The EAT has ruled on the thorny issue of childcare vouchers while on maternity leave. The rules on maternity leave state that while a woman is entitled to any non-cash benefit under her contract, she is not entitled to remuneration.
Most of the time it is obvious whether or not something is remuneration. Pay is, a gym membership or healthcare scheme isn’t. Most performance related bonuses are (and should be pro-rated) but something like a flat-rate Christmas bonus isn’t and should be paid in full.
Childcare vouchers sat in the middle. While a voucher isn’t cash, most schemes operate under a salary sacrifice basis – the employee forgoes some salary for an equal amount of childcare vouchers (the benefit to the employee being a break on tax on the vouchers). This is more closely related to salary than, say, accepting a slightly lower paid job as it includes healthcare.
It was unclear what happened to childcare vouchers when a woman went on maternity leave. HMRC guidance suggested they should be paid in full throughout. As Statutory Maternity Pay cannot be reduced to cover the cost of the vouchers (although occupational maternity pay can), this was costly for employers and led to many employers stopping the schemes altogether.
In the case of Peninsula Business Services Ltd v Donaldson, the Employment Appeals Tribunal held that vouchers are remuneration. Ms Donaldson had brought a claim against her employer, Peninsular, for maternity discrimination. Her contract included a clause that said if she took part in the childcare voucher scheme she would suspend her participation during maternity leave. Peninsular pay only Statutory Maternity Pay to employees on maternity leave, so there would be no salary that could be sacrificed. At Employment Tribunal Peninsular were held to have discriminated against Ms Donaldson and were ordered to pay the value of the vouchers plus £3,500 in costs. The tribunal placed some reliance on HMRC guidance.
At appeal the EAT looked behind the HMRC guidance at the regulations. They found that the phrase “salary sacrifice” was misleading, in fact what was happening was a “salary division” – part of the employee’s salary was diverted to buy the vouchers. As such they found it to be remuneration, and that it was not unlawful to suspend the scheme during maternity leave.
Employers with childcare schemes will be pleased with the result which finally offers some certainty on the issue. But there are a few health warnings.
- The EAT noted that some employers offer childcare bonuses on top of salary. Where they are offered as a perk rather than part of a sacrifice scheme they will be a non-cash benefit and must continue.
- There was no discussion of what happens to an employee who gets occupational maternity pay (where the employer chooses to pay more than statutory). Any payment over Statutory Maternity Pay can be reduced to offset vouchers. There is no advantage to the employer in refusing to do so and it is possible that such refusal could be discriminatory.
There is no obligation on an employee to provide a voucher scheme, and in early 2017 the government will introduce Tax Free childcare, a scheme where employees can get the tax benefit of childcare without their employers getting involved. Once this scheme is launched employees will no longer be able to join childcare voucher schemes (although existing ones can continue). Employers should ensure their childcare voucher and maternity leave policies are up to date.