Suspension of childcare vouchers during maternity leave not discriminatory


In an unexpected decision, the Employment Appeals Tribunal (EAT) has found that it is not discriminatory for an employer to suspend an employee from a salary sacrifice childcare voucher scheme during a period of maternity leave. Overturning the decision of the Employment Tribunal, the EAT in the case of Peninsula Business Services Ltd v Donaldson held that the guidance given by HMRC since 2008 was incorrect.

Since childcare voucher schemes were first introduced in 2005, there has been confusion amongst employers as to how to treat childcare vouchers during maternity leave. The question mattered because if the vouchers formed part of an employee's remuneration, then an employer did not need to continue to provide them during maternity leave but their value would be taken into account in calculating maternity pay. If on the other hand they were not remuneration but were instead a non-cash benefit, then there was an obligation to continue to provide them during maternity leave even though the employer would have to bear the cost when the employee had no salary to sacrifice.

Since 2008 most employers have erred on the side of caution and followed HMRC guidance, even though there was a cost to employers to provide the vouchers when the employee was on SMP or no pay during maternity leave.

However, the EAT's decision in the above case was that the Tribunal at first instance had been wrong to base its decision on HMRC's guidance. The EAT found that there was no basis in law for HMRC's position that childcare vouchers are a non-cash benefit. The EAT's conclusion was that vouchers provided by way of salary sacrifice are part of salary that has been diverted before being paid to the employee. The vouchers are, therefore, still part of remuneration and do not need to be continued during maternity leave.

This case serves as a reminder that few things in employment law are as straightforward as they should be - for example, the question of whether other items such as a car allowance or other flexible benefits provided via salary sacrifice should be treated as a benefit or remuneration remains to be resolved.

Fiona Haworth. You can contact Fiona on

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