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Hewett's Legal Corner #43 - Childcare Vouchers during Maternity Leave


Childcare Vouchers during Maternity Leave
It is estimated that about 20% of employers provide employees with childcare vouchers as a benefit of their employment. This is usually by way of a "salary sacrifice" arrangement under which the employee agrees to a reduction in their salary in exchange for the vouchers (although it can be in addition to existing salary). The voucher schemes have been popular because of the tax and National Insurance contributions (NICs)  (www.practicallaw.com/8-201-8297) advantages to both the employer and the employee:
The question of whether such vouchers are considered a non-cash benefit or part of the employee's wages or salary has been hotly debated among employment lawyers, as it has an impact on whether they are payable during maternity leave.

Although some employees may choose to leave their employer's childcare voucher scheme during maternity leave (in order that their SMP would be calculated on the basis of their normal, rather than reduced, salary), it would be discriminatory for an employer to require employees to leave the scheme during maternity leave.

In Donaldson v Peninsula Business Services, the employer required employees to agree to leave its childcare voucher scheme during maternity leave (presumably because although the employee's entitlement to receive the childcare vouchers would continue throughout maternity leave, no deductions are permitted from SMP, leaving the employer to pay for the childcare vouchers). This was held to be discriminatory on the ground of pregnancy and maternity. PBS appealed.

The EAT allowed the appeal and substituted a decision that the claim should be dismissed. No legislative basis had been found to support the HMRC guidance. The key question was: did the vouchers constitute remuneration? If they did Regulation 9 of the Regulations did not require this to continue during maternity leave. Langstaff J held that the vouchers did represent part of salary since pay had been substituted with vouchers under a salary sacrifice scheme. On this basis they were to be regarded as remuneration and could be discontinued during maternity leave.

Employers who have queries regarding the above or wish to discuss any other employment matters should contact Sally Morris at sally.morris@mfgsolicitors.com or on 01905 734032.






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