In a challenge to the long understood position, the Employment Appeal Tribunal (EAT) in Peninsula Business Services v Donaldson has decided that it is not discriminatory to withdraw childcare vouchers during maternity leave where they are provided through a salary sacrifice scheme.

Many employers currently offer tax-free childcare vouchers through a salary sacrifice arrangement in order to benefit from NIC savings.  During maternity leave all terms and conditions continue, except in relation to remuneration.  Since 2008, HMRC's non-binding guidance has provided that childcare vouchers (including those provided through salary sacrifice) did not comprise "remuneration" so should continue to be provided through maternity leave. This case challenges that assumption.

What happened in the case?

Peninsula Business Services Ltd (PBS) operated a childcare voucher scheme under which its employees could receive vouchers by way of a salary sacrifice arrangement.  The Claimant, a PBS employee, wanted to join the scheme but the terms of the scheme required employees to agree that during periods of time spent on maternity leave for which they received statutory maternity pay only (and indeed other types of leave), PBS could suspend the provision of vouchers.  The Claimant, who was pregnant at the time, refused to join the scheme on those terms believing them to be discriminatory, and brought an employment tribunal claim of pregnancy and maternity discrimination.

An employment tribunal agreed with Claimant that it was discriminatory to require a woman to forego non-pay benefits which she was entitled to continue to receive during maternity leave.  In reaching its conclusion, the employment tribunal had regard to guidance issued by HMRC, which states that during ordinary maternity leave, contractual non-cash benefits provided under a salary sacrifice scheme 'must continue to be provided.'  PBS appealed against the decision.

The EAT allowed the appeal and concluded that there was no discrimination in this case. No legislative basis was found to support the HMRC guidance.  The EAT considered that the key question was whether the vouchers amounted to remuneration.  If they did, then the relevant legislation does not require them to be continued during maternity leave. 

The EAT concluded that where childcare vouchers are provided by way of a salary sacrifice scheme, in reality they represent part of salary that has been diverted before appearing in employees' pay packets. As a result, they are to be regarded as remuneration and may be discontinued during maternity leave without this amounting to discrimination. 

However, the EAT did note that where employers provide childcare vouchers as a benefit in addition to salary, they are required to continue to provide them during maternity leave.

What this case means for employers

Although this case is likely to be welcomed by employers, it should be treated with some caution since it touches on some complex areas of law and the rationale appears at odds with what practitioners had long understood the position to be, so could be subject to challenge in a higher court.  Nevertheless, employers may see the decision as an opportunity for suspending the provision of childcare vouchers to employees on maternity leave where those vouchers are provided by way of a salary sacrifice scheme, as they are in most cases.  However, any employer reconsidering any current childcare benefit scheme already in place is strongly recommended to take legal advice before doing so. 

Further information

The government announced on 1 July 2015 that it plans to launch a childcare tax-free scheme in early 2017. This is intended to replace tax-exempt childcare vouchers for new entrants. 

Peninsula Business Services v Donaldson