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Childcare vouchers are a fundamental benefit for many working parents throughout the country, enabling them to save up to £933 each year. The scheme is largely regarded as mutually beneficial, with the employee benefitting from tax-free childcare and the employer retaining more women in the workplace.
However, according to the EAT in Peninsula Business Services v Donaldson, employers are legally entitled to suspend an employee’s membership of these schemes during periods of maternity leave.
In this case, a pregnant employee (Ms Donaldson) was refused entry to a salary sacrifice scheme operated by her employer (Peninsular Business Services) which would enable her to receive childcare vouchers. This was because she would not agree to a term of the scheme which required suspension of membership during various types of leave, including maternity leave. Mrs Donaldson argued that this term discriminated against women on maternity leave.
According to Regulation 9 of the Maternity Regulations, an employee who is on maternity leave is entitled to take the benefit of all the terms and conditions of their employment except terms relating to remuneration.
In light of HMRC Guidance which portrays childcare vouchers as a non-cash benefit which must continue to be provided during maternity leave, the ET found that Peninsula Business Services had unlawfully discriminated against Ms Donaldson.
The Employment Appeal Tribunal (EAT) overturned the Tribunal’s decision, arguing that there was no legislative basis for the HMRC Guidance and the ET had not properly understood the nature of a salary sacrifice scheme. It held that a salary sacrifice scheme is not an arrangement by which an employer provides a benefit (vouchers) instead of or in addition to salary but a diversion of salary. As a woman on statutory maternity pay has no salary to divert in order to purchase childcare vouchers, an employer is not required to provide them during this period.
The EAT held that to classify childcare vouchers as a non-cash benefit would result in a windfall benefit for the employee and financial hardship for the employer. As the scheme is entirely voluntary, such an interpretation could result in many employers refusing to offer childcare vouchers. This in turn could have a detrimental effect on the number of women returning to the workplace, a key policy driver for the childcare voucher scheme.
Employers should be pleased with the outcome as it means they will not have to pay for childcare vouchers for women on maternity leave. However, employers should consider a number of factors before ceasing to pay childcare vouchers:
As a final point, the significance of this case is somewhat diminished by the fact that a new tax-free childcare scheme is going to be introduced next year. Although members may continue to participate in the current childcare voucher scheme, it will not be open to new entrants and some members may switch over to the new scheme if it offers them a better deal.
Should you have any questions about the issues raised in this blog post please contact a member of our employment team.
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