A recent survey by the Family and Childcare Trust has revealed that families are typically spending up to one quarter of their net income on childcare.
The average family (having one child under two in part-time childcare and one school age child using an after school club) is spending nearly £8,000 per year. Full-time (50 hours per week) nursery care in London for one child under two will set you back more than £15,000 (£13,000 in the South East).
So are employers doing enough to support their employees with these costs? And how are employers expected to attract and retain the highest calibre candidates when it is often cost-prohibitive for parents to return to work after having children? In an increasingly knowledge-based economy, where a company’s most important asset isn’t necessarily its products or services but its people, employers need to think innovatively about the benefits they offer in order to gain the most from their employees.
Many employers offer a childcare voucher scheme which enables them to make national insurance savings and, through salary sacrifice arrangements, enables employees to pay for childcare out of their pre-tax and national insurance income. Basic-rate taxpayers, and higher/top-rate payers who joined before 5 April 2011, can pay for up to £243 of childcare with vouchers each month, per parent. However, for new joiners since 6 April 2011, the following voucher limits (per parent) apply:
(i) Basic-rate (20%) taxpayer: £55/week voucher, max annual tax/NI saving £930.
(ii) Higher-rate (40%) taxpayer: £28/week voucher, max annual tax/NI saving £630.
(iii) Top-rate (45%) taxpayer: £25/week voucher, max annual tax/NI saving £590.
Vouchers can also be ‘banked’ in anticipation of future childcare costs such as holiday clubs.
Settling a long standing debate, a recent ruling confirmed that childcare vouchers do not have to be provided to employees on maternity leave. For parents wishing to bank some vouchers ahead of their return to work, or to use vouchers to continue paying for childcare for older siblings whilst on maternity leave, this may be disappointing news.
Perhaps better news for some families is that the Government intends to implement a new “Tax-Free Childcare” system from early 2017 which will be open to more than twice as many parents as the current voucher scheme. Under Tax-Free Childcare, the Government will pay for 20% of the annual childcare costs of eligible families, up to £2,000 per child, per year. To be eligible both parents will have to be in work, including self-employed, and each earning at least £115 a week but not more than £100,000 per year. Children must be 12 or under (17 or under if the child is disabled).
The implementation of the Tax-Free Childcare scheme has been significantly delayed (since 2015) as a result of a claim by the Childcare Voucher Providers Association (“CVPA”) for judicial review of the Government's decision to award the contract to National Savings & Investments to administer the new scheme. Whilst the claim was ongoing, the Government was prohibited by the courts from implementing the new scheme. The CVPA contested that the contract was awarded unfairly and should have been subject to an open tender. The case made its way through the High Court and the Court of Appeal and in July 2015 reached the Supreme Court, which rejected the CVPA's appeal and lifted the prohibition, allowing the Government to get Tax-Free Childcare planning again.
Unlike the employer-supported childcare voucher scheme (which will remain open to new entrants until April 2018, and parents already registered by this date will be able to continue using it for as long as their employer offers it) users of the new scheme will need to take full responsibility for their Tax-Free Childcare. There are currently no Government-led plans to introduce any way for employers to support parents under the scheme. So what additional or alternative support can employers give?
Flexible working remains high on many internal HR agendas. But requests for flexible working, which should be given full consideration by employers, are often seen as an “offsite” solution which may not be appropriate for your business or for particular roles. If this is the case, could your company facilitate a reliable, high quality childcare provision nearby? Perhaps your company could team up with a local nursery to provide subsidised places, holiday clubs, or even just ad-hoc emergency childcare.
Could you even have an onsite nursery? Under the 'workplace nurseries' scheme the whole cost of a place in a workplace nursery is exempt from tax and National Insurance Contributions when run in conjunction with a salary sacrifice arrangement. There are stringent conditions to be satisfied, but this can give rise to significant employer national insurance contribution savings. Workplace nurseries can also save working parents a significant sum, and work especially well for large companies outside of London (after all, commuting into London with small children is generally an unattractive prospect).
For reasons of cost, space and administration, onsite nurseries may not be viable for many small or medium-sized companies. Workplace nursery partnership schemes, however, also benefit from the full tax and national insurance exemption. These 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. To qualify for the full tax and national insurance exemption, all partnering employers must be involved in, and take on responsibility for, the financing and management of the nursery. This option therefore requires more from an employer than a simple agreement with a local provider, or the childcare vouchers scheme, but the rewards in employee productivity and retention could be just as real. It may also prove invaluable in attracting returning mothers back to work.
Supporting employees to find trusted care that fits around their work and family; allowing them less commuting time; giving them fewer worries about having to leave early for pickup; and creating an office environment where family and work aren’t mutually exclusive, is fast becoming an essential investment in human capital and development. There is no simple solution, but there are plenty of innovative options.
Kathryn Saunders