The UK Employment Appeal Tribunal (“EAT”) held on 9 March 2016 in Peninsula Business Services Ltd v Donaldson that it was not unlawfully discriminatory for an employer to suspend the payment of childcare vouchers during maternity leave - where those vouchers were provided by way of a salary sacrifice arrangement.
In this case, the employer offered a salary sacrifice child care voucher scheme to its employees whereby the employees could use part of their salary to pay for child care vouchers and they would benefit from more favourable tax treatment in relation to national insurance contributions. However, under its scheme the employer did not provide childcare voucher scheme during any period of maternity leave in respect of which the employees would receive statutory maternity pay. The employee claimed that the suspension of the provision of childcare vouchers in these circumstances amounted to unlawful sex discrimination and breach of the Maternity & Parental Leave Regulations 1999.
The employee’s claim turned upon the question of whether child care vouchers constituted “remuneration” for the purposes Regulation 9 of the Maternity & Parental Leave Regulations 1999 – which provide that during maternity leave employees are entitled to receive all benefits other than "remuneration". The employment tribunal found for the employee and based its decision upon HMRC guidance which indicated that non-cash benefits provided under a salary sacrifice scheme should continue to be provided during maternity leave.
The EAT held that in these circumstances the child care vouchers were part of the employee’s remuneration and so reversed the decision of the employment tribunal. In reaching this decision the EAT viewed the salary sacrifice scheme as a diversion of salary which the employee has earned but which the individual redirects prior to receipt. Consequently, the vouchers should be treated as part of the employee’s salary and it was therefore open to the employer not to provide them - since they were “remuneration – during maternity leave without breach of the maternity leave rules or committing unlawful sex discrimination. The EAT, in disapproving of the HMRC guidance, decided that it could not have been the intention of Parliament to require an employer to bear the cost of the childcare vouchers during maternity leave when there was no salary which could be sacrificed by the employee.
Importantly, the EAT drew a distinction drawn between childcare vouchers which are provided in return for the equivalent salary sacrifice and childcare vouchers which are provided in addition to the employee’s normal salary and benefits. Childcare vouchers provided in addition to the employee’s normal salary do not form part of the employee’s remuneration and instead are a benefit provided in addition to normal salary and so should continue to be provided during maternity leave.