Maternity leave and childcare vouchers – what’s the deal?
The legal position on whether women on maternity leave are entitled to receive benefits such as childcare vouchers has been unclear for many years, due to uncertainty surrounding whether such vouchers constitute remuneration. The Employment Appeal Tribunal (“the EAT”) has recently held, in Peninsula Business Services v Donaldson UKEAT/0249/15/DM , that childcare vouchers paid by way of salary sacrifice amount to remuneration. Therefore employers are not obliged to provide them during maternity leave.
Remuneration during maternity leave
Legal recap
Employees are entitled to 52 weeks of maternity leave; 26 Ordinary Maternity Leave (OML) and 26 weeks Additional Maternity Leave (AML). While on maternity leave, a woman is entitled to all of her usual terms and conditions apart from her “remuneration”. During maternity leave remuneration, which is defined for these purposes as “sums payable to an employee by way of wages or salary ”, is usually replaced by statutory maternity pay (provided that the employee meets the necessary qualifying criteria) and any enhanced maternity pay the employer chooses to pay. Fewer than 50% of employers provide enhanced contractual maternity pay. Statutory maternity pay is payable for the first 39 weeks of maternity leave, with the first 6 weeks paid at 90% of an employee’s average weekly earnings before tax and the remaining 33 weeks paid at the lower of: (i) a rate which is currently £139.58; or (ii) 90% of the employee’s average weekly earnings.
According to HMRC’s guidance entitled “Statutory Maternity Leave –salary sacrifice and non-cash benefits”, childcare vouchers are treated as a non-cash benefit, rather than remuneration, even though they are usually provided by way of salary sacrifice. Consequently, based on HMRC’s view, the advice typically given to employers has been that childcare vouchers need to be maintained during any period of maternity leave.
Judgment
In the Donaldson case, Ms Donaldson sought to enter into her employer’s childcare vouchers scheme while pregnant but her employer refused to allow her to do so because the scheme’s rules stipulated that the vouchers would be suspended during any period of maternity leave. She brought claims against her employer on the grounds of indirect sex discrimination, pregnancy-related detriment and maternity/pregnancy discrimination, all of which were upheld by an Employment Tribunal.
At appeal Ms Donaldson’s claims were dismissed. The EAT held that HMRC’s guidance did not have any legislative force. It decided that, even though HMRC treats childcare vouchers provided under a salary sacrifice scheme as a non-cash benefit, they should be properly viewed as a “diversion of salary” and therefore constitute remuneration. In arriving at this decision, the EAT took into account policy reasons such as that, at the time the legislation had been drafted, childcare vouchers had not been contemplated or in consideration. The EAT was also concerned that, if vouchers were treated as non-cash benefits, the cost of employers providing them would be likely to discourage them from providing access to such voluntary schemes (paragrah 39 of the Judgment).
Practical advice for employers
Bear in mind, before discontinuing childcare vouchers for those on maternity leave, that this decision may be appealed. This is particularly true as the EAT unusually stated in its decision that it was not certain that it had been directed to all of the relevant legislative provisions pertaining to this matter (paragraph 45 of the Judgment). Further, the new tax-free childcare voucher scheme is due to come into force next year.
Review how your organisation’s vouchers are provided and what is stated in your maternity, adoption and parental leave policies (which should mirror each other in this respect). If vouchers are provided outside of a salary sacrifice scheme it is likely that these vouchers will still be classed as a non-cash benefit and therefore the safest course of action would be to continue to provide them during maternity leave.
The safest course of action, for those employers who wish to be certain of avoiding litigation, will be to continue to provide childcare vouchers during maternity leave. Nevertheless, employers may want to consider whether to stop providing childcare vouchers to those on maternity, adoption or parental leave.
Further implications of this case?
This judgment leaves one to question whether pension contributions paid by way of salary sacrifice will be treated in like fashion. We will have to wait and see how this area of the law develops.
Fudia Smartt
10 April 2016
This material does not give a full statement of the law. It is intended for guidance only and is not a substitute for professional advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be accepted by Fudia Smartt or any other organisation which may publish this article.