In Peninsula Business Services Ltd v Donaldson (UKEAT/0249/15), the Employment Appeal Tribunal (EAT) had to decide whether it was discriminatory for an employer to make it a condition of entry into its childcare voucher scheme that vouchers provided through salary sacrifice would be suspended during maternity leave.


Ms Donaldson refused to join a salary sacrifice scheme operated by Peninsula Business Services Ltd (Peninsula), under which childcare vouchers were provided. This was because the terms of the scheme required her to agree that, during periods of maternity leave, her entitlement to vouchers - for which she would sacrifice part of her salary - would be suspended.

The purpose of the salary sacrifice scheme was to allow Peninsula to agree a lower basic salary and, in return, the employee would receive childcare vouchers to the value of their sacrificed salary. This saved the employee tax and national insurance contributions on the amount of the vouchers. However, when the employee was on maternity leave, Peninsula said that there could be no salary sacrifice as the employee was only receiving statutory maternity pay (SMP). Ms Donaldson brought a claim for sex discrimination.

Employment tribunal decision

During ordinary and additional maternity leave an employee is entitled to all of the usual benefits of her employment except remuneration, which is replaced by either SMP or contractual maternity pay.

The question therefore arose as to whether childcare vouchers offered via a salary sacrifice scheme were considered remuneration or usual benefits. If such a scheme was found to be a benefit, rather than remuneration, then the employee would be entitled under Regulation 9 of the Regulations for those vouchers to be continued to be supplied.

HMRC guidance indicated that childcare vouchers were a 'non-cash benefit' rather than remuneration, even if they had been provided by way of salary sacrifice.

The employment tribunal (ET) found the scheme to be discriminatory on the grounds of sex and also found that it was unfavourable treatment because of asserting a right to maternity leave. Additionally, it said that it breached the Maternity and Parental Leave Regulations 1999 (the Regulations). Peninsula appealed.

EAT decision

The EAT found that the childcare vouchers were to be considered as part of remuneration. This was because, where the scheme is a salary sacrifice scheme, there is essentially a diversion of salary in order to purchase vouchers to the value of the diverted salary.  

The EAT was keen to highlight that requiring employers to continue such a scheme during maternity leave would result in a windfall benefit to an employee and would impose a cost on an employer. This was because, if an employee was receiving SMP only, there would be no salary to be sacrificed. 

On this basis, if an employer faced the cost beyond that of SMP, the EAT believed it would have the effect of discouraging employers from offering such an important scheme, which ultimately incentivises women with young children to return to the workplace.

The EAT also found that as this matter related to terms and conditions of employment, any claims for direct or indirect discrimination would not apply and should instead be dealt with as an equal pay issue.


This case is an important clarification of the law for employers, as case law had been unclear up to this point. However, the EAT stated that it may not have considered all provisions which might be relevant, in particular as none of the representatives before them was a taxation specialist. We must therefore rely on this judgment with caution, as another case on the same issue may reach a different conclusion and there may be an appeal in this case.

This week's budget confirmed that the Government is also reviewing the benefits offered by salary sacrifice schemes on the assertion that the concept has been "abused" and is therefore costing HMRC too much. However the Government's intention is that pension saving, childcare and health-related benefits (such as the cycle to work scheme) will continue to benefit under the scheme. We will keep this under review and keep you updated if there is any further news.