ChildCare Vouchers

With Wednesday’s budget all over the news, and the continued media scrum over Brexit or Fixit, a little known change in employment law has slipped in, unnoticed by most yet, I suspect, of importance to many.

Childcare vouchers are an employee benefit for all eligible working parents.  They’re a Government-approved, tax-efficient way of paying for childcare.  If you join a scheme, you can exchange up to £243 a month (£55 a week) of your gross salary for childcare vouchers.  Most employers choose to operate their childcare voucher scheme via “salary sacrifice”.  The idea behind salary sacrifice is quite simple.  You give up part of your salary and, in return, your employer gives you a non-cash benefit, such as childcare vouchers, or increased pension contributions.  Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance.

Legislation regarding women on maternity leave states clearly that they are entitled, during any period of leave, to the benefit of all of the terms and conditions of their employment which would have applied if they had not been absent.  The only exception to this is “remuneration”.  Remuneration is defined as any sums payable by way of wages and salary.  In other words, women are not entitled to the benefit of their normal remuneration (wages and salary) during maternity leave, but she is entitled to continue to receive benefits such as private medical healthcare, paid holiday, the use of a company mobile phone (if provided for personal as well as business use) and so on.

Until this EAT case, there has been no case law on childcare vouchers during maternity leave.  Most employers have proceeded (albeit sometimes reluctantly) on the basis that childcare vouchers provided via a salary sacrifice scheme are a benefit that must continue to be provided.  In the event that an employee was in receipt of statutory maternity pay only or no salary at all, their employer would have been obliged to pay the value of the vouchers they would normally have received.  Where an employee received contractual/enhanced maternity pay which did not cover the full value of a childcare voucher, the employer would have been obliged to top up the difference.  Employers were supported in this approach by HMRC’s Guidance

The Employment Appeal Tribunal (EAT) has ruled, however, that employers no longer have to provide childcare vouchers during maternity leave when offered through a salary sacrifice scheme.  According to the EAT, it is not discriminatory for an employer to have a rule in its childcare voucher scheme that employees’ membership is suspended during maternity leave as long as the vouchers are provided in return for a deduction from pay.  The EAT’s view is that such an arrangement is not a “benefit” for the purposes of maternity leave legislation and can therefore be stopped during maternity leave.

Conversely, where the employer provides childcare vouchers in addition to employees’ pay, the provision of childcare vouchers does count as a “benefit” and must continue during maternity leave, according to the EAT.

It remains to be seen whether employers will rush out and put a stop to the provision of childcare vouchers via salary sacrifice during maternity leave.  One might hope that some employers will consider whether any financial savings to be made will be outweighed by the goodwill that will be lost if childcare vouchers during maternity leave are removed.

It is worth noting that the benefit of this decision to employers might be short lived as the Government is introducing a new tax-free childcare scheme in “early 2017” which will not involve any form of salary sacrifice.  Under the Government’s proposed new scheme, eligible families will get 20% of their annual childcare costs paid for by the Government.  The way it will work is that for every 80p you pay into a newly-created Childcare Account, the Government will contribute 20p.  This could mean up to £2,000 per child.  Crucially, however, both parents will need to be working in order to qualify.

Employers for Childcare has produced an excellent summary of the difference between the two schemes which can be view here:

Note that the new scheme has now been delayed to early 2017; no definite date has yet been published.

It remains to be seen whether the EAT’s decision will be repealed, or how employers will react to it.  It seems to me, however, that it is just another sting in the tail for working women who choose to have children.

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