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Should employers continue childcare vouchers under salary sacrifice scheme during maternity leave?

Posted on 4th April 2016
Case law

Expressed its decision tentatively the EAT in this case held it was not an unlawful detriment, nor discriminatory, for an employer to stop childcare vouchers during a period of maternity leave.

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the current HMRC guidance which says that employers must continue to provide childcare vouchers under a salary sacrifice scheme during periods of statutory maternity leave is wrong and should not be followed

Peninsula Business Services Ltd v Donaldson EAT 2016

Many employers operate salary sacrifice schemes that provide both employees and the employer with beneficial tax savings. Probably the most popular scheme is childcare vouchers. Some employers have been deterred from setting up these schemes because they dislike the apparent obligation to pay for the vouchers during periods of statutory maternity leave and pay.

Welcome clarification has now been provided by this EAT decision.

HMRC Guidance is Wrong

The EAT held that the current HMRC guidance which says that employers must continue to provide childcare vouchers under a salary sacrifice scheme during periods of statutory maternity leave is wrong and should not be followed. The EAT said there is no statutory basis for this guidance.

The EAT expressed its conclusion somewhat tentatively, acknowledging that the issue was not clear cut and recognising that the tribunal may have overlooked other relevant legislation or considerations. That said the EAT held it was not an unlawful detriment, nor discriminatory, for the employer to cease to provide childcare vouchers during a period of maternity leave, as the obligation to maintain terms and conditions during maternity leave does not extend to remuneration.

The EAT examined carefully whether childcare vouchers provided under a salary sacrifice scheme formed part of the employee’s remuneration. If so, under regulation 9 of the Maternity and Parental Leave regulations etc 1999, there is no obligation to provide the vouchers during maternity leave.

Childcare Vouchers are Remuneration

The EAT held that childcare vouchers were remuneration and the employer did not have to continue to provide them during the employee’s maternity leave. Accordingly there was no breach of regulation 9; therefore Ms Donaldson had not suffered a detriment or less favourable treatment.

The EAT said that the phrase "salary sacrifice" is something of a misnomer, saying that in reality it is not sacrifice but a diversion of salary, which the employee has earned first before it can be redirected in order to purchase the childcare vouchers. Under the salary sacrifice arrangements the sum by which the voucher is purchased is that which is payable to the provider of the childcare vouchers and which is in turn deducted from the employee's gross pay. The fact that vouchers are regarded as a non-cash benefit for the purpose of tax legislation is not relevant.

The EAT said the question is factual and not to be determined by the labels applied for other purposes. The EAT said: "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 remuneration."

Policy reasons

The EAT acknowledged there were policy reasons behind its decision. To hold that salary sacrifice childcare vouchers were non-cash benefits that should continue during maternity could not have been contemplated by the legislation.

Continuing vouchers during maternity leave is a windfall benefit for the employee and imposes a cost on the employer. The policy behind the favourable tax treatment of childcare vouchers through salary sacrifice is to enable more women with young children to remain in or return to the workplace, thereby benefiting those employees, their employers, and the economy as a whole. If a consequence of the scheme was that the employer was obliged to incur a cost which went beyond the provision of pay during maternity leave, this would discourage employers from offering scheme. Parliament could not have intended that consequence.


For many employers this decision will be welcomed. The decision illustrates the importance of treating with care non-statutory guidance written by non-legal authors which, the EAT, pointed out can be quite misleading and unhelpful. That said, the dust has not settled with this case and it is not known if the employee will appeal.

In any event this EAT decision has been criticised as having possibly misunderstood or at least glossed over the contractual aspects of the background facts. For example, to be an effective sacrifice for tax purposes, there must be a variation to the employee’s contractual entitlement to salary. A mere arrangement or agreement to apply part of the existing salary to acquire a non-cash benefit is not sufficient. The employee therefore in practice gives up a contractual right to the higher salary and cannot rely on it for the purposes of calculating statutory maternity pay, statutory redundancy pay, or employer pension contributions under the relevant legislation.

The other key point to note is that whether or not an individual employer can stop paying for childcare vouchers during a period of maternity leave, will depend on whether or not the vouchers are provided on top of salary, without a salary sacrifice or if there are other contractual terms that will apply so that the employer is obliged nevertheless to continue to pay for the vouchers. If so they may well not form part of the employee’s remuneration and would therefore have to be continued to be provided by the employer during maternity leave.

We have already started to advise employers on how far this EAT decision can be relied upon by them. Please contact Simon Quantrill if you'd like to discuss your organisation’s position and whether it can rely on the EAT’s findings.

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