Buyer's guide to childcare

This year’s Budget further incentivised employers to offer childcare vouchers, and also helped raise interest in on-site nurseries, says Nick Golding

Article in full

The government’s introduction of tax breaks on childcare vouchers in April last year saw the benefit soar in popularity. The rise in interest looks set to continue following this year’s Budget which provided further incentives for employers to not only offer vouchers, but also workplace nurseries.

This year’s Budget raised the tax-free cap on childcare vouchers to £55 per week and introduced a grant for small- and medium-sized organisations to aid the funding of workplace childcare. As a result, providers have been inundated with calls from employers which want to motivate staff with affordable benefits and from employees who want to find out how their organisation could potentially be saving them money on the growing cost of childcare.

Derrick Hardman, sales director at Accor Services, explains: “Childcare is a prime government strategy, and the publicity gained from the Budget will inject a fresh range of interest from parents and employers.”

Nancy Weedon, childcare service manager at Sodexho Pass, agrees: “The announcement will act as another kick start for childcare. When tax and national insurance became exempt on vouchers it was a similar situation.”

And it is not just childcare vouchers which are gaining in popularity, as employer-funded nurseries are also growing in importance. Workplace nursery schemes are on-site childcare facilities supplied by employers to offer working parents another affordable childcare option.

Although the concept of workplace nurseries has been around for many years, the aforementioned government grant for small- and medium-sized organisations may encourage more employers to invest in such schemes. Ben Black, director at Tinies Childcare, explains: “Single companies or a group of companies set up a nursery at their place of work and parents at those companies have the chance to bring their children into the nursery when they come to work.”

Although the concept of an on-site nursery appears to be straightforward, such a facility can be difficult to implement due to location issues. Some providers, for example, believe the scheme is better suited to out-of-town locations. “In areas such as London and the South East, for instance, it is simply not possible to commute into work with a child, [so] they work better out of cities or on large business parks. The problem is the idea is based on the American model, and only works where there is enough space,” Black says.

Yet, others believe that nurseries’ success depends more on whether employees actually value them, and whether they end up using the on-site facilities. Jason Myers, director at Kidsunlimited, argues: “I think workplace nursery schemes work where there is specific demand from employees who need childcare. It is more an issue of demand rather than location. If it is needed, employees will use it.”

However, if organisations based in city centres experience problems, there is an alternative in the form of a workplace nursery partnership. Many providers believe that this type of scheme can offer more choice and flexibility than on-site nurseries.

Workplace nursery partnership schemes allow employers to select and register with government-approved nurseries across the country and, provided the company supports the nursery with finance or partly manages it, employees can receive 100% tax relief on the cost of using the facility.

Many providers believe this scheme offers a more practical solution to the problems facing working parents in the UK today, and that this is where the government should have focused its attention when looking to support them.

Through a workplace nursery partnership scheme, employees are able to take their children to a childcare facility near their home then commute to work. They also have more choice over childcare provision.

Employers, meanwhile, will avoid the need to provide professional childcare, which entails gaining Ofsted approval and organising staffing and the education of employees, all at large expense.”

A workplace nursery partnership has the same benefits of an [on-site] nursery without the responsibility of funding and managing [one],” Myers says.

John Woodward, managing director at Busy Bees, agrees that the workplace nursery partnership is a solution for organisations where on-site nurseries are not appropriate. “People want childcare where they live, rather than where they work, and they want the flexibility and choice, which they cannot have with an on-site nursery. The money is going to the wrong place. Employers shouldn’t be telling their employees where to go for childcare, they should help to fund it and then give them the choice,” he explains.

Childcare vouchers and workplace nursery schemes are both currently popular in the benefits market. But those working in the industry believe that there is even more potential for these benefits to grow, especially if the government succumbs to pressure to provide further incentives to organisations to offer their employees help with childcare.

“There is pressure now on the government to raise the tax threshold or even uncap vouchers, though there is still a long way to go before [everyone] is enjoying the benefit of tax-free childcare,” says Myers.

Catherine Maddox, sales and marketing director at Allsave, agrees. “It wouldn’t surprise me if the government carries on putting the tax cap up on childcare. It is definitely going to be a benefit that employers look at more and more if they want to remain competitive.”

The Facts: What is childcare?

This is any employer-supported childcare provision. Childcare vouchers, workplace nurseries and workplace nursery partnerships are the most common types of scheme. Childcare vouchers are either on-line or paper coupons that employees can use to purchase up to ?£55 worth of childcare per week tax free. Workplace nurseries, meanwhile, are on-site childcare facilities provided by an organisation, whereas workplace nursery partnerships make use of off-site facilities that are selected by employers.

What are the origins of childcare?

Workplace nurseries in the UK date back to the post Second World War years, when the government aimed to encourage more women into the labour market. The childcare voucher market began in 1989 when the government introduced National Insurance exemptions on the product.

Where can employers get more information and advice?

Websites such as www.childcarelink.co.uk, www.daycaretrust.org.uk and www.hmrc.gov.uk/childcare contain fact sheets on childcare facilities, including childcare vouchers and workplace nursery schemes in the UK.

Nitty gritty: What are the costs involved?

Most providers will charge a percentage based service charge relating to the amount of childcare vouchers purchased. While there are government grants available for small and medium-sized companies, the cost of an onsite nurseries is dependent on its size.

What are the legal implications?

All childcare schemes must be made available to all employees. If the scheme is offered through a salary sacrifice arrangement, this must appear in the employee?’s employment contract. All child carers and childcare facilities must be registered and approved by the government.

What are the tax issues?

Childcare vouchers are exempt from tax and National Insurance contributions up to £55 per week and workplace nurseries can receive a full tax break if the nursery has active involvement from the employer.

In Practice What is the annual childcare spend?

Last year, the total spend by employers on childcare totalled £420m. Of this amount, £250m was on childcare vouchers.

Who has the biggest market share?

According to providers, Accor has the largest market share where childcare vouchers are concerned, and is followed by Sodexho Pass and Grass Roots. Busy Bees, which provides vouchers and other forms of childcare such as onsite nurseries, is also a large player in the market.