Employment Appeal Tribunal (EAT) rules on childcare vouchers & statutory maternity pay (SMP)

On 9 March 2016 a judgement from an Employment Appeal Tribunal (EAT) overturned an earlier Employment Tribunal decision which had ruled it was unfair to make employees suspend their childcare vouchers during maternity leave when signing up to the scheme.

Until now, the accepted legal position was if an employee was not eligible for contractual maternity or adoption pay, employers were required to continue providing childcare vouchers as a “non-cash benefit” during the whole of their maternity or adoption leave.

The main argument from Counsel at appeal was that “the provision of childcare vouchers under a salary sacrifice scheme was within the meaning of“remuneration””. And that it “is not a scheme by which an employer provides a benefit [childcare vouchers] instead of or in addition to salary: rather, it is a “salary diversion”. As a result, an employee who only has access to statutory maternity pay has no salary to “sacrifice” (or, to use their description “divert”) in order to purchase childcare vouchers.

The upshot is that employers now appear to have the right to stop employees taking childcare vouchers during maternity/paternity leave, if they wish.

If you’d like to include this rule to your own childcare voucher scheme, in addition to the standard terms and conditions your parents sign up to when they register with a childcare voucher provider, we strongly recommend you seek your own legal advice to see how this could be successfully implemented within your company.

You should also bear in mind that the EAT, when giving its ruling, remained “cautious that we may not have identified all the provisions which might be relevant, and any future litigant reading this judgment must bear in mind that we therefore express the conclusions to which we have come somewhat tentatively.”

A summary of the key points raised during the hearing can be found here.

If you’d like more information, you can also read the full report (Peninsula Business Services Ltd v Donaldson).

Important Note: If you currently provide childcare vouchers as an “addition to salary” then this would still be considered a “non-cash benefit” and should therefore continue to be paid throughout maternity leave.