Child’s pay

As family finances take a battering, parents can ditch Sky Movies, forsake their daily latte or cancel their Fitness First membership.But they cannot stop looking after their children.

The Day Care Trust’s Childcare costs survey 2008 says that parents now pay an average of £7,000 to £8,000 for a full-time nursery place for a child aged under two – 5 per cent more than last year. For working parents, childcare can be the most valuable benefit that their employer offers. And happy employees makes for happy employers.

Workplace childcare is more vital than ever as the recession tightens, says Kate Brooks, head of client account management at childcare provider Accor Services. “The demand for childcare and childcare vouchers is huge and continues to grow. In the current economic climate with the soaring costs of living and the threat of redundancy, some parents have decided to re-enter the workforce sooner than planned. Employers can make this return to work easier for their employees by cutting their childcare costs.”

Helping employees to spend less money looking after their children is not the only reason why employers should consider childcare schemes. There is a huge reputational benefit for employers in doing the right thing by families; organisations are currently falling over themselves to prove their ‘family-friendly’ credentials.

Andy Bradley, operations director at Pes Consulting, says:”The family-friendly aspects of providing childcare will hopefully complement the culture of the organisation and aid retention of staff, as well as easing the return of maternity leavers back to the company.”

So how can organisations lend a helping hand with childcare bills? There are three options to consider: workplace nurseries,partnerships with local creches, and childcare vouchers to help employees pay fees.

Of these, childcare vouchers are by far and away the most popular choice. The Chartered Institute of Personnel and Development (CIPD) Reward Management Survey 2008 said childcare vouchers are the sixth most popular benefit offered by UK organisations, with 62 per cent running schemes.A quick look at the number of voucher providers on the market reveals how their popularity has soared;four years ago there were around 10 providers, now there are nearly 40.

So, what is the big draw? Childcare vouchers effectively let employees swap pre-tax income for childcare. They are allowed to claim income tax and national insurance relief on the first £55 that they earn each week – worth £960 a year to most workers and £1,200 to higher rate tax payers. Parents can then use the vouchers to fund all types of registered childcare, including childminders, nurseries and after-school clubs.

Best of all, the schemes can actually make cash for employers. Organisations save around £300 a year per employee on National Insurance, a saving that often outweighs thevoucher providers’ fees. Tim Harris, a flexible benefits consultant at Watson Wyatt, says: “Childcare vouchers are a no brainer in most cases. The worst case scenario for most employers is that their childcare voucher scheme is cost neutral. However, in many cases employers can makesignificant annual NI savings – even with relatively low take-up rates.”

The vouchers do have a few minor drawbacks.One bugbear for employers is that some workerson modest incomes could be worse off taking childcare vouchers, asit reduces the amount of money they can reclaim from HM Revenues & Customs through tax credits. Another issue is that the amount of vouchers staff can purchase tax and NI free has stayed the same since 2006, ignoring inflation, so employees’ buying power has effectively fallen.

But while childcare vouchers used to be seen as a nice to have, they are now seen as standard. Harris says that all the FTSE 100 clients and larger organisations that he’s worked with in the last two years already offer the vouchers. And with TV and newspapers extolling the joys of the schemes, employers that refuse to run one risk looking stingy.

Gareth Ashley-Jones, head of flexible benefits at consultancy Aon, says: “Employees are now beginning to expect provision of this tax break for childcare on joining a company, and now challenge their HR function if the benefit is not available. With increasingly difficult economic times, I would expect demand to continue at the current very high levels.”

Now that every man and his doghas childcare vouchers, where can intermediaries find employers who have yet to introduce schemes? Some smaller firms have yet to catch on. With such low set-up costs, however, they really have no excuse.

Phillip Waller of voucher administrator Fair Care Services, says: “The childcare voucher scheme has matured and it now tends to be the smaller employer who is the “new entrant” as they feel that they are being left behind as an employer of choice.”

Larger employers may also be looking toditch and switch providers, says Harris. “Somecompanies are already on their second or third childcare voucher provider. Companies are demanding higher service levels and lower administration charges. With so many providers in the market, terms are becoming more competitive.”

When it comes to commission, childcare offers rather lean pickings.Jon Bryant, regional director, benefitsand communication, at JLT Benefit Solutions, says:”Consultancies tend to focus on keeping the service charge as low as possible, around 4 per cent, or they offer this type of benefit free as part of an online package of benefits. However when employers go direct, the charges are often higher. The difference can be viewed as commission.”

Childcare vouchers are not the whole picture, when it comes to employer-supported childcare. Nursery partnerships, where employers link up with creches,are also popular. Here, employersregister withgovernment-approved nurseries across the country, and employees can receive tax relief on the cost of using the facility.

These partnerships involve less administration than childcare vouchers making them potentially more suitable for smaller employers. The downside isthatworkers get less flexibility as they are tied to a particular nursery. They cannot spend the allowance after-school clubs, for example.

Emergency childcare is another trend.This involves offering back-up childcare when, forexample, aworker’s usual childminder lets them down ortheir child is off school sick.Aswell as being aboon for stressed-out parents, this provisioncan boost productivity, by cutting out unplanned leave.

It is up to organisations how much cash they want to throw at the scheme.Some organisationssimply provide staffwith contact details for alternative care arrangements, via a helpline or website. Others fund and reserve spots at local nurseries.

Emergency childcare may be on the wane however, argues Ashley-Jones. “In the recent past, there was demand from employers for emergency childcare provision to assist their employees should they experience childcare issues. This demand has now slackened off due, I suspect, to corporate belt tightening.”

For employers who really want to push the boat out, there are workplace nurseries. Here employers set up a creche on-site, usually with a nursery provider’s help. The big plus is that employers and employees are exempt from tax and national insurance contributions on the cost of the childcare, as long as the nursery is open to all staff.

“Workplace nurseries are a very desirable benefit,” says Watson Wyatt’s Harris. “They are generally oversubscribed with a large waiting list. Theyprovide amazing peace-of-mind for parents, as children are so close at hand if anything happens. Working parents are all familiar with ‘last child to be collected’ syndrome; here they get maximum flexibility for staff when dropping off and picking kids up. There’s no getting stuck in traffic on the way to collect them at the end of the working day.”

These benefits come at a hefty cost, however. Setting up an on-site nursery is a mountainous undertaking, and advisers need a clear understanding of the costs and liabilities before they can establish whether an employer will see a return on its investment. Employers need to abide by a web of rules and regulations, from referencing staff to meeting Ofsted health and safety standards. Thus workplace nurseries are the preserve of large employers, with cash and resources.

There are indications that, even among the big players, workplace nurseries have had their day. The BBC, for example, is in the process ofshutting all six of its nurseries throughout Britain. Francesca West, director of childcare voucher provider LadybirdChildcareFunding, says: “Childcare in the workplace is a dying phenomenon, and who can blame the employer? After all, nurseries are not their business and the cost and regulations, not to mention premises required for on-site nurseries, make them a thing soon to be of the past.”

At the cheaper end up the spectrum,some employersprovide access to an information line, where employees can get help tracking down childcare providers. This can be done via an employee assistance programme (EAP), consisting of a freephone service available 24 hours a day, offering advice on local childcare providers. Paul Avis, corporate development manager of LifeWorks EAP Services, says requests from workers for information on childcare is up 5 per cent on last year. “With the recession biting, we are finding that more families are sending non-working partners out to find extra income. In this period, we have seen an increase in demand for sourcing childcare as a result.” Most EAP providers will pay a 10 per cent commission to consultants, but remuneration aside, for a growing number of cash-strapped employees with families, childcare vouchers are a must-have benefit.

Top tips for happy clients and staff

Research. Before bounding straight in with a new childcare scheme, hold staff forums and surveys to find out exactly what kind of childcare help employees want. Are they fretting about emergency childcare provision? Do they need help sourcing a local provider? Pick a scheme best suited to their needs.

Do a screen test. When sourcing a provider, have a look at their online admin and helpdesk websites. Staff are less likely to take up the scheme if these are confusing, so ensure they are slick and easy-to-use.

Go digital. Where childcare vouchers are concerned, plump for electronic vouchers over paper. Providers charge lower fees for online vouchers, and the systems are quicker and easier.

Balance the books. Make sure you encourage clients to get their accounts department to ensure that providers invoices are paid promptly. Providers will not release funds until their invoices have been paid. This can mean sticky situations where employees can’t pay childcare providers.

Communication is paramount. If staff don’t understand a scheme, or have worries about how it works, then they simply won’t use it.

Real men sign up for childcare vouchers. Even the most popular childcare schemes only have take-ups rate of around 5 to 6 per cent of employees. Men are less likely to sign up for childcare vouchers than women, so target special marketing campaigns them, to help them understand vouchers better.

Mind the gap. Employers often target vouchers at employees that tend to focus on childcare pre-school; do not forget the parents who pay for childcare above the age of five and under the age of 16. They can benefit too.

Do the maths. Remember that some employees on lower incomes may be better off using childcare vouchers than tax credits; the last thing you want to do is lose workers’ cash. HMRC’s calculator,, can help you work out what is best.

Do not rest on your laurels. Once a scheme is in place, encourage employers to review it regularly, to make sure workers’ needs continue to be met.

Fact File A snapshot of childcare vouchers

  • The average weekly cost of a full time nursery place for a child aged under two is £159 in England, £141 in Scotland and £142 in Wales (Source: Daycare Trust).

  • Parents in the UK are still paying a higher share – around 70 per cent on average – than their neighbours in continental Europe, where the average is nearer 30 per cent (Source: Daycare Trust).

  • The maximum amount of childcare vouchers exempt from tax & National Insurance is £55 a week or £243 a month.

  • The most popular childcare voucher schemes get take-up rates of between roughly 5 and 6 per cent of employees.(JLT Benefits Solutions)

  • 66 per cent of public sector employers offer childcare vouchers, and 64 per cent in the private sector. (CIPD Reward survey 2008).