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Employment Law

Legal guidance - compliance - software

Veale Wasborough Vizards , 21 MAR 2016

Discontinuing salary sacrifice schemes during maternity leave

Richard Hewitt
Senior Associate, Veale Wasbrough Vizards

The Employment Appeal Tribunal (EAT) has held that it is not discriminatory to discontinue childcare vouchers during maternity leave.

In Peninsula Business Services v Donaldson, the Employment Tribunal held that it was discriminatory to suspend the provision of childcare vouchers under a salary sacrifice scheme during the employee's maternity leave.

Peninsula Business Services (PBS) successfully appealed against this decision before the EAT.

The key question

PBS argued that the critical question was 'the proper understanding of a salary sacrifice scheme' and whether the vouchers constituted remuneration in accordance with Regulation 9 of the Maternity and Parental Leave Regulations 1999 (Regulation 9).

Regulation 9 entitles an employee on maternity leave to the benefit of all of the terms and conditions of her employment other than those relating to remuneration - which are, of course, replaced by maternity pay.

Guidance issued by HMRC and the (former) Department for Business, Enterprise and Regulatory Reform guidance had advised that childcare vouchers were a non-cash benefit and not remuneration, and must therefore continue to be provided to an employee under a salary sacrifice scheme the cost of the vouchers therefore falls on the employer.

PBS' case was that the childcare vouchers formed part of remuneration because the salary sacrifice scheme was simply a means of redirecting salary to purchase the vouchers instead of it ending up in the employee's pay packet. As such, whilst membership of the salary sacrifice scheme would be continued during maternity leave, the provision of the vouchers could lawfully be suspended.

The decision

The EAT agreed with the case put forward by PS deciding that, crucially, the scheme involved a redirection of salary and that, as the vouchers were not provided as a benefit in addition to salary, they did constitute remuneration and not a non-cash benefit.

Therefore, in accordance with Regulation 9 the provision of childcare vouchers could be suspended during maternity leave.

Best practice

Employers may wish to review their salary sacrifice schemes to check the existing arrangements during maternity leave in order to decide whether to apply these principles. Whilst the law now appears to permit the suspension of benefits under a salary sacrifice scheme during maternity leave employers should also consider the employee relations impact of taking such action.
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