Many employers provide employees with childcare vouchers as a benefit of their employment usually by way of a “salary sacrifice” arrangement. In other words, employees are required to sacrifice a part of their wages in return for a similar value in vouchers. This has certain tax and NIC advantages to both the employer and the employee.
Childcare vouchers can be used to pay childcare such as:
– Home based care – childminders, nannies and au pairs
– Pre-school care – nursery schools, play schools and crèches
– Care for older children – out of school clubs (breakfast clubs, afterschool clubs) and holiday clubs
During maternity leave, whether ordinary or additional, the employee is entitled to the benefits of all her employment terms which would have applied had she not been absent; except her salary/ remuneration as per regulation 9 of Maternity and Parental Leave (MPL). During maternity leave the salary is replaced with Statutory Maternity Pay or the employer’s own maternity pay scheme if there is one.
The HMRC guidelines highlight that the childcare vouchers are non-cash benefits thus are not remuneration. Therefore, the Employment Tribunal in the case of Donaldson v Peninsula Business Services last year ruled that during maternity leave employers must continue paying towards the childcare vouchers, and failing do to so will result in direct and indirect discrimination under the Equality Act 2010. This is simply because the employee is being subjected to unfavourable treatment because of her pregnancy or/and maternity.
However, Peninsula successfully appealed the decision on the grounds that the HMRC guidance was incorrect. The childcare vouchers provided under a salary sacrifice scheme were indeed cash benefit, save that it was being diverted to a third party to pay for childcare. However, the amount diverted was in fact the remuneration earned by the employee. Additionally, during maternity an employee is in receipt of SMP only, thus no deduction can lawfully be made. Consequently, if there is no salary then there can be no sacrifice which can pay towards the childcare vouchers.
Furthermore, Peninsula also argued that the tribunal must give regard to section 27(5) of the Employment Rights Act 1996, which defines “wages” to include payment or benefit in kind including any voucher, stamp or similar document which is of a fixed value expressed in monetary terms or are capable of being exchanged for services. Since a childcare voucher would fall within this definition, it must to be regarded as remuneration for the purposes of the MPL Regulations.
Consequently, the EAT dismissed all Ms Donaldson’s claims and ruled that childcare vouchers were remuneration and so an employer did not have to continue to provide them during maternity leave. Nonetheless, it must also be noted that childcare vouchers not provided by way of salary sacrifice are not remuneration therefore regulation 9, MPL would require those vouchers to be continued during maternity leave, or else will be held liable for discrimination under the Equality Act 2010.
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