10 January 2017

Child care vouchers - Peninsula Business Services Ltd v Donaldson

The EAT has held that as childcare vouchers provided under a salary sacrifice scheme are part of the employee's 'remuneration' it is not discriminatory or detrimental to discontinue them during maternity leave. However, where the vouchers are provided on top of salary, without a salary sacrifice, they are not part of the employee's remuneration and must therefore be continued.

The provision of childcare vouchers through salary sacrifice arrangements is widespread and hitherto there has been some uncertainty as to whether salary sacrifice makes the vouchers a 'benefit' or a part of 'remuneration'. The distinction is significant because during maternity leave employers are obliged to continue to provide benefits as if the employee were still attending work. Employers can however lawfully suspend normal remuneration and, if eligible, the employee will receive statutory maternity pay instead.

The continued provision of childcare vouchers during maternity leave represents a cost to employers and some have sought to avoid it by making entry to their childcare voucher scheme conditional on agreeing to give up the vouchers during a period of maternity leave. That was the case at Peninsula Business Services Ltd (Peninsula). Its employee, Ms Donaldson, who was pregnant at the time of wishing to join the scheme, believed the condition of entry was discriminatory and so refused to join.

Ms Donaldson brought claims for detriment and discrimination. She argued that the Maternity and Parental Leave Regulations made it mandatory to provide childcare vouchers during maternity leave, and that by making it a condition of entry to the scheme that she give up this right, Peninsula had treated her unfavourably, subjected her to a detriment and indirectly discriminated against her.

The employment tribunal found in her favour and Peninsula appealed. With some hesitation the EAT allowed the appeal and accepted Peninsula's argument that HMRC guidance to the effect that childcare vouchers are benefits and not remuneration is wrong, and did not provide an answer to the questions of employment law raised by the case.


The basis on which the EAT reached its decision could be subject to further challenge and employers should be cautious about relying on the decision to change their practices. The impact of the case will in any event be limited by the phasing out of childcare vouchers from 2018. The Government's intention is to replace them with its new tax free childcare scheme which is due to launch this year.


Category: Article