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Provision of Childcare Vouchers during maternity leave

The question of whether childcare vouchers should continue to be provided during periods of maternity leave has long vexed employers.  Whilst HMRC guidance was clear that vouchers issued under a salary sacrifice arrangement should continue to be provided – even when the employee had no salary to sacrifice – the legislative basis for this guidance has remained impossible to find.

A recent decision of the Employment Appeal Tribunal, given on 9 March 2016, appears to have resolved this question once and for all – or at least, until another case is appealed…


In the case of Peninsula Business Services Ltd v Laura Donaldson, Ms Donaldson refused to join her employer’s childcare voucher scheme as, in the agreement she was asked to sign, there was an express provision which stated that she would not receive the vouchers during any future periods of maternity leave.  The reason for this was that during such periods, she would receive SMP only, and therefore would not have any salary to sacrifice in order to pay for the vouchers.

Ms Donaldson brought a claim to the Employment Tribunal alleging, amongst other things, that this amounted to a breach of regulation 9 of the Maternity and Parental Leave etc Regulations 1999.  Under Regulation 9, a woman on maternity leave is entitled to the benefit of her terms and conditions of employment in the same way as if she was not absent, save in respect of those terms relating to remuneration. 


The main issue for the EAT to determine was whether childcare vouchers amounted to remuneration – which under Regulation 9 would not continue during maternity leave – or if they were a benefit, which would continue.

The EAT considered that on a true analysis of the nature of a salary sacrifice arrangement, the employer is merely ‘diverting’ a proportion of the employee’s salary to the childcare voucher provider on the employee’s behalf, rather than providing a benefit to the employee.  It considered that, were it not for the beneficial tax treatment which meant that the sum was deducted before tax, the position would be obvious – if an employee were to ask an employer to make a direct payment on its behalf, the sum paid out would still be part of the employee’s remuneration, and no-one would suggest that it was instead a non cash ‘benefit’.  The EAT did not therefore see why childcare vouchers were any different.

The EAT therefore decided conclusively that vouchers provided under a salary sacrifice arrangement amounted to ‘remuneration’, and there was therefore no obligation on the employer to continue to provide such vouchers during the maternity leave period. 

It is important to note, however, that the EAT did draw a distinction between a salary sacrifice arrangement, and a situation where an employer provides childcare vouchers in addition to salary.  In that case, the vouchers would not amount to remuneration, and would need to continue to be provided during the maternity leave period.


For employers who provide childcare vouchers – and other non-cash benefits – under a salary sacrifice arrangement, this decision will be welcome news.  However, a word of caution:

  1. No reference was made to the fact that if an employee is on a salary sacrifice arrangement at the relevant time, their statutory maternity pay will be calculated based on the reduced salary.  It remains to be seen whether this could give grounds for further cases on this point.
  2. If employers wish to rely on this case to stop providing childcare vouchers during periods of maternity leave, this should be clearly set out in the terms of the scheme which employees are asked to sign before joining.  

For further information please contact our Employment team on 0113 220 6270.

About the Author

Gemma Sherbourne

Legal Director

Gemma is an experienced employment lawyer, providing advice for a variety of clients from senior executives…

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