A change in legislation is causing confusion over the provision of childcare vouchers, says Nicola Sullivan
The very nature of childcare vouchers means they are often seen as a popular benefit to have around, particularly during a recession. As employers look to introduce low-cost perks to get better value for their spend, as well as help their employees’ money go a bit further, some childcare voucher providers are focusing on developing extra discounts and services to differentiate themselves in a saturated marketplace.
Retail vouchers, discounts on family days out and childcare helplines are just some of the services available to staff who take up childcare vouchers. Many schemes also provide access to a database of carers for employees to contact in an emergency if their usual arrangements break down. Lynne Keeble, product manager at Accor Services, says: “It is not just about delivering childcare vouchers to employees. Employers are not only looking at how the benefit is delivered, but also what other services parents can access.”
Childcare vouchers can be redeemed for government-approved childcare, with savings in tax and national insurance (NI) of up to £55 a week. In most cases, vouchers are provided through a salary sacrifice arrangement, whereby payments are taken from employees’ gross salary. In this way, employers can save up to 12.8% on NI contributions, while employees can save as much as £1,195 a year through reduced tax and NI payments.
But despite the number of employers that offer the benefit to staff, there is still some scope to increase take-up. Providers are often keen to help employers improve take-up levels through effective communication. Paul Bartlett, head of employee reward and benefits at Grass Roots, says: “There is a maturity in new schemes, but what has not yet reached its peak is the number of employees taking part. There is still an area for growth in terms of recognising that not everybody who could benefit from childcare vouchers does so. It is about helping companies to communicate the benefits of childcare vouchers to their employees.”
Because of the way childcare vouchers are paid for and operate, good communication is in everyone’s interest. Typically, providers take a percentage of the value of the vouchers selected by employees. This can range from about 2.5% to 6%, depending on any additional services offered by the scheme.
Another area providers are keen to develop further is technology and efficiency. This was evident when one of the market’s biggest players, Busy Bees Childcare Vouchers, was acquired by Computershare last September.
Since then, the provider has announced plans to improve its service through a technology investment programme costing more than £3 million. The company, which manages childcare voucher schemes for more than 100,000 working parents in 14,000 organisations, has also pledged to invest in a new operating system, telephony system and a customer relationship management programme. The aim is to offer parents greater choice, improve the operational aspects of childcare voucher schemes and support the company’s future growth.
Simon Moore, managing director of Busy Bees Childcare Vouchers, says: “Our pedigree comes from Computershare, where we are a technology-lead company in terms of developing our own technology. This was something that was very important to us. We bought the company because we saw the opportunity to introduce value-added technology.”
But amendments to the Sex Discrimination Act that came into effect last year could impact on employers’ provision of childcare vouchers. The changes mean employers must provide the same non-cash contractual benefits during a period of ordinary maternity leave (OML) for the first 26 weeks, as during additional maternity leave (AML).
This has led to some confusion when it comes to childcare vouchers as to whether employers should continue to provide them as a non-cash benefit during maternity leave, or whether they constitute remuneration if paid for through a salary sacrifice scheme. HM Revenue and Customs’ guidance Statutory maternity leave – salary sacrifice and non-cash benefits treats them as a non-cash benefit. The same guidance also says entitlement to non-cash benefits through OML and AML continues even though the employee may not be receiving any salary or wages that can be sacrificed and adds statutory maternity pay cannot be sacrificed. Keeble says: “If the individual is part of a childcare voucher scheme whereby they are receiving £234 a month before going on maternity leave, the employer has to cover that cost because most childcare voucher schemes are operated by salary sacrifice.”
The extra financial burden this places on employers has not gone unnoticed. In June, the British Chamber of Commerce advised organisations not to implement childcare vouchers until the legal uncertainties around their use had been resolved.
Although most providers claim they have not seen employers pulling out of schemes because of the legislation, many are taking steps to inform clients of the changes and the impact they could have on the cost of running a childcare voucher scheme.
Richard Davies, head of employee benefits at P&MM, says: “This [change in legislation] is causing conversations among employers and we would like to see some clarity around it. We openly discuss it with employers – it is not something we run away from.”
Keeble says the cost implications may not be as significant as employers think and, for many, the benefit will still be worthwhile because of the potential NI savings. “Obviously, men will not go on maternity leave, so it does not affect that proportion of the employee population,”” he says. “Also, parents that are taking childcare vouchers for older children may have no intention on going on maternity leave again. Employers need to factor in how many employees it might affect and the potential cost to the company.”
However the possible impact of the legislation has led some providers to call for industry-wide standards designed to protect employees’ and employers’ interests. This has become more prevalent, says Giuliano Zanchi, director of commercial sales at Sodexo Pass.
In April this year, Busy Bees Childcare Vouchers, Grass Roots Group and Sodexo Pass launched a consultation to obtain views from employers, childcare sector representatives and their members, on how the voucher system could be improved and what minimum standards providers should be expected to meet.
Developing a code would ensure providers follow correct procedures concerning data protection, administration and security, says Zanchi.
As organisations continue to squeeze cost margins in the tough economic climate, a childcare voucher scheme, which can, in theory, be funded mostly by the NI savings the employer makes, is likely to be shielded from any cost-cutting initiatives.†
Focus on facts:
What are childcare vouchers?†
Childcare vouchers can be redeemed for government-approved childcare services, with savings on tax and national insurance (NI) for staff up to the value of £55 a week. Vouchers can be paper-based or electronic.
What are the origins of childcare vouchers? Childcare vouchers first appeared in the late 1980s when the government introduced NI exemptions on the perk.
Where can employers get more information and advice on childcare vouchers? More information is available at www.workingfamilies.org.uk, www.daycaretrust.org.uk and the National Day Nurseries Association (www.ndna.org.uk) as well as at www.employeebenefits.co.uk/benefits/childcare-carers.html
What is the annual spend on childcare vouchers?†
According to Laing & Buisson, the value of employer-funded childcare for UK day nurseries in 2008 was estimated at £995m. Of this, £650m-£700m is estimated for employer-funded vouchers.
Which providers have the biggest market share?†
There is a general industry consensus that the leading providers include Accor Services, Busy Bees Childcare Vouchers, Grass Roots and Sodexo Pass. These are followed closely by My Family Care, Bright Horizons, Kidsunlimited, P&MM and Imagine Co-operative Childcare.
Which childcare voucher providers have increased their share the most in the past year?†
These figures are not known, but P&MM has reported 30% growth on last year. Busy Bees Childcare Vouchers, which was acquired by Computershare in September, claims to be setting up 400 to 500 new schemes a month. Imagine Co-operative Childcare has also experienced significant growth.
Nuts and bolts:
What are the costs involved?†
Childcare voucher schemes incur a management fee payable by employers to the provider, which is typically between 2.5% and 6% of the vouchers’ value. Some providers run schemes with fixed charges that remain the same however many employees take up the benefit.
What are the legal implications?†
All childcare providers and facilities must be government-approved. Employers must offer childcare benefits to all staff for the tax breaks to apply, and if they are offered through a salary sacrifice arrangement, employees’ contracts must be amended appropriately.
What are the tax issues?†
Employees can sacrifice up to £55 a week or up to £243 a month from their pre-tax salary for vouchers redeemable at any government-approved childcare provider. The employee makes tax and NI savings and employers can save up to 12.8% on NI. Employers must ensure that once the cost of the vouchers has been deducted from gross salary, the employee’s reduced salary, on which tax and NI are paid, does not fall below the national minimum wage.