Coronavirus Job Retention Fund: Important update for employers

The Government has updated its guidance for employers (as of 15 April) who are furloughing their staff due to Coronavirus, available here.

It clarifies how employers should calculate what they can claim for under the scheme, and now includes a section on ‘Benefits in Kind and Salary Sacrifice’.

This has important implications for those employers whose employees pay into a Childcare Voucher account.

The guidance states:

Benefits in Kind and Salary Sacrifice

The reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary.

All the grant received to cover an employee’s subsidised furlough pay must be paid to them in the form of money. No part of the grant should be netted off to pay for the provision of benefits or a salary sacrifice scheme.

Where the employer provides benefits to furloughed employees, including through a salary sacrifice scheme, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.

Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.

Implications for Childcare Vouchers

This means that post-salary sacrifice wages should be used when calculating what employers can claim for under this scheme. Benefits provided through salary sacrifice schemes (such as Childcare Vouchers) that reduce taxable pay should not be included. Note that any salary top up, for example if employers are paying an additional 20% to employees on top of the 80% covered by the job retention scheme, can continue to be used for salary sacrifice purposes.

If employers are under a contractual obligation to provide Childcare Vouchers, these should be continued in addition to the wages paid under the Job Retention Scheme.

If employers are unable to do this, they should seek the employees’ written agreement to temporarily suspend the provision of such benefits while they are furloughed.

Employers may wish to consider the following options:

  1. Continuing to top up employees’ salaries, or pay an additional amount to employees who are members of their Childcare Voucher scheme so that this can be salary sacrificed, and banked to pay for childcare when they return to work. This could be the full amount they usually salary sacrifice, or a reduced amount.
  2. Advising employees who are members of a salary sacrifice scheme to reduce the amount they salary sacrifice to £0 temporarily, and then increase this amount as soon as they return to work.

To remain eligible for Childcare Vouchers, employees must make at least one payment into their account in each 52 week period.

Please note that this is a continually evolving situation, with the guidance being regularly updated, and the information above does not constitute legal or financial advice. We advise parents who may be affected by this to speak to their employer and any employers who are  uncertain of the implications for their organisation, to seek independent advice.

Employers or parents with any other questions in relation to Childcare Vouchers should contact our Family Benefits Advice Service on 028 9267 8200 or email