Peninsula Business Services Ltd has won a landmark appeal case regarding the treatment of childcare vouchers during maternity leave, involving one of its own employees. The judgement effectively secures the continued use of childcare vouchers for its clients, and other employers throughout the country, who may have decided to withdraw such schemes had the case been decided differently.

At Peninsula, we run a salary sacrifice childcare voucher scheme in a similar way to many of our SME clients. The operation of the scheme means that the provision of childcare vouchers is suspended when the employee is on maternity leave. An employment tribunal found that this exercise was discriminatory on the grounds of sex.

At the appeal hearing, Peninsula argued that the Employment Tribunal had incorrectly identified the ‘payment’ of childcare vouchers as a ‘benefit’ and not ‘remuneration’.

This would be a critical point because the law states that employees on maternity leave are entitled to all benefits under their terms and conditions during maternity leave but not remuneration. Therefore, as a benefit, employers would need to continue to fund the vouchers out of their own pocket because statutory maternity pay is a protected payment and cannot be sacrificed for vouchers.

Peninsula argued childcare vouchers had to fall into the category of remuneration because the employee does not receive anything in addition to normal pay that could classify it as a ‘benefit’. The operation of the childcare voucher scheme by salary sacrifice means that the employer simply re-directs part of the normal payment that an employee would receive rather than an extra payment on top of normal pay.

The Employment Appeal Tribunal accepted Peninsula’s argument and decided that the scheme, as operated, was not discriminatory.

Significantly, the EAT also said that to continue to pay for childcare vouchers in this way during maternity leave would create a windfall benefit for employees. It decided that it had not been the intention of Parliament to require employers to continue providing vouchers at a time where there was no salary which could be sacrificed in respect of them, as was the case with Peninsula’s maternity entitlements.

Clients may therefore suspend provision of childcare vouchers during maternity leave when the system operates via salary sacrifice. If these vouchers are offered as an extra benefit to employees i.e. not salary sacrifice, then they will not fall into the category of ‘remuneration’ and therefore will need to be maintained during maternity leave.