Apr 2016
Author: Daniella Magennis
INTRODUCTION
Many employers offer employees childcare vouchers under a salary sacrifice scheme. This allows employees to benefit from tax and national insurance savings.
WHAT’S THE ISSUE?
In recent years, there has been confusion as to whether these vouchers form part of an employee’s normal remuneration or whether they are in fact a non-cash benefit. This is relevant because during certain types of statutory leave, including maternity leave, employees are entitled to all their usual terms, conditions and benefits of employment except for remuneration. Therefore, if childcare vouchers are considered to be part of an employee’s salary, employers would be under no obligation to provide vouchers to staff on maternity leave. If, on the other hand, childcare vouchers do not constitute employee remuneration, it would be discriminatory for employers to withhold this benefit from staff during maternity leave.
EMPLOYMENT TRIBUNAL
In the case of Peninsula Business Services v Donaldson, an employment tribunal held that it was discriminatory on the grounds of pregnancy and maternity for a condition of joining a childcare voucher scheme to be that employees must withdraw from the scheme whilst on maternity leave. In reaching its decision, the tribunal had given much consideration to guidance published by HM Revenue and Customs (HMRC) which suggested that contractual, non-cash benefits provided under a salary sacrifice scheme must continue to be provided during ordinary maternity leave.
EMPLOYMENT APPEAL TRIBUNAL DECISION
The Employment Appeal Tribunal (EAT) heard the appeal on 22 January 2016 and focused their analysis on the point of whether or not childcare vouchers equated to a non-cash benefit that must be continued during maternity leave. Peninsula Business Services argued there was no legal basis to the HMRC guidance which the employment tribunal had so heavily relied upon.
The EAT held that where vouchers are given as part of a salary sacrifice scheme, this is effectively a ‘diversion of salary’ and therefore should be considered ‘remuneration’. The EAT discounted the possibility that Parliament would have expected employers to bear the expense of providing vouchers during maternity leave where this would normally constitute part of an employee’s wage, remarking on the detrimental impact this would have on such schemes. Equally, the EAT disregarded any likelihood that employees were intended to benefit from a salary substitute during maternity leave, a period of statutory leave when remuneration is specifically excluded from their contractual entitlement.
If you have any questions regarding the above, please contact Nicola O’Dwyer by telephone on 01483 411516 or email: n.o’[email protected]. Alternatively, speak to another member of our Employment team.
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