In an unexpected decision, the Employment Appeals Tribunal (EAT), has found that it is not discriminatory for an employer to state that membership of a salary sacrifice childcare voucher scheme would be suspended during a period of maternity leave.Overturning the decision of the Employment Tribunal, the EAT in the case of Peninsula Business Services Ltd v Donaldson held that the guidance given by HMRC since 2008 could not be correct.

Since they were first introduced in 2005, there has been confusion amongst employers as to how to treat childcare vouchers during maternity leave. The question mattered because if the vouchers formed part of an employee’s remuneration then an employer did not need to continue to provide them during maternity leave, but their value would be taken into account in calculating maternity pay. If, on the other hand, they were not remuneration but were, instead, a non-cash benefit, then there was an obligation to continue to provide them during maternity leave, even though the employer would have to bear the cost when the employee had no salary to sacrifice. However, in that case, the employer would not have to take the value of the vouchers into account when calculating maternity pay.

The two arguments were as follows:

  • the nature of salary sacrifice means that vouchers are simply an alternative means of paying salary and so, for maternity leave and pay purposes, their value should be taken into account when calculating maternity pay, but the employee is not entitled to continue to receive the vouchers throughout her maternity leave, unless she has the available salary to sacrifice in order to purchase them. In the beginning, this was the view taken by many voucher scheme providers.


  • the vouchers are non-cash benefits; to be a valid salary sacrifice, there must be a permanent agreement to take a reduced salary in return for some other benefit. As a result, the salary has been sacrificed and that value can no longer be treated as part of the person’s remuneration. It therefore cannot be taken in account in calculating maternity pay, but employers would be obliged to continue to provide the vouchers during maternity leave, even if the employee had no salary to sacrifice to pay for them. This approach has been taken by HMRC in its guidance on salary sacrifice which was first issued in 2008 and updated periodically since.

Consequently, since 2008 most employers have erred on the side of caution and followed HMRC guidance, even though there was a cost to employers to provide the vouchers when the employee was on SMP or no pay during maternity leave.

However, the EAT’s decision in the above case was that the Tribunal at first instance had been wrong to base its decision on HMRC’s guidance. The EAT found that there was no basis in law for HMRC’s position that childcare vouchers are a non-cash benefit. The EAT’s conclusion was that vouchers provided by way of salary sacrifice are part of salary that has been diverted before being paid to the employee. The vouchers are, therefore, still part of remuneration and do not need to be continued during maternity leave.

So where does this decision leave employers? Not all employers will want to change their schemes; in any case, the right to vouchers during maternity leave may well now be a contractual right in some schemes, regardless of the outcome of this case. However, the case does serve as a reminder that few things in employment law are as straightforward as they should be – for example, the question of whether other items such as a car allowance or other flexible benefits provided via salary sacrifice should be treated as a benefit or remuneration remains to be resolved. Legal advice should always be sought if you have any doubt about the correct approach to take.