22/06/2022

The question of whether the employee remains entitled to childcare vouchers during Maternity Leave has been a vexed one. It arises as during Maternity Leave (and other family friendly leave) leaving aside entitlement to Statutory Maternity Pay (SMP), the employee has no legal entitlement to remuneration but is entitled to her non-cash benefits. Childcare vouchers are generally a form of salary sacrifice i.e. the employees sacrifice some of their salary/remuneration in return and purchase childcare vouchers that have a tax and national insurance saving.

Although there was some uncertainty about whether childcare vouchers should be maintained during Maternity Leave, the generally accepted position (which was endorsed by HMRC) was that these childcare vouchers were a non-cash benefit and not remuneration and had to be continued during Maternity Leave. The thinking was that they were not ‘sums payable to the employee’ and they were not transferrable as cash but could only be converted into vouchers.

EAT Decision

However, in early 2016 EAT case of Peninsula Business Service -v- Donaldson the employer had a contractual clause stating that the employee’s entitlement to childcare vouchers would be suspended during any period of Maternity Leave. Mrs Donaldson who was their employee, refused to enter into the scheme on the basis that the terms were discriminatory. The Employment Tribunal in the first instance agreed with her and held it was discriminatory for an employee to lose her vouchers during Maternity Leave. The employer appealed to the EAT. The EAT reversed the decision and held that the childcare vouchers did represent part of the employee’s remuneration since pay had been substituted with vouchers under a salary sacrifice scheme. On this basis, the EAT held they were to be regarded as remuneration and could be discontinued during Maternity Leave. The EAT’s rationale included that Parliament could not have intended that employees receive such an additional windfall during Maternity Leave. They were influenced by the fact that this would have had the effect of putting many employers off offering what was otherwise a very valuable scheme for both employers and employees. However, the EAT made it clear that the position would be different if childcare vouchers were being provided, ‘in addition to’ an employee’s salary as opposed to via salary sacrifice. If that were the case they would be a benefit and must be continued during Maternity Leave.

Practical Advice

This is a welcome decision for employers wishing to stop entitlement to salary sacrifice childcare vouchers during Maternity Leave or other family friendly leave. However, the EAT is not binding in Northern Ireland but our Tribunals are persuaded by their law. Whether or not the Tribunals here would follow the case may depend on the Employment Judge hearing it.

Your organisation should exercise some caution if it wishes to cease salary sacrifice benefits during family friendly leave on the back of this decision. We say that for a number of reasons which include:

1. The EAT is not binding in Northern Ireland but its decisions are persuasive. Whether or not our Tribunals follow the decision may indeed depend on the facts of your case and Employment Judge hearing it with some more likely to follow than others.
2. Secondly, the EAT itself was unusually tentative in its findings acknowledging that, ‘it may not have identified all the provisions which might be relevant.’ This may make the decision more susceptible to appeal.
3. You should consider closely the terms on which you currently operate your childcare voucher scheme and what is said in policies and any contractual documents. Employers who have committed to maintaining vouchers during Maternity Leave as part of the employment contract will have difficulties in receding from that position without risking breach of contract claims/unlawful deduction from wages claims.

Any employer who is considering changing their rules regarding the operation of salary sacrifice schemes who requires further information on this issue should speak to one of the legal team before taking any action.