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Childcare vouchers: the real cost to employers

8th February 2016

It has come to our attention that in some circumstances, employers may be obliged to pay for and provide childcare vouchers to employees whilst they are on maternity leave in order to avoid a potential discrimination claim.

You will be aware that when an employee is on maternity leave, she should continue to receive all non-cash benefits. In effect, this means that the only thing that should stop during maternity leave is normal remuneration.

Most childcare voucher schemes which are facilitated by employers revolve around a salary sacrifice agreement whereby the employee agrees that their employer can sacrifice a certain amount of their salary to pay for their childcare vouchers. By doing so, the employee will receive a tax benefit as the sacrificed proportion of their salary is tax free and exempt from National Insurance contributions.

In circumstances where an employee is provided with only statutory maternity pay whilst on maternity leave, HMRC guidance notes state that she is unable to sacrifice her statutory maternity pay in order to pay for childcare vouchers. The “how can you help your employees with childcare” HMRC note then goes on to confirm that “childcare vouchers are an employer provided non-cash benefit. Employer provided benefits provided under a contract of employment must continue to be provided whilst an employee is absent from work on maternity leave. This applies even if the employee is getting no pay or only getting SMP.”

We understand that the implication of this advice is that where an employee is paid only statutory maternity pay, and therefore cannot sacrifice her pay in order to pay for childcare vouchers, her employer should continue to provide the vouchers throughout her maternity leave. The reality of this is that, in order to avoid a claim for discrimination, an employer may be required to pay for an employee’s childcare vouchers and provide these to her for the duration of her maternity leave. This has highlighted the unfortunate circumstance where employers may no longer be able to afford to offer a childcare voucher scheme to their employees.

On 22 January 2016, the EAT heard an appeal in relation to the employment tribunal’s finding in Donaldson v Peninsula Business Services that an employer discriminated against employees by introducing a provision that staff could only join their childcare voucher scheme if they agreed to suspend their membership of the scheme during maternity leave periods.

As part of the appeal, the question of whether childcare vouchers are a benefit that must be provided during maternity leave was raised. Although the EAT reserved judgement, we are hopeful that the judgment will provide some clarity in relation to this worrying issue for employers.

Despite the confusion surrounding childcare vouchers, the Government has proposed the introduction of a tax-free childcare scheme due to be rolled out in 2017. The details are yet to be officially confirmed but the scheme is expected to provide families where both parents are working and not earning more than £100,000 each per year, with help in the form of a 20% contribution towards their yearly childcare costs of up to £2,000 for each child. The allowance is set to be up to £4,000 per child where the children are disabled. 

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