A guide to childcare benefits

With a number of childcare options in the market, employers should choose wisely, says Jenny Keefe

Case studies: The Gambling Commission, Goldman Sachs

Article in full

‘Why is there so much month left at the end of the money?’, is the clarion call often made by many employees, but parents may have particular reason to feel vexed about skyrocketing living expenses.

The cost of childcare is rising at a much faster rate than inflation. According to the Daycare Trust’s 2007 Childcare costs survey, the average cost of a full-time nursery place for a child under the age of two years now stands at £152 a week in England, an increase of 6% on last year.

Finding quality, value-for-money childcare facilities remains a top priority for families, so employers that help to provide this will quickly get in staff’s good books.

Childcare voucher schemes got a lot tastier in April 2005 when the tax-free cap on vouchers was increased by £5 per week. Working parents can now escape income tax and national insurance contributions (NICs) on the first £55 per week they put towards registered childcare costs.

Iain McMath, managing director of Sodexho Pass, says: "The most obvious benefit for employers is the NI savings of up to £373 for every employee. However, a childcare scheme can also reduce staff turnover."

Working parents can save up to £1,195 a year by using childcare vouchers. So, if both parents take the full allowance, together they could save up to £2,390 a year.

Launching a childcare voucher scheme is relatively straightforward. Most employers simply choose a voucher provider, then place an order for the number of staff that have signed up. Yet, once the scheme is in place, communication is vital to ensure that it obtains a decent take-up rate.

Childcare vouchers have some big advantages over other types of childcare benefit. For one, staff can choose where to spend their vouchers. "Parents can also choose more than one childcare provider and pay them both using vouchers. So, they may wish to send their child to nursery for three days a week and then send them to a childminder for the remaining two days," says McMath.

But he adds there is one potential pitfall employers should watch out for. "Employees’ net pay must not drop below £97 per week or £421 per month. This is to ensure the minimum amount of NI is paid and state benefits such as statutory sick pay aren’t affected."

Even the best-laid plans can be blown apart if a childminder falls ill or a nursery shuts down, so emergency childcare can be a godsend for working parents. Venetia Wickham, operations manager at provider Emergency Care, says: "Back-up care is the single biggest frustration for working parents. Emergency childcare is expensive and if parents are supported they are less likely to take the day off, decreasing absenteeism, [which is] a simple economic benefit."

Employers seeking to provide staff with a last-minute back up have several options open to them. Traditionally, the route has been to reserve a certain number of places for workers’ children at local nurseries.

As long as the cost of the benefit doesn’t exceed £55 per week or £243 a month it doesn’t incur income tax or national insurance (NI) charges. Above these amounts, however, the perk is taxed as a benefit in kind. But if employers provide emergency childcare through an on-site nursery, neither staff nor the employer have to pay tax or NI.

Yet, Irene Pilia, NHS childcare coordinator at King’s College Hospital NHS Trust, believes that there are drawbacks to buying childcare places. "We piloted an emergency service where we had nursery places on a retainer, because when we asked staff, that’s what they said they wanted. But after the pilot we didn’t continue because staff weren’t using it."

Another option is to provide staff with a list of emergency childcare providers in their area via an employee assistance programme (EAP) or an in-house childcare co-ordinator.

"It’s better for the workplace to be more accommodating than to drag the child off to a new nursery [as] it’s not always in their best interest to be left with someone they don’t know, even if they are vetted," she adds.

At the more expensive end of the spectrum are on-site nurseries, which are generally suited to larger firms with space to spare.

Purnima Tanuku, chief executive of the National Day Nurseries Association, says: "Staff might find it difficult to find childcare that suits their work patterns and a workplace nursery can suit work patterns."

With an on-site facility, there’s no need for parents to do a separate nursery run and they are nearby if anything crops up. This option also has tax benefits. Both employers and employees are exempt from tax and NICs on the cost of childcare, as long as the nursery is open to all staff.

On the downside, setting up a workplace nursery is a vast undertaking. Tanuku advises employers to do their research as some parents may prefer to use a nursery closer to home, while others may be loath to uproot kids from their existing daycare provider.

And, unsurprisingly, running an on-site service involves adhering to many rules and regulations, governing everything from referencing staff to making sure Ofsted health and safety standards are met.

"Many employers find working with an existing nursery a good solution. This might involve block booking places at a local nursery or inviting tenders for a nursery to provide provision onsite," says Tanuku.

Oliver Black, a director at Tinies, adds employers should also think carefully about whether they can accommodate extending the facility to all staff. "Ask if your nursery can be open to all employees on an equal basis from the MD downwards."

This year the BBC announced plans to close its onsite nurseries partly due to the fact that they are not accessible to all staff.

If setting up a nursery on-site is not practical, another option is to offer subsidised childcare places offsite. This works in a similar way to a workplace nursery, but rather than running a creche onsite, employers buy places at a local childminder, after school club or daycare centre. Steve Clark, head of employee benefits at PKF, says: "Employers must keep records to prove that the scheme is exempt from tax and NICs, ensuring that the care provider is registered or approved."

Case study: The Gambling Commission

The Gambling Commission believes it picked a winner when it launched childcare vouchers in October 2006.

Nicola Morris, HR adviser, says: "Although there is a service charge of approximately 8.5% [of total amount in vouchers bought] by the supplier of the vouchers to administer the scheme, the childcare vouchers are free from employer’s national insurance contributions, [resulting in] a saving of up to 12.8% that easily covers the cost of the charge." To communicate the scheme, the commission issues a guide to its 246 employees, giving them the lowdown on childcare vouchers and how salary sacrifice works. "Employers need to be sure that they are offering full advice to employees that they are entering a salary sacrifice scheme," says Morris.

Once staff have signed up to the scheme, employers must keep up with the paperwork. "You need to keep records of employees’ carers details, including registration numbers. These records may need to be produced to [HM Revenue and Customs]."

Case study: Goldman Sachs

Goldman Sachs has found that its on-site emergency childcare has enabled staff to remain in work if they are let down by childcare arrangements.

According to the results of a recent staff survey, 96% of those using the back up service agreed that it allowed them to stay in the office when they would otherwise have had to take time off.

A certain number of places at its workplace nursery are reserved each day for emergencies, which staff can book up to two months in advance.

Louise Armitage, a wellness associate, says: "By providing a dedicated back-up centre onsite, we ensure our employees have access to high-quality back-up childcare, should, for whatever reason, their usual childcare arrangements become unavailable." The nursery, which is open every weekday between 7am and 6.15pm, is available for children aged three months to 11 years. Each employee is allowed up 20 days care per child a year, and new mothers receive an extra 20 consecutive days on their return from maternity leave.

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Armitage adds that 88% of users rate on-site back-up childcare among their most valued benefits. "We benefit from reduced absenteeism, higher productivity and increased commitment.

"One of the most powerful benefits of the programme is the improved retention of our working mothers," she explains.