Do you offer childcare vouchers as an employee benefit?
Do you even know what childcare vouchers are, and how they work?
This is your essential guide to childcare vouchers. We’ll explain what they are, how they work, and why you should offer them as an employee benefit.
What Are Childcare Vouchers?
Childcare vouchers are an employee benefit that allows working parents to save on the costs of childcare.
Any employee is eligible, so long as they have children!
How does it work? It’s all based on the tax code. Basic rate taxpayers can exchange up to £243 a month for childcare vouchers. Higher rate taxpayers can exchange up to £124 a month. This money comes from the employee’s gross salary. It is exempt from tax and national insurance, which can add up to huge savings on the cost of childcare.
The amount of money an employee can save depends on their individual circumstances. But most employees who use childcare vouchers are able to save around £933 a year. There are no rules to say that only one parent can claim childcare vouchers either. So if both parents claim, they can save up to £1,866 a year in childcare costs!
Or at least, this is how it used to be. The childcare voucher scheme was changed in April 2018. Anyone who joined the scheme before October 4th, 2018 can still continue to receive vouchers the old way, so long as their work continues to offer childcare vouchers. Everyone else will have to apply for tax-free childcare.
What is Tax-Free Childcare?
It’s the government’s new system that’s designed to replace the old childcare voucher system. In short, the government will pay 20% of a parent’s childcare costs. For every 80p that a parent pays into a childcare account, the government will contribute 20p.
This might not sound like much, but in the long-term it could add up to significant savings. Depending on their circumstances, most parents can expect to pay around £6,600 per year, per child, for childcare. The tax-free childcare scheme thus assumes that parents will set aside a maximum of £10,000 per child each year. This can add up to £2,000 a year per child in savings.
The old system was only open to parents if their employers ran a childcare voucher scheme. The new system is open to all parents, so long as they meet certain criteria:
- Parents must have at least one child aged 12 or less.
- Both parents must be working at least 16 hours a week, and they need to earn at least £115 a week.
- The scheme is not open to parents with a combined income of more than £100,000 a year.
How Will These Changes Affect Your Employees?
You might have noticed that the criteria for qualifying for tax-free childcare may mean that some of your employees are no longer eligible for help with the cost of childcare. Under the new scheme, both parents must be working if they’re to receive any help, and this isn’t always the case.
But the new scheme is certainly better for parents with multiple children. The amount of help available will go up in line of the number of children in each household. Yet with the old childcare system, parents could only save a certain amount each month, whether they had one child or several.
So which scheme is better? It’s complicated. It all depends on each employee’s individual circumstances. There’s a handy calculator on the government’s website to allow parents to work out which scheme would help the most.
Helping Employees with the Cost of Childcare – This is Where You Come In!
If you were running a childcare voucher scheme before October 4th, 2018, then you don’t need to scrap the scheme just because the government’s made these changes.
So long as you continue to offer childcare vouchers, employees can continue to receive them. And as we’ve seen, the new system means that some employees may not be able to get help with the cost of childcare. So some of your employees, particularly those in a relationship where only one parent works, might be depending on you to continue the scheme.
But even though the government’s changed the rules, it doesn’t mean you can’t offer a childcare voucher scheme of your own. You can still offer to pay for your employees’ childcare costs and even their school fees. Some workplaces offer directly-contracted childcare, and some have onsite nurseries to help employees with young children.
The help you offer, and how you fund it, is entirely up to you. One thing to bear in mind, though, is that employees must pay tax and National Insurance on any bespoke childcare help you offer. Also, the government’s site advises that employees who receive tax-free childcare should not receive any additional help from their employers.
Now that the government’s officially scrapped its childcare voucher scheme, it’s up to you to craft a policy that works for you and your employees. Of course, you could choose to do nothing and to advise any employees struggling with the costs of childcare to apply for the government’s tax-free childcare scheme. But do this and you’ll miss out on the many benefits that can come from offering a generous scheme of your own.
The Benefits of Offering Childcare Vouchers as an Employee Benefit
We recently explored the types of employee benefits that work best. We looked beyond the faddish and superficial employee benefits and instead focused on the sort of benefits that’ll actually make a difference to your employees’ lives.
The sort of benefits that work best are those that enable employees to achieve a good work/life balance. This means that you won’t let work get in the way of life’s many necessities and obligations. Flexible working patterns and generous maternity and paternity leave can help. But so can practical assistance with things like travel, exercise and, yes, childcare.
Offer your employees help with childcare costs and you can expect a number of benefits:
- You’ll be able to help employees who don’t qualify for the government’s tax-free childcare scheme.
- You can retain key performers in your team, as employees won’t have to leave or take time off to take care of children.
- If employees don’t have to worry about the costs of childcare, they will likely feel less stressed overall, which can make them more motivated and productive.
- It shows that you genuinely value your employees’ wellbeing and you respect their needs and obligations as a parent. This can result in a huge boost to morale, and greatly improved relationships between staff and management.
- It’s great for your reputation. Offer generous assistance with childcare costs and you’ll identify yourself as a modern, forward-thinking company that values its employees. This can help you to attract and retain top talent, and it could even convince certain clients and customers to start working with you.
Some of the biggest and most successful companies in the world make childcare assistance a big part of their employee wellbeing programs.
Need a handcrafting a holistic and effective employee wellbeing program for your business?
Our Essential Guide to Workplace Wellbeing whitepaper has dozens of ideas for making your team feel more engaged and motivated. Help with childcare is just one of the many strategies we explore. We’ll also show you how to improve staff retention, reduce absenteeism, and generally make your business a healthier, happier, and more productive place to be.
Absence matters. Edays is purpose-built to deal with absence, to comply locally but think and act globally. Book a free demo to learn more.
Katrina is edays' own People Director with significant UK and international experience in delivering people strategy and value-adding HR solutions across a range of organisations and sectors (including Arriva, Boots, Rolls Royce, the utility and charity sectors). Katrina has over 20 years of experience in Human Resources and is CIPD qualified.