Member Article

Childcare Is Costly!

A new ruling this month by the Employment Appeal Tribunal means that many women accruing childcare vouchers during maternity leave will no longer be entitled to do so.

Many employers operate childcare voucher schemes under which employees receive vouchers through a salary sacrifice arrangement. The employee’s gross salary is reduced by up to £243 per month and the voucher purchased by the deduction is then passed on to the employee’s childcare provider without deduction of income tax from the employee.

Historically, in accordance with the Maternity and Parental Leave Regulations 1999, it was believed that childcare vouchers had to continue to be provided throughout the course of a woman’s maternity leave. The Regulations indicate that while a woman is on maternity leave, she remains entitled to non-pay benefits. HM Revenue & Customs had also issued guidance which stated that during any period of ordinary maternity leave, contractual non-cash benefits provided under a salary sacrifice scheme must continue to be provided to the employee.

However, this month’s decision of the Employment Appeal Tribunal in Peninsula Business Services Limited v Donaldson has changed the position. The EAT decided that the key question was whether the vouchers constituted “remuneration” under the 1999 Regulations. If they satisfy that definition, then they do not need to be continued throughout maternity leave.

The EAT decided that in cases where the childcare vouchers are provided by way of salary sacrifice, the true picture is that the vouchers are paid for by the salary sacrifice and therefore are part of the employee’s salary which is diverted to the childcare provider. As a result, the employee’s actual, received remuneration is reduced.

It was therefore decided that during any period of maternity leave when the employee is not receiving any pay, the vouchers can be discontinued, as there is no salary available from which the deduction can be made to provide the vouchers.

This may come as a significant hardship to many employees, as it overturns the previously established practice. Many mothers accrue their vouchers while they are on maternity leave so that they have a saved up store which they can then use to pay a childcare provider when they return to work. This practice is now likely to end however, as employers will be able to stop providing the vouchers to the employee while the employee is on unpaid maternity leave.

For further guidance on this or on any other employment law topic, contact Peter Byrne at Taylors Solicitors:

Tel: 01254 297920

Email: peter.byrne@taylors.co.uk

(Professional legal advice should always be obtained before taking (or refraining from taking) any steps as a consequence of this article. This article is not legal advice and no responsibility is accepted by Taylors (or by any of its partners or employees) in respect of its contents or its accuracy.)

This was posted in Bdaily's Members' News section by Taylors Solicitors .