Childcare vouchers can be withdrawn during maternity leave

16 March, 2016

Childcare Vouchers - EmploymentLast week, the UK Employment Appeal Tribunal (“EAT”) held in Peninsula Business Services Ltd v Donaldson that it is not unlawfully discriminatory for an employer to suspend the payment of childcare vouchers during maternity leave if they are provided by way of a salary sacrifice arrangement.

This decision overturns the long established position that childcare vouchers administered under a salary sacrifice scheme formed part of an employee’s non cash benefits because they went straight to the childcare provider and could not be converted to cash. Non-cash benefits must be continued during maternity leave and employees were therefore entitled to continue receiving childcare vouchers.

However, the EAT drew a distinction between childcare vouchers provided in addition to an employee’s normal salary and childcare vouchers provided in return for the equivalent salary sacrifice. The latter is now considered part of an employee’s remuneration and thus an employer is open to deciding whether it wishes to suspend them during maternity leave.

Impact on employers

Potentially, employers could make significant financial savings under this ruling but they should err on the side of caution before universally withdrawing childcare vouchers, or for that matter any other salary sacrifice schemes during maternity leave. The rationale behind this decision appears to be at odds with established legal positions and may well be challenged at the higher court.

For now, employers would be wise to identify all existing salary sacrifice schemes that they operate and seek legal advice on whether these schemes form part of an employee’s remuneration package. Legal advice should also be sought before amending any contractual or policy provisions. Finally, employers should make sure that any changes that are being implemented are clearly communicated to all potentially affected employees.

Out with the old, in with the new

Any benefit under this new ruling may inevitably be limited as from 2017 the Government is introducing a new tax-free childcare voucher scheme which replaces the tax-exempt employer scheme for new entrants. However, all working parents participating in an employer childcare scheme before the 2017 introduction can still choose to remain in their existing scheme.