CHANGES TO THE SEX DISCRIMINATION ACT AND AN EMPLOYER S OBLIGATION TO PROVIDE CHILDCARE VOUCHERS DURING THE 52 WEEK MATERNITY LEAVE PERIOD

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1 CHANGES TO THE SEX DISCRIMINATION ACT AND AN EMPLOYER S OBLIGATION TO PROVIDE CHILDCARE VOUCHERS DURING THE 52 WEEK MATERNITY LEAVE PERIOD The terms and conditions of an employee's employment may entitle her to receive benefits other than remuneration during statutory maternity leave. If so, amendments made this year to the Sex Discrimination Act have extended the period during which employees may continue to benefit from contractual non-cash benefits during statutory maternity leave. Therefore if employees are offered non-cash benefits (such as childcare vouchers) as part of their contractual agreement, employers should be clear on the effect that these changes have in respect of women whose babies are due on or after 5 October These changes have had an effect on the obligation which an employer has to continue to provide non-cash benefits such as childcare vouchers at the employer s cost when an employee is not receiving any pay other than statutory maternity pay. This obligation arises as an employer must continue to provide non-cash benefits (which may otherwise be purchased through a salary sacrifice scheme) to an employee on maternity leave even if the employee has no salary available to sacrifice. SUMMARY OF EMPLOYER S INCREASED OBLIGATIONS The starting position in determining the employer s obligation to provide childcare vouchers is that the employer is responsible for the full cost of providing the child care vouchers for the full 52 week period of maternity leave. However, the employer can recover some of that cost from the employee by making deductions from the pay which is received by the employee during maternity leave, subject to the following qualification: an employer cannot make deductions for child care vouchers which would result in the employee receiving an amount less than statutory maternity pay. As such, the following scenarios will apply: 1

2 1. while the employee is receiving only statutory maternity pay, the employer will not be able to make any deductions to cover the cost of the vouchers, and will therefore be responsible for the full cost of the vouchers. 2. while the employee is on no pay, the employer will be responsible for the full cost of the vouchers; and, 3. while the employee is receiving contractual maternity pay, the employer will be able to make deductions from that pay to cover the cost of the vouchers. This is subject to the proviso that deductions cannot be made which would result in the employee receiving less than statutory maternity pay. As entitlement to maternity pay under Agenda for Change varies (and there are different rules for different groups of staff), each case will need to be examined individually. However, most employees on Agenda for Change will be entitled to 8 weeks full pay, 18 weeks half pay, 13 weeks statutory maternity pay and 13 weeks no pay. Therefore, in the first 26 weeks the employer should be able to make deductions from an employee s salary to continue to pay for childcare vouchers in the normal way (provided that this does not take the employee below the statutory maternity pay which would otherwise be payable). For the remaining 26 weeks, the employer will be liable for the full cost of the childcare vouchers (as the employee will only be entitled to statutory maternity pay or zero pay, so no deductions can be made). DETAILS OF AN EMPLOYER S OBLIGATIONS Prior to the changes in the Sex Discrimination Act, employers had to continue providing non-cash benefits to employees during their Ordinary Maternity Leave (weeks 1-26). The changes made to the Sex Discrimination Act mean that for babies due on or after 5 October 2008, employers are now also required to provide noncash benefits during the employee s Additional Maternity Leave (weeks 27-52). Guidance published by HMRC on this issue specifically sets out what an employer must continue to provide to a woman when she is on statutory maternity leave as a result of the changes to maternity leave legislation: 2

3 Employers must continue during AML (as well as OML) to provide any noncash benefits that they have agreed to provide as a term of the employment contract. These non-cash benefits are what an employee is entitled to under her contract of employment, apart from sums payable by way of monetary wages or salary. These non-cash entitlements would include non-cash vouchers, such as childcare vouchers which can only be used by the employee for qualifying childcare and are not transferable. Further guidance which has been published also confirms that if childcare vouchers are offered to employees as part of a salary sacrifice scheme, an employer must continue to provide the non-cash benefits even if the employee has no salary available to sacrifice. In this case, the employer will be responsible for covering the cost of the vouchers for an employee during her maternity leave. QUESTIONS & ANSWERS The changes introduced by the Sex Discrimination Act have led to some common questions being asked in relation to these new obligations. Those questions and the answers are set out below. How many weeks must an employer continue to provide child care vouchers? For the full period of maternity leave which is currently up to a maximum of 52 weeks. What is an employer s liability in terms of paying for childcare vouchers during that period? 3

4 An employer will have to pay the full cost of the child care vouchers during the entire 52 week period, BUT may be able to recoup that money in the usual way for periods during which the employee is being paid by the employer. Where contractual maternity pay is payable, deductions can be made as usual for the vouchers. However, deductions cannot be made from statutory maternity pay or, obviously, when the employee is on zero pay. In those circumstances, the employer is obliged to meet the full cost of the vouchers. If a point is reached where only a proportion of the deductions for the vouchers could be made because the contractual salary is otherwise too low, the employer would be responsible for "topping-up" the payment for the voucher so that there was no further cost to the employee. Are there any exemptions which exist to the basic obligation of an employer to provide benefits such as childcare vouchers? There may be some case-by-case exemptions from the basic obligation of employer to continue to provide childcare vouchers which can be kept in mind. These exemptions may include the following: 1. Employers do not have to provide childcare vouchers to an employee having her first child, as there will be no agreement in place when she starts her maternity leave. 2. Employers do not have to provide childcare vouchers if an employee leaves the salary sacrifice scheme pursuant to which the childcare vouchers are purchased prior to her maternity leave. 3. Some women will voluntarily leave the salary sacrifice scheme because their reduction in salary means they are better off receiving tax credits; and, 4

5 4. Some women will voluntarily leave the scheme because they do not want to incur childcare costs while they are on maternity leave. Can the payment of a nursery benefit be subject to the same treatment as that which applies to the childcare vouchers, where both are paid for through a salary sacrifice scheme. An employer may be required to continue to provide nursery benefits as well as childcare vouchers during an employee s full period of maternity leave. The change in the Sex Discrimination Act relates to the continued provision of noncash benefits - rather than the method of payment for those benefits however many non-cash benefits are provided through a salary sacrifice scheme, as salary sacrifice schemes allow employees to take advantage of tax exemptions for the costs of certain kinds of non-cash benefits provided by their employers. As such, it will be important to confirm whether the nursery places which employees are receiving are considered to be a non-cash benefit in return for which employees agree to give up part of their gross pay in return for the benefit. As a starting point, employers should confirm whether the employees receive the nursery place (or benefit) free from income tax and National Insurance contributions which they would otherwise have paid on those amounts of gross pay. Guidance which has been published on this issue by HRMC and with specific reference to the issue of the continued provision of the workplace nursery places through the employee's salary sacrifice scheme states that contractual non-cash benefits can be provided under arrangements in which the employee agrees to sacrifice case salary of a comparable value, in order to receive the benefit. When such contractual non-cash benefits are provided under such arrangements, these arrangements must be treated in the same was as any other contractual noncash benefit (such as childcare vouchers). Therefore the employer must continue to provide these benefits during AML and OML. 5

6 This obligation continues to apply even though the employee may not be receiving any salary or wages that can be sacrificed (as statutory maternity pay cannot be sacrificed in any circumstances). 6