A recent EAT case has provided some long awaited guidance to employers on whether they must continue to provide childcare vouchers under salary sacrifice schemes during maternity leave. Until now, the prevailing view has been that employers should continue to provide vouchers.
The question before the EAT centred on whether or not childcare vouchers amount to “remuneration” for the purposes of the Maternity and Parental Leave Regulations 1999. This is significant because an employee on maternity leave is not entitled to receive remuneration during maternity leave.
In this case, the employee wanted to sign up to her Employer’s salary sacrifice scheme. This allows Employees to receive tax-saving childcare vouchers, in exchange for a reduction in their salary. Ms Donaldson’s Employer drafted a clause into the scheme terms and conditions that would suspend her entitlement to childcare vouchers whilst on maternity leave. Ms Donaldson did not agree to this condition and was refused entry to the scheme, resulting in her bringing a claim on the basis that the clause discriminated against women on maternity leave. At first instance, the tribunal relied on HMRC guidance; that this did amount to sex discrimination. The employer subsequently appealed.
The employer argued that the cost to provide these vouchers during maternity leave could discourage employers from offering them. It also maintained that the HMRC guidance the tribunal considered had in fact no legislative basis.
The guidance in the past was that employers could not compel employees to opt out of receiving the vouchers during their maternity leave. However, in this case the EAT found that since the employee’s salary was reduced in exchange for the vouchers, they formed part of the employee’s salary and were not a benefit. As such, Regulation 9 of the 1999 Regulations applied and the vouchers would not need to continue during maternity leave.
This case brings some long-overdue clarity to the law surrounding childcare vouchers. However, it is worth bearing in mind that the government is due to introduce a new Tax-Free Childcare Scheme in 2017 which will replace childcare vouchers for new applicants. Until then, if you are unsure about your childcare voucher scheme, contact your Legal Manager for further guidance.