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Childcare voucher scheme suspension ‘not discriminatory’

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18th Apr 2016
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The employment appeal tribunal (EAT) has made judgement that it was not discriminatory that a childcare voucher scheme, provided to employees by way of salary sacrifice, was suspended when an employee was on maternity leave, so overturning the employment tribunal's original decision in the case.

Ruling on the Donaldson v Peninsula Business Services case, Justice Langstaff stated that as the vouchers were regarded as part of remuneration the employee could not be entitled to them as she is not entitled to her monthly salary when on maternity leave.

“Though the phrase ‘salary sacrifice’ is in common use, and is referred to by that colloquial description in the legislation … it is something of a misnomer," said Justice Langstaff. “It is in reality not a sacrifice but a diversion of salary, which the employee has earned but which is redirected prior to it being placed within the employee's pay packet, in order to purchase vouchers to the value of the salary utilised.”

“The continued provision of vouchers during maternity leave both produces a windfall benefit for an employee who is in such a scheme but also - more importantly - imposes a cost upon the employer ... If entering such a scheme had the consequence that once employees became pregnant the employer would face a cost beyond that it would already face by provision of statutory maternity pay, it would have the effect of discouraging employers from offering such a scheme ... We do not think that parliament can have intended this consequence,” he said.

This would not have been the case had the vouchers been provided as an additional benefit, over and above the employee's salary, he said. 

“There are many cases in which an employer will provide vouchers as a benefit additional to salary,” he said. “In such cases, Regulation 9 of the 1999 Regulations requires that vouchers continue to be supplied during maternity leave.”

However, some tax experts are unconvinced by the EAT's reasoning and consider that the EAT may have misunderstood the tax issues underpinning salary sacrifice scheme.

For now though this decision is the latest position.

Childcare vouchers will be phased out from 2017 once the new Tax-Free Childcare scheme is phased in. Under the new arrangements, employers will not be involved: the scheme will operate directly between parents and the government.

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