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HR / Employment Law – Updates and News – Week 12 – 2016

HR / Employment Law – Updates and NewsCHILDCARE VOUCHERS – WHAT HAPPENS DURING MATERNITY LEAVE?

Childcare vouchers can be used for both pre-school and before/after-school care (nurseries, child-minders, school out-of-hours clubs) which has been approved/regulated (for example registered with Ofsted in England). They are intended to be used to help primary care-givers return to work and achieve a better family/work balance.

Employers can voluntarily provide employees with schemes for childcare vouchers (which attract more favourable tax treatment)

  • in additional to any wages/salary
  • as part of what is commonly referred to as “salary sacrifice”

The case of Peninsula Business Services Ltd v Donaldson UKEAT/0249/15/DM has dealt with the question of what the difference between these schemes means during maternity leave.

In this case the pregnant employee (Claimant) refused to accept a clause in her employers “salary sacrifice” childcare voucher scheme, because it meant agreeing that she would not be entitled to childcare vouchers whilst she was on maternity leave (her entitlement would be suspended during the leave although her eligibility would resume on her return to work). During the suspension of the provision her contributory deduction would not be taken from her salary.

The Claimant argued that her “salary sacrifice” was a benefit which should be paid during maternity leave so made a complaint to the Employment Tribunal (ET) who agreed and upheld her claim saying that it was discriminatory, including on the grounds of:

  • sex (section 19 of the Equality Act 2010)
  • unfavourable treatment because of asserting a right to maternity leave (section 18 Equality Act 2010)

In addition, the ET ordered the employers to pay for the child-care vouchers themselves during maternity leave even though the Claimant received SMP and therefore there was no salary as such to “sacrifice”.

The employer’s appeal to the Employment Appeal Tribunal (EAT) was successful because they felt the ET had misunderstood the scheme. The EAT made it clear that there is a difference between childcare vouchers paid:

  • in additional to any wages/salary which was a “non-pay benefit” and so an employee was entitled to continue to receive them during maternity leave
  • as “salary sacrifice” because this is a misleading term when it is actually a “salary diversion” – a scheme diverting money from the employee’s salary and could be legitimately suspended during maternity and should not be paid for by the employer during that leave.

The Tribunal added that the ET’s action in asking the employer to pay childcare vouchers during maternity as part of a salary sacrifice scheme was unacceptable because

– “it had never been Parliament’s intention to grant an additional “windfall” payment to employees on maternity leave” and

–  “such an approach risked undermining the future adoption of such schemes by employers”.

ADVICE FOR EMPLOYERS

It is quite clear that care needs to be taken if and when child-care decisions are offered to ensure that employers do not inadvertently choose the wrong scheme, dependant on their intentions of how the scheme is viewed in relation to benefit and remuneration.

As well as considering guidance provided by HMRC, the EAT examined provisions of the following before reaching a decision:

Income Tax (Earnings and Pension) Act 2003

Equality Act 2010

Employment Rights Act 1996

Maternity and Parental Leave Regulations 1999

All of these legislative instruments contributed to the judgment that the decision of the Employment Tribunal should be reversed and that there was no claim to answer.

The case also highlighted that there may be some misleading guidance currently available from HMRC regarding the administration of both schemes during maternity leave so, if you are considering such a scheme, you should take professional advice accordingly.

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