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Articles Employment 26th May 2016

Employment Review: Not discriminatory to discontinue childcare vouchers during maternity leave


During maternity leave, an employee is entitled to all the usual benefits of her employment, except her remuneration, which is replaced by statutory maternity pay (SMP) or the employer’s own maternity pay scheme (Sections 71 and 73, Employment Rights Act 1996 (ERA); Regulation 9, Maternity and Parental Leave etc Regulations 1999).

In this case, the question to be decided was whether childcare vouchers provided under salary sacrifice arrangements (schemes where employees give up part of their entitlement to salary in exchange for a new or enhanced non-cash benefit which benefits from a full or partial exemption from tax or NICs (or both)) fall within the definition of ‘remuneration’ and so could be stopped during maternity leave.

HMRC guidance classes childcare vouchers administered under a salary sacrifice scheme as a ‘non-cash benefit’ which should be continued during maternity leave.


A pregnant employee refused to enter a salary sacrifice scheme operated by her employer under which childcare vouchers were provided because its terms required her to agree that, during periods of maternity leave, the entitlement to vouchers for which salary would be sacrificed would be suspended.

The Claimant brought claims for detriment and for discrimination on the basis that the Respondent’s refusal to allow her to participate in the childcare voucher scheme (because she did not agree to its terms) amounted to discrimination on the grounds of sex and unfavourable treatment for asserting a right to maternity leave.


The Claimant’s claims were ultimately dismissed on appeal. The EAT found that, properly analysed, childcare vouchers were ‘remuneration’ and so an employer did not have to continue to provide them during maternity leave. The rationale was that the common phrase of “salary sacrifice” is a misnomer; in reality it is 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 EAT stated that the fact that such vouchers are deemed by the HMRC guidance to be a ‘non-cash benefit’ which should ‘continue during maternity leave’ was not determinative.


There are two different scenarios in which childcare vouchers may be offered to employees: (i) cases where employers provide them as a benefit additional to salary, and (ii) cases where they are provided as part of a salary sacrifice scheme. In the former case, employers are required by legislation to continue to supply the vouchers during maternity leave. In the latter case however, it now appears that such vouchers will be considered to amount to ‘remuneration’ which are not required to be continued during maternity leave.

This case is welcome news for employers, as it acknowledges that a failure to treat such schemes as remuneration will produce a windfall benefit for employees participating in the scheme and impose additional costs on employers in situations where there is no salary that can be sacrificed.

However, employers should nevertheless proceed with caution and take specific legal advice in relation to the wording and implementation of their salary sacrifice schemes / policies, as the EAT did state within its judgment that it remains ‘cautious’ that it may not have identified all legislative provisions that may be relevant in this area and that its conclusions were ‘somewhat tentative’. Therefore, the EAT’s findings may be subject to challenge in the future.

Peninsula Business Services Ltd v Donaldson [2016] UKEAT/0249/15, 09 March 2016

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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