Recession causes employers to reconsider childcare provision

Two of the country’s largest employers are considering pulling out of childcare voucher schemes in a bid to save the extra costs incurred following the extension of maternity entitlements last October.

The organisations are thought to be among a number of major employers seeking legal advice on childcare voucher provision through salary sacrifice as the recession deepens.
Under the Maternity and Parental Leave Regulations 2008, women continue to benefit from all terms and conditions of employment, aside from those related to remuneration, throughout the 52-week maternity leave period. Prior to the amendments women had the contractual right to these benefits during the first 26 weeks of maternity leave only.

Childcare vouchers are regarded as a non-cash benefit so must be provided during the second half of maternity leave (additional maternity leave). As many voucher schemes are provided under a salary sacrifice arrangement, the additional cost of provision during an employee’s unpaid maternity leave falls on the employer.

“With many female employees on maternity leave and the recession biting hard, we have to weigh up this extra cost to the business and decide if it is still worth us providing vouchers through salary sacrifice,” said one HR director.

Recent HMRC guidance has made it clear that the fact an employee’s salary drops during maternity leave has no bearing on the employee’s right to receive any non-cash benefit. Such benefits can include gym membership, mobile phones or use of a company car.

“The guidance is crystal clear that there is an obligation to provide a non-cash benefit even if the employee is not receiving a salary,” said Freshfields Bruckhaus Deringer senior associate Harriet Maurice-Williams.

“However, employees like the salary sacrifice voucher arrangement and to pull a scheme from an industrial relations perspective would be a humdinger.”

It is thought likely that a test case will shortly be brought before the courts in order to clarify the situation. Many HR directors are waiting for the outcome of such a case before deciding whether to continue with their schemes.

While the worsening economic situation is prompting companies to re-examine salary sacrifice benefits in light of the new rules, the Sex Discrimination Act (SDA) is also having an impact on their decision. Any change to the funding of such benefits could prompt claims of sex discrimination.

“This is a wait and see situation,” said one HR director. “It is difficult to find ways around it without contravening legislation.”

A spokesman speaking on behalf of the four leading childcare voucher providers – Accor Services, Busy Bees, Grass Roots Group and Sodexo Pass said: “Childcare vouchers are firmly established as a fundamental part of employee benefit packages. Especially during such difficult economic conditions, organisations need their employees to be fully motivated and engaged.

“They have found childcare vouchers are an effective and efficient way to support working parents, improving workforce performance, reducing absenteeism and helping with recruitment and retention. We understand that the amendments to the SDA have caused concerns for some employers, and are working with our clients to help them manage these changes.  Our feedback has shown that employers greatly value the benefits provided by childcare vouchers, and we are continuing to see strong growth and increasing demand for new schemes.


Richard Reid is the founder of Pinnacle Proactive, Specialising in the Employee Assistance ProgramStress ManagementStaff Retention & Absenteeism. Take a Proactive Approach to Growing Your Organisation & its People. For more info visit


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