Childcare Vouchers EAT decision

As we have stated many times on this blog, the cost of childcare is a major barrier to work for many parents. And this in turn has implications for employers also. For more on these assertions please see this post.

Given the above, it is really important that employers do all they can to help their parent-employees with this key issue, and the method used by many organisations to achieve this has been offering Childcare Vouchers through a salary sacrifice mechanism. Such schemes are essentially free of direct cost to the employer, as the National Insurance saving usually covers the cost of providing the vouchers.

Yet many employers remain nervous of introducing this facility. Many cite the requirement to continue non-pay benefits during maternity leave as a major obstacle. This issue can (and often has) left the employer funding the cost of the vouchers during the period where only statutory maternity pay is in payment.

But a recent Employment Appeal Tribunal (EAT) decision casts doubt on the above issue. The case of Peninsula Business Services Ltd v Donaldson is not an easy read, and is rather technical in nature. Yet it does reach some important conclusions which may change the way such schemes are viewed in the future.

The important point in this case is that all employees were offered access to a childcare vouchers scheme, but a condition of entry to the scheme was that the vouchers would be suspended during maternity leave.

Ms. Donaldson wished to join the scheme, but refused to do so on those terms, believing they were discriminatory. The original tribunal agreed, yet the EAT have ruled differently. The document includes the following sentences:

It could not have been Parliament’s intention to require employers to continue providing vouchers at a time when there was no salary that could be sacrificed in respect of them.”


“We do not think that making the offer to the Claimant of entering into this scheme on the terms proposed constituted unfavourable treatment.”

So this case may change the way employers view the provision of Childcare Voucher schemes, and perhaps other benefits funded via the Salary Sacrifice mechanism as well. We will of course update our followers on these issues as more information becomes known.

For the moment however we would urge any employer seeking to set up a salary sacrifice scheme with anything other than standard eligibility criteria to seek legal and professional advice in the first instance.

For the full original article and other similar posts, please visit the Jelf Group blog.