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Stopping Salary Sacrifice Vouchers During Mat Leave NOT Discriminatory

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Stopping Salary Sacrifice Vouchers During Mat Leave NOT Discriminatory

Peninsula Business Services v Donaldson


The Employment Appeal Tribunal (EAT) held that it was not discriminatory for an employer to discontinue childcare vouchers provided under a salary sacrifice scheme during an employee’s maternity leave.



Peninsula Business Services (PBS) operated a salary sacrifice scheme whereby members could sacrifice part of their salary in exchange for childcare vouchers. The scheme included a condition that membership would be suspended during certain types of leave, including maternity leave when only statutory maternity pay (SMP) was paid. 


Donaldson wanted to join the salary sacrifice scheme but her membership was denied because she refused to agree to the suspension clause which she believed to be discriminatory so she made a claim to the Employment Tribunal of pregnancy and maternity discrimination.


Tribunal Decision

They found in Donaldson’s favour and held that PBS's actions were discriminatory. It noted that women on maternity leave remain entitled to ‘non-cash’ benefits in accordance with Regulation 9 of the Maternity and Parental Leave Regulations (1999). It relied on guidance provided by HMRC which stated that during ordinary maternity leave, contractual non-cash benefits provided under a salary sacrifice scheme must continue to be provided.


PBS therefore appealed.


EAT Decision

Thankfully for employers the EAT upheld the appeal by PBS. It noted that there was no legislative basis to support HMRC’s guidance. The key question was whether the childcare vouchers were 'non-cash benefits', or whether they could be considered ‘remuneration’ (in which case it could be suspended and hence no discrimination).


Helpfully the EAT distinguished between 2 scenarios:


  1. Where an employer provides vouchers as a benefit in addition to salary, the vouchers are a ‘non-cash’ benefit; and

  2. Where the vouchers are provided by way of a salary sacrifice scheme, the vouchers represent a part of the salary that has been diverted before showing in the employee’s final pay packet. Here, the vouchers are in effect ‘remuneration’.


Therefore, in this case, the EAT found that the childcare vouchers were ‘remuneration’, as pay had been substituted with vouchers under a salary sacrifice scheme. Hence, the employer was not obliged to continue to provide vouchers during maternity leave and the suspension clause was valid — there was no discriminatory element (i.e. the condition it would be suspended during mat leave did not amount to less favourable treatment) to the suspension clause she refused to accept.


Comment: This case provides very useful and pleasing clarification to employers. Indeed some of our clients have been left angered by the same situation where they have previously been advised to carry on paying the vouchers treating them as a non cash benefit, even when there was no salary to be sacrificed — a very unsatisfactory state of affairs.


Bear in mind you may also offer and provide other benefits provided under a salary sacrifice arrangement, and these would also be classed as ‘remuneration’ based on this decision. Therefore, it may be advisable to look at your benefits and any salary sacrifice arrangements and, if you only pay SMP during maternity leave, introduce a similar ‘suspension clause’ to make the position clear. Consultation would of course be required.


However, I doubt that this is the end of this issue…The EAT has expressed some caution about its decision and especially given the fact it is contrary to HMRC guidance. It may therefore be wise to wait to see if this case goes any further before deciding whether to change your practices in relation to childcare vouchers.


It’s perhaps worth highlighting that last months Budget announced that childcare voucher schemes are to be closed to new entrants from April 2018. Existing members will still be able to continue to receive that benefit for as long as an employer chooses to operate the scheme.





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