Childcare vouchers can be discontinued during maternity leave

Employees on maternity leave are entitled to benefit from all the terms of their employment contract, except those relating to remuneration. Following HMRC guidance, childcare vouchers provided through a salary sacrifice arrangement have, until now, been treated as a non cash benefit, which employers should continue to provide throughout maternity leave. The Employment Appeal Tribunal (EAT) in Peninsula Business Services V Donaldson has effectively turned the position on its head.

The EAT decided that childcare vouchers should be treated as remuneration and therefore employers do not need to continue them during maternity leave. This is a surprising decision and one that the EAT itself admitted should be treated with caution(!) The EAT acknowledged that it might not have considered all the relevant law and Ms Donaldson was not represented at the hearing, so no legal arguments were put on her behalf. As a consequence of this decision, employees who have entered into salary sacrifice arrangements will have their maternity pay calculated on the basis of their reduced salary but will no longer be entitled to childcare vouchers during maternity leave (the very reason they agreed to reduce their salary).

The decision may yet be appealed to the Court of Appeal, or otherwise another case on the same point coming before the EAT may result in a different outcome. Either way, we would suggest that it would be unwise for employers to rely on this decision as a basis for stopping to provide childcare vouchers during maternity leave