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Interaction of statutory maternity pay and nursery vouchers

Interaction of statutory maternity pay and...

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 An employee is receiving statutory maternity pay and has participated in the nusery voucher salary sacrifice scheme. The client has deducted the vouchers from the statutory maternity pay contrary to HMRC guidelines. If the vouchers are not deducted from statutory maternity pay the employee will be receiving vouchers which are not being deducted from her remuneration. There may be employment law issues with ceasing to provide the vouchers, although they were not a benefit in kind but an alternative to salary.

We believe the client must re calculate the payroll for the previous months to ensure correct PAYE and NI. However, should the payroll be grossed up and the vouchers then deducted for completeness?

Can the client cease paying the vouchers as the employee has no salary to sacrifice?

Any thoughts?

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By neiltonks
22nd Mar 2013 16:08

Common problem

This question comes up a lot, and it’s all because employers don’t understand what a salary sacrifice arrangement actually involves, and don’t think through the possible consequences of it. All they think of is the chance to save a little NI.

A salary sacrifice is a change to the employee’s contract such that the employee agrees to a lower salary in return for provision by the employer of a benefit in kind.  It’s a contractual reduction in salary, not a deduction from salary, and the vouchers are a benefit in kind.

So when someone goes on maternity leave, they cease to get the (reduced) salary. They do get a benefit (SMP) paid through their employer but this isn’t salary and as you say can’t be reduced.

That leaves the vouchers, the benefit in kind part of the arrangement. The law says that BIKs must continue to be provided during paid maternity leave, and the employee can’t be forced to give up the benefit because she’s had a baby as this would be sex discrimination. Therefore the employer is in the position that they must continue to provide the childcare vouchers (effectively at their own cost).

So in this case the employer, as you thought, needs to recalculate every payslip for the whole SMP period based on paying the full SMP, then pay over to the employee the resulting net pay adjustment, and pay over to HMRC any additional tax and NI which arises.

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