10 March 2016

Many employers provide childcare vouchers for staff. Some do so under a salary sacrifice scheme whereby the employee reduces their salary but receives childcare vouchers (a non-cash benefit) in lieu. There are tax advantages to doing so. We are often asked what the position is when the employee goes on maternity leave. Does the employer still need to pay the childcare vouchers?

The legal position is (generally) that, subject to what the contract of employment says, the employer does not need to pay salary/wages during maternity leave, as statutory maternity pay or allowance is due instead. However, an employer must continue to provide non-cash benefits. HMRC’s guidance on childcare vouchers was, therefore, that they must continue to be paid during maternity leave.

The Employment Appeal Tribunal (“EAT”) has looked at this matter in the case of Peninsula Business Services v Donaldson.

Ms Donaldson was offered childcare vouchers under a salary sacrifice arrangement. It was a condition of this arrangement that they would not be paid during maternity leave. The employee objected to this and refused to sign any agreement containing that term. She brought a claim arguing the term was discriminatory.

The EAT considered the matter and came to the conclusion that the proposed agreement the employee was being asked to sign was not discriminatory or otherwise unlawful. They contrasted childcare vouchers that are offered by employers as a genuine benefit, over and above salary, with Peninsula’s “salary sacrifice” arrangement where salary was reduced in return for the vouchers. The EAT considered this was a “diversion” of salary and the childcare vouchers should continue to be considered as equivalent to salary/wages, not as non-cash benefits. Therefore there was no issue with the employer seeking to cease providing the vouchers during maternity leave, as there was no requirement to pay salary/wages during maternity leave. The agreement, or contract, Ms Donaldson was being asked to sign was not therefore unlawful. The answer would have been different had the childcare vouchers been a genuine benefit, not funded by salary sacrifice.

This decision supports any employer who wishes to make it a condition of such a salary sacrifice scheme that the childcare vouchers are not paid during maternity leave. If the contract is silent on whether the sums are payable during maternity leave, what is the position? The EAT decision does provide some support for employers but it may also be relevant to consider what the contractual intention was. Certainly, if the contract states that childcare vouchers will be paid during maternity leave, there is a contractual obligation to do so, and that is not affected by this decision.

Salary, bonuses, and benefits for staff on maternity leave, or similar types of leave, remains a thorny issue and expert guidance should be sought.

Contact: Douglas Strang Senior Associate dst@bto.co.uk T. 0141 221 8012