Will any of my work-related payments be affected by taking up the childcare vouchers as part of a salary sacrifice scheme?

Some statutory benefits are only available to those people who work. These are work-related payments and are paid by the employer but either fully or partly refunded by the Government. Work related payments include Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP), and Statutory Sick Pay (SPP).

Work-related payments are based on average earnings calculated over a fixed period before an individual receives them. For example, SMP is calculated using the average earnings over a number of weeks (usually the eight weeks up to and including the 15th week before the baby is due), so if a woman enters into a salary sacrifice scheme, the amount of taxable earnings that are sacrificed may not count towards her average earnings for calculating the payments, so the amount she will be entitled to receive could be reduced.

However, an employer can exercise some discretion over the level of salary used to calculate average earnings for the purposes of work-related payments. It is good practice for an employer to maintain the link with the full-salary value when calculating these payments – this is known as ‘notional’ or ‘base’ salary.

So, for example, if before entering the salary sacrifice scheme a woman earned £200 per week before tax, but on taking up the vouchers she now earns £150 per week in salary and claims £50 in vouchers, her employer could calculate her SMP based on the £150 she had earned in the previous number of weeks before going on maternity leave. But it is at the employer’s discretion to calculate the SMP on the £200 that she would have been earning had she not taken up the salary sacrifice offer. The £150 is her actual salary; the £200 is her notional or base salary.

This should also apply to any salary-based enhancements such as shift-work, on-call and overtime allowances and uniform allowances. It is important that trade unions negotiate for this on behalf of their members, and that this is written into the individual’s amended contract.