Childcare vouchers – can they be discontinued during maternity leave?

The treatment of childcare vouchers during maternity leave has long been a thorny issue for employers and employment lawyers. With little directly relevant case law, the consensus was that the safest course of action must be to continue to provide vouchers – even, where the scheme operated through salary sacrifice, when the employee's pay was insufficient to cover the cost of the vouchers. Failure to do so would risk falling foul of the requirement to maintain all benefits other than remuneration throughout maternity leave. It would also be contrary to HMRC guidance, which states that non-cash benefits funded through salary sacrifice must continue to be provided during maternity leave.

However, in the judgment issued this week in Peninsula Business Services Ltd v Donaldson, the Employment Appeal Tribunal has held that an employer's policy that vouchers cease during maternity leave was lawful. In doing so it has overturned the Employment Tribunal's finding that the policy in question, which required employees to agree to suspension of vouchers during maternity as a condition of entry to the scheme, was discriminatory. It is important to note that the employer in this case paid statutory maternity pay only, so at no point during maternity leave could it require employees to sacrifice salary to fund the vouchers.

The Tribunal, in reaching its first instance decision, had cited the HMRC guidance mentioned above. However, on appeal the Employment Appeal Tribunal could not identify any legal basis for HMRC's guidance, and found that where employers fund childcare vouchers through salary sacrifice they constitute 'remuneration', which does not have to be maintained during maternity leave. Conversely, the Employment Appeal Tribunal noted that childcare vouchers provided as an additional benefit, rather than through salary sacrifice, would not constitute remuneration and would therefore need to be maintained throughout maternity leave.

While this judgment suggests that employers who provide childcare vouchers (and perhaps other benefits) through salary sacrifice have rather more flexibility than previously thought in determining how to deal with periods of maternity leave, we suggest that you proceed cautiously before changing existing practices in this regard – especially if these are governed by policies which have explicit or implied contractual effect.

Moreover, for employers who enhance maternity pay (unlike the employer in this case) it may be possible to fund childcare vouchers through salary sacrifice in the normal way during significant periods of maternity leave. A refusal to do so simply because the employee is on maternity leave would appear to be potentially discriminatory, and so employers who wish to amend their practices in light of this decision may need to adopt a more nuanced approach which takes into account their particular circumstances.