Employment Law Case Update - July 2016
This month's focus from Natalie Ruane investigates employers' obligations concerning childcare vouchers under salary sacrifice schemes.
Childcare vouchers under salary sacrifice – Employer’s obligations to employees on maternity leave
As we have had several client enquiries following the Employment Appeal Tribunal’s (EAT) significant decision on this issue in March this year in the case of Peninsula Business Services Limited v Donaldson, we thought it may be helpful to provide a summary of the case and some guidance on the new position:
Ms Donaldson was employed by Peninsula Business Services who made it a condition of entry to the childcare voucher scheme (which was paid for by salary sacrifice) that provision of childcare vouchers would be suspended during any period of maternity leave. Ms Donaldson argued that this was discriminatory and claimed that the rule amounted to a breach of the Maternity and Parental Leave (MPL) Regulations 1999.
The EAT considered the position under the MPL Regulations, i.e. that a woman on maternity leave has the benefit of all terms and conditions of her employment throughout the maternity leave period. The key focus for the EAT was the one exception to this rule, which is the right to remuneration. Remuneration is defined under Regulation 9 as ‘wages or salary’. This is the one contractual right that does not continue during maternity leave i.e. there is no obligation on the employer to maintain the employee’s normal pay during her maternity leave.
The question for the EAT was whether the right to childcare vouchers paid for by salary sacrifice fell into the ‘remuneration exception’.
The decision in Peninsula v Donaldson confirmed that if the childcare vouchers are paid for by way of salary sacrifice, then these vouchers do fall under the remuneration exception because they are essentially paid for by a diverted part of ‘wages or salary’.
As such, the employee had no entitlement to those vouchers during her maternity leave.
This is an important decision as it essentially overruled the HMRC guidance which employers had previously referred to. This treated childcare vouchers, including those paid by salary sacrifice, as any other benefit which should be maintained during maternity leave. The HMRC guidance essentially advised employers that they should bear the cost of the vouchers if the employee did not have sufficient salary to sacrifice while on maternity leave.
It should be noted however that if the vouchers are provided as a benefit other than salary sacrifice, the decision in Peninsula v Donaldson does not apply and the benefit should continue in line with the MPL Regulations. Also, if there is a contractual obligation on the employer to provide vouchers through maternity leave (whether expressly stated in the contract or established by custom and practice), a failure to provide them is likely to be a breach of contract. We would therefore advise that you seek further guidance if there is a long standing practice of providing such vouchers or if it is expressly provided for in the contract of employment.
For further information on how the case above might impact your organisation, contact Natalie Ruane on 01228 552222.
About the author
Natalie leads the Employment Law & HR team and specialises in education.