Providing on-site nursey facilities

Providing an on-site nursery can ease employees’ concerns about their child’s welfare, although this can come with a hefty price tag, says Alison Coleman

For many working parents with young children, on-site nursery facilities at their workplace are considered a luxury. Being close to their children throughout the working day may help to give them peace of mind about their child’s wellbeing and the quality of care they are receiving, as well as saving time by not having to drop them off and pick them up from other childcare facilities.

From an employer’s point of view, an on-site nursery can be a valuable part of its benefits package, allowing them to attract and retain staff, particularly when it comes to employees who return to work following the birth of a child. The process of setting up such a facility, however, can be both costly and complex, and is not something employers will typically embark on without being certain of the returns.

In practice, on-site nurseries tend to be offered by larger employers, which have the necessary resources to set up and run these facilities. But the actual building of the nursery is only a small part of it.

Sharon Charity, communications manager at national childcare charity the Daycare Trust, says: “Setting up a workplace nursery is a complex procedure, and it requires expert advice. For childcare places to be eligible for tax and national insurance (NI) relief for staff, the nursery will have to adhere to Ofsted regulations on staffing levels and qualifications, [and] the curriculum, and follow guidance from HM Revenue & Customs (HMRC) on the management and financing of the nursery setting.”

Changing trends in people’s childcare preferences have seen the number of on-site nurseries fluctuate over the years. They remain most prevalent in the National Health Service, due in part to the large numbers of female staff with childcare needs at hospital sites, as well as the funding made available to the NHS by the Department of Health for setting up nurseries earlier this decade.

A number of universities and the Ministry of Defence also operate workplace nurseries, while some other government departments offer such facilities at larger sites.

In the private sector, workplace nurseries are most likely to be found at large manufacturing, or ‘white collar’ sites, such as bank and building society headquarters.

Setting up a workplace nursery is a major undertaking, and employers need a clear understanding of the costs and liabilities in order to establish whether or not they can derive maximum value from on-site childcare provision as a staff benefit.

Nick Collins, research and development manager at Kidsunlimited, which builds and operates nurseries and works with a number of corporate clients to plan and establish on-site nursery facilities, said: “The main justifications are the numbers of staff with childcare needs, the availability and cost of convenient childcare facilities, the costs associated with replacing staff who fail to return to work after a period of maternity leave, and increased wellbeing of staff including reduced absenteeism.”

Each case will have its own individual considerations, for example, the availability of land for a new-build facility, or suitable existing building space for the conversion or refurbishment to nursery facilities, and the numbers of staff with children aged from birth to five years.

Collins adds: “The actual set-up costs will vary depending on the type of facility, that is to say, whether it is a new build, or a conversion, but a nursery with 50 places would typically cost around £500,000.”

On-site workplace nurseries qualify for tax and NI exemptions on the fee payments made by employees through salary sacrifice arrangements. Employers also make savings on their NICs on the amount of the fees, thereby enabling them to factor these savings when putting together business case calculations.

In addition to general running costs for things like play and educational equipment, staffing, and maintenance, employers will have to pay for buildings and contents insurance, clinical and general waste disposal, and utilities, such as telephone and fuel charges, business rates, cleaning, building and garden maintenance, and signage. In the event of a child being injured, whoever is running the nursery, whether it is an employer directly or a nursery company working on its behalf, should also be covered by public liability insurance.

Depending on the location of the site, there may be opportunities to extend use of the nursery facilities to members of the general public to ensure that the nursery is economically viable when there is less demand from the staff alone. However, employers should be mindful of the fact that demand for nursery places can change quite quickly, at times leaving facilities oversubscribed.

Kidsunlimited’s Collins says: “There needs to be careful waiting list management, increasing or reducing the number of non-staff child placements. Employers could also consider extending the facilities, or buying in places at other local providers.”

If, after careful deliberation an on-site facility is deemed not practical, there are alternatives that can still offer significant value to staff, including childcare vouchers and workplace nursery partnerships.

Childcare vouchers enable staff to make tax and NIC savings on up to £243 per month in childcare fees for all forms of qualifying childcare, for example, registered nurseries, child minders, nannies, before and after school clubs and holiday play schemes. Employers also make NIC savings on the amount of vouchers taken by their staff.

Workplace nursery partnership schemes, meanwhile, enable employers who can’t justify setting up a nursery on their own to collaborate with other employers to set up a nursery jointly, which can be run directly or through a nursery company.

In order to be able to benefit from the same tax and NIC exemptions on the full amount of the nursery fees, as in the case of a dedicated on-site workplace nursery, HMRC requires all partnering employers to be involved and take on responsibility for the financing and management of the nursery.

Another option is to simply tap into the services of existing and established childcare providers in the local area.

Purnima Tanuku, chief executive of the National Day Nurseries Association, says: “We welcome workplace nurseries as they can provide a great, convenient childcare solution for busy working parents. However, we also encourage employers to work with existing local provision to provide this service to their employees.

“This ensures that organisations can more realistically afford to offer this service, as substantial initial investment is required when creating new childcare places. Also, this method ensures that parents can be confident that their children are being cared for by [professionals] with the experience, expertise and knowledge to provide high-quality childcare.”.

Case study: Oxfam has long history of on-site nurseries

Although the majority of workplace nurseries can be found in larger organisations, where the demand for childcare is likely to be greatest, there are exceptions.

Oxfam, which employs 1,200 people at its headquarters in Oxford has provided an on-site nursery for the last 20 years.

Human resources manager Nikki Glover said: “The members of staff who use it really appreciate having their children close to them at work. They know that if there is a problem they can be there immediately. From the organisation’s point of view, this facility has played a part in its ability to attract and retain good staff.”†

The nursery can take a maximum of 28 children at any one time. It currently has 48 children on roll, between the ages of six months and five years. The nursery opens weekdays from 8.45am to 5.15pm and employs 12 members of staff.†

Glover adds: “Limiting the hours to the normal working day allows us to control the costs. We can also make places available to people who are not members of staff, via a waiting list, to ensure that the facility continues to pay, but staff demand is such that this doesn’t happen very often.”

Legal requirements

  • Employers exploring the viability of a workplace nursery must comply with legislation on childcare provision arising from the Children Act 1989.
  • An on-site nursery will be inspected by Ofsted in the same way as any other nursery, and therefore employers would need to follow the guidelines that are set for all nurseries.
  • As well as providing a secure, safe and stimulating environment for children, an on-site nursery must observe the same staffing ratios as other nurseries and ensure that nursery staff training and qualifications requirements are met.
  • The minimum staffing ratios are currently one adult to three children under two years; to every four children aged two years, and to eight children aged from three-to-seven years.
  • Details of the national standards required for providers of full day care for children aged under eight years, which includes on-site nursery provision, can be found at _doc/P0000411.PDF