By James Willis, Head of Employment at stevensdrake It is reasonably well known that when a mother is on maternity leave, for almost all purposes, she is to be treated as if she is still at work. This means that she continues to accrue her holiday entitlement, and should receive most other benefits to which she is entitled as a result of her employment. The notable exception to this rule is that she is not entitled to her normal remuneration (i.e. her pay). Instead, during the maternity leave period, the employer must simply pay her the statutory maternity pay (if any) due to her under the current rules. Bearing all of this in mind, it is very important for employers to be able to work out what is ‘remuneration’ and what could be said to be a ‘non-cash’ benefit. In most cases, this dichotomy is pretty straightforward. However, particularly difficult issues have arisen in relation to the categorisation of childcare vouchers.

Why are childcare vouchers a problem?

If you operate (or indeed participate in) a childcare voucher scheme, then you will be aware of how they work. In order to assist parents in meeting the cost of childcare, employers typically allow their staff to forego some of their salary (up to a maximum of £243 per month) and receive childcare vouchers instead. These vouchers can only be spent on childcare. However, whilst the employee’s salary would normally be subject to deductions for tax, childcare vouchers are provided tax-free. The saving, over the course of a year, can be quite considerable. For tax purposes, the HMRC has previously published guidance suggesting that when an employee establishes a ‘salary sacrifice’ arrangement of the type described above, she is foregoing an entitlement to remuneration and is replacing it with a ‘non-cash’ benefit in the form of vouchers. This guidance has proved significant in that if childcare vouchers are properly to be regarded as a ‘non-cash’ benefit, then employers are obliged to continue to provide them throughout a mother’s maternity leave period. This has taken some employers by surprise. It has also led commentators to worry that it might discourage employers from providing access to childcare voucher schemes, because of the additional cost.

So what has the Employment Appeal Tribunal (EAT) decided?

In the recent case of Peninsula Business Services Ltd v Donaldson, the EAT was asked to consider an appeal by PBS against a ruling that it was required to continue to provide childcare vouchers during maternity leave. Having listened to submissions from both sides, the EAT formed the view that where an employee receives vouchers as part of a ‘salary sacrifice’ arrangement, they are effectively still part of the employee’s remuneration and are not properly to be categorised as a ‘non-cash’ benefit. As a result, PBS are not required to continue to provide childcare vouchers during the maternity leave period.

Anything else to note?

If this decision stands and no further appeals are lodged, then it appears to give employers good reason to believe that they can safely discontinue the provision of childcare vouchers during the maternity leave period, as long as they otherwise provide mums with the statutory maternity pay to which they are entitled. However, it is worth bearing in mind that the EAT drew a distinction between cases in which employees receive vouchers as part of a ‘salary sacrifice’ arrangement and those in which employers provide them as a benefit in addition to the employee’s normal remuneration. The EAT left open the prospect that in the latter case, an employer would be required to continue to provide the vouchers during the maternity leave period.

Need some more help with this?

Maternity rights are always a particularly sensitive area of employment law. No one wants to get caught out treating a new mum unfairly. So if you want to discuss your precise circumstances, and make sure that you are doing things right, please get in touch. If you would like to discuss this issue in more detail, please get in touch with me at james.willis@stevensdrake.com