Buyer’s guide to childcare

Of the four main options employers have when providing childcare for staff, vouchers and emergency childcare have seen the strongest growth in the past year, says Alison Coleman

Flexibility is often said to be the key to an engaged workforce, so it is perhaps not surprising that the more flexible childcare benefits are dominating the corporate market. Of the four main types of employer-supported childcare, the childcare voucher and emergency childcare sectors have experienced the strongest growth in employer take-up over the last 12 months, followed by workplace nursery partnerships, which have also attracted more interest this year. By comparison, demand for on-site workplace nurseries has remained fairly static.

Marcus Barrow, corporate sales manager at Kidsunlimited, which builds and operates day nurseries, says: “We still get a lot of enquiries from employers interested in providing on-site childcare facilities for their staff, but unfortunately, for most of them this isn’t a feasible option. You need to have the right location, the space, and enough working parents to make it cost-effective, which most of them don’t.”

Where on-site facilities are not an option, some employers are engaging in workplace nursery partnerships through which they can reserve places with government-approved nurseries in locations around the country. As long as employers support the nursery financially or with management services, employees can receive a full tax break on the cost of using the facility, providing them with savings and choice, as they can place their children in a nursery closer to their home.

The flexibility and convenience of emergency childcare, that can be provided at short notice, is also appealing to growing numbers of employers and staff. Ben Black, director of provider Emergency Childcare, says: “The demand for emergency childcare has been driven by demand from staff for more flexible working patterns. Employers [that] want to retain and engage their employees have responded by extending their childcare benefits provision to include the flexibility that emergency childcare provides.”

But due to increased interest from employers, childcare vouchers are the clear winners in the corporate childcare stakes. The numbers of providers have risen in line with this employer demand and the market has become saturated, says Andy Lister, managing director of Grass Roots. “Most major organisations in the UK are now offering vouchers to employees, almost [all] through salary sacrifice. It is the small and medium-sized enterprise sector that is under represented and now presents the biggest opportunities,” he explains.

Employment consultancy PES launched its childcare voucher product two years ago. Malcolm Bond, head of reward and benefits at PES, says: “The beauty of these schemes is they can be implemented as a standalone benefit rather than part of a larger and more expensive flexible benefits package, so even the smallest employers can make savings and offer attractive benefits to their staff.”

With a rising cost of living and modest salary increases, the financial benefits of vouchers are not wasted on cash-strapped employees with children. Louise Barker, commercial director at provider Sodexho Pass, says: “This is reflected in the huge uptake by working parents, because in the current financial climate, every saving makes a difference.”

But working parents who receive tax credits may not benefit greatly from vouchers. Barker adds: “One of the things we have focused on is providing clear information to employers and their staff and pointing them to HM Revenue and Customs’ website, where an online calculator can help them decide how appropriate vouchers are in individual circumstances.”

With more than 20 providers operating in the voucher market, many are now jockeying for position. Some are aiming to be the lowest-cost provider, while others want to be seen as the largest in terms of the number of employers they work with. Increased competition has led to innovation. Chris Downing, client relationship manager at Jelf Group, believes offering choice is key. “Employees now have the option of receiving paper vouchers sent by mail, e-vouchers sent via e-mail, BACS payment made directly to the carer’s account, and credit payments to the employee’s own electronic account. While technology is slowly replacing the hard-copy voucher, it is important not to exclude employees who don’t have computer access and need paper vouchers.”

The next 12 months may see some consolidation in the market, while a change of government could also lead to a major shake-up. A document published by Policy Exchange, a Conservative party think-tank, in April titled Little Britons: Financing childcare choices outlined a new approach to supporting parents, suggesting withdrawing the tax relief on vouchers in return for a weekly cash payment for parents. Lister says: “This would represent a radical shift in government policy, particularly in terms of a shift in emphasis from employers supporting childcare to a more state-supported approach.”

Focus on facts

What are childcare benefits?
These encompass four main products: on-site nurseries; workplace nursery partnerships, where provision is at an off-site facility to which an employer contributes financial and management resources; emergency childcare, which enables employers to offer a range of approved childcare options to employees at short notice; and childcare vouchers, which can be redeemed in exchange for government-approved childcare, with savings in tax and national insurance (NI) of up to £55 a week for staff.

What are the origins of corporate childcare benefits?
The first workplace nurseries appeared in the early 1950s to encourage more women to go to work. Childcare vouchers and workplace nursery partnerships appeared in the late 1980s when the government introduced NI exemptions, and emergency childcare has emerged within the last three years.

Where can employers get more information and advice on childcare benefits?
More information is available from Working Families (, the National Day Nurseries Association ( and the DayCare Trust (

Nuts and bolts

What are the costs involved?
Setting up and running a workplace nursery can incur huge costs, which vary depending on the size of the nursery. By comparison, childcare voucher schemes incur a management fee payable by employers to the provider, which typically varies between 5% and 9% of the value of the vouchers.

What are the legal implications?
All childcare providers and facilities must be government approved, and on-site nursery provision must comply with stringently-enforced employment and child protection legislation. 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?
Childcare vouchers, which are typically offered through a salary sacrifice arrangement, are exempt from tax and NI contributions on up to £55 a week for staff and employers save NI.

On-site nurseries, meanwhile, qualify for a full tax break, as do workplace nursery partnerships where the employer is involved in managing and financing the nursery, and meets strict HM Revenue and Customs’ guidelines.

In practice

What is the annual spend on corporate childcare?
The most recent figures from market research organisation Laing & Buisson show that employers spent £635 million on childcare in 2006, either through direct provision, such as on-site nurseries, or on perks such as childcare vouchers.

Which childcare providers have the biggest market share?
According to those in the industry, the three leading childcare voucher providers are believed to be Accor, Grass Roots and Sodexho Pass. In terms of corporate nursery provision, the consensus among providers is that Busy Bees tops the UK market, followed by Kidsunlimited and Bright Horizons.

Which corporate childcare providers have increased their share the most in the past year?
These figures are not known.