Childcare Vouchers

The thorny issue of childcare vouchers and whether these should continue to be provided during maternity leave has been revisited by the Employment Appeal Tribunal (EAT) in a judgment issued on 9th March.

By way of background, an employee on maternity leave is entitled to the benefit of her terms and conditions of employment, except for those which relate to remuneration. HMRC guidance on this topic states that childcare vouchers provided to an employee by way of salary sacrifice were considered a non-cash benefit and were, therefore, not to be considered as remuneration. In the circumstances, there would be an argument to say that the provision of childcare vouchers should continue during maternity leave at the employer’s expense.

In PBS v Donaldson, PBS had a childcare voucher scheme in place which stated that the provision of vouchers, and thus any salary sacrifice, would be suspended during maternity leave. Mrs Donaldson would not join the scheme because of that clause and issued proceedings, stating that it was discriminatory on the grounds of sex and pregnancy. The Employment Tribunal (ET) agreed, placing significant weight on HMRC’s guidance.

PBS appealed, on the grounds that there was no statutory basis for HMRC’s guidance and that the salary sacrifice mechanism acted as a diversion of an employee’s pay and, therefore, amounted to remuneration which did not need to continue during maternity leave. The EAT agreed with this assessment and overturned the original ET decision. In relation to salary sacrifice in particular, the Judge noted:

“… if an employee invited an employer to make a direct payment on her behalf, and to deduct the sum paid from [her] monthly salary, no one would suggest that the payment was anything other than part of her remuneration. If it were to purchase goods, it would not be regarded as arranging for a payment in kind (i.e. those goods) to be made by employer to her.”

The focus, therefore, was very much on the salary sacrifice rather than the provision of the childcare vouchers.

While this decision does provide some helpful clarification for employers, it may not be the end of the matter. The EAT remained apprehensive as to whether they had considered all the provisions which might be relevant, in particular regarding HMRC’s guidance.

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James Tamm

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