Shiva Shadi – head of Employment – discusses Childcare Vouchers and Maternity Leave

Employees are able to utilise a proportion of their salary for vouchers to pay for childcare before the usual tax and NI contributions are deducted.  As a result, employees are able to save on their annual childcare costs until their child reaches the age of 15.  However, the question has always lingered as to what happens when an individual in receipt of childcare vouchers goes on maternity leave:

Would it be discriminatory to stop paying childcare vouchers whist a female employee is on maternity leave?

HM Revenue and Customs set out in its guidance that it would be discriminatory to stop paying childcare vouchers during maternity leave and therefore the majority of companies have continued to pay childcare vouchers during maternity leave.

However this issue arose in the recent case of Peninsula Business Services Limited –v- Donaldson.

Peninsula Business Services had the childcare voucher scheme – however  – it stipulated a condition of entry into the scheme and the condition was that the vouchers would be suspended during maternity leave.  Laura Donaldson, who was an employee of Peninsula Business Services Limited, had refused to enter into her employer’s scheme because of this particular condition and pursued a claim that it was discriminatory to offer such terms on the grounds of sex and that it was unfavourable treatment.

The Tribunal at first instance agreed with Laura Donaldson but, in a Judgment handed down on 9th March 2016, the Employment Appeal Tribunal overturned the Employment Tribunal’s decision holding that the Guidance of the HM Revenue and Customs is incorrect and that Parliament could not have had the intention for employers to continue to provide vouchers when no salary could be sacrificed.

The Employment Appeal Tribunal was concerned simply with whether such vouchers amounted to “remuneration”; the latter of which does not need to be paid through maternity leave.

Although part of the salary is syphoned off to pay for the vouchers, that same part starts out as part of an employee’s salary and therefore the Employment Appeal Tribunal held that the vouchers were very much “remuneration” and could be excluded during maternity leave.

However, despite this decision childcare vouchers will continue to be used as a benefit by companies, especially companies who want to motivate, and retain their employees, but have perhaps a limited budget and resources to be able to do so, and of course vouchers will be used by employees, many of whom struggle with childcare costs.

For more information on Shiva and her work, please visit her profile.

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