceased during the 52 weeks of maternity leave.

But Graham added: “If the problems persist, though, it might be that it (the government) needs to step in and give financial assistance to employers.”

However, given the parlous state of public finances, this is highly unlikely, and employers will be duty bound to pay for childcare vouchers – even if it is through gritted teeth.

Good for employers’ reputations

The key benefit of offering childcare vouchers is an enhancement in reputation and employer brand, Personnel Today research suggests. A strong majority (91%) either agreed or strongly agreed that offering childcare vouchers improved company reputation, while 88% agreed or strongly agreed that it boosted employee retention.

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