The government’s ‘Free Childcare for Working Parents’ scheme aims to cut the cost of childcare by providing eligible families with 30 free hours per week (from September 2025). The scheme is available for working parents, but not those who earn (or whose partner earns) an adjusted net income of over £100,000. This can leave some families facing the full bill for childcare, but using salary sacrifice, in the form of the workplace nursery scheme, to reduce their net pay can help them access the free childcare hours.
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Who is eligible for free childcare hours?
From September 2025, eligible parents will be able to apply for 30 free hours of childcare per week, over 38 weeks of the year, for children up to school age. This is rising from the 15 hours available previously.
To be eligible for the scheme, parents must:
- Be working (employed, self-employed or director)
- Earn a minimum of £9,518 per annum
- Earn a maximum of £100,000 adjusted net income per annum (in England and Wales)
If the parents are a couple, the rules must apply to both. This means that if one or both parents (separately) earn over £100,000 per annum, they will not be eligible for the free hours.
What are the 30 free childcare hours worth?
The cost of childcare will differ according to provider and location. The average cost of 30 hours in a nursery in Great Britain was estimated at £161.92 in 2022. That’s £6,152.81 over 38 weeks. But in some locations and with some providers, the value of 30 free hours may be much more. For many parents, 30 free hours will significantly help them meet the cost of raising their family.
Can salary sacrifice reduce adjusted net income?
Adjusted net income means taxable income minus a number of possible deductions. Salary sacrifice schemes are a way to reduce taxable income, which can therefore bring someone under the threshold for certain benefits once deductions are applied. This includes the £100,000 limit for free childcare hours.
Therefore, for your higher-paid employees, taking part in your workplace salary sacrifice schemes might give them the means to access their free childcare hours and make significant savings on childcare fees. They may need to do some careful planning if they have other sources of income that can affect their adjusted net pay.
Which salary sacrifice schemes could help employees access free childcare hours
There are a number of salary sacrifice schemes that can help employees lower their net pay, including:
1. Pension salary sacrifice
Pension salary sacrifice means employees sacrifice (or exchange) a portion of their salary in return for you making a pension contribution on their behalf. This administrative change means that employees’ net pay will be lower due to the contribution coming off their salary, but they also save on National Insurance costs (and won’t need to claim back their extra tax relief as higher-rate taxpayers). Employees can also choose to increase their pension contributions, which can then lower their pay enough to take them below the £100,000 threshold. They’ll also be storing up a sizeable pension pot for the future.
As an employer, you’ll need to make an adjustment to your pension scheme setup, as well as educate your employees about the change. Working with a trusted provider like Maji can help you make the transition successfully.
Keen to learn more about this? Read our employers guide to salary sacrifice here.
2. Childcare salary sacrifice
The current version of childcare salary sacrifice, the workplace nursery scheme, can have a ‘double whammy’ positive impact for parents. Through giving up a portion of their salary equivalent to nursery fees, they can potentially bring their pay below the £100,000 threshold. They’ll also save on National Insurance and income tax, which can offset the cost of childcare and help them further lower the fees in addition to gaining the free hours.
Maji works with a leading provider of workplace nursery salary sacrifice to help you introduce the scheme to your employees and make sure you’ve covered all the necessary compliance tasks.
3. Electric vehicle salary sacrifice
Leasing an electric vehicle through salary sacrifice can help employees meet their green goals and get the latest car model, while reducing their pay to save on National Insurance and income tax, which can then offset the price of the car. The reduced pay can also take them under the free childcare hours threshold.
4. Cycle 2 work
The cycle 2 work scheme lets employees salary sacrifice the cost of a bike plus equipment. Again, the lower pay means lower National Insurance and tax for the employee, with savings of 28-42% of the bike price depending on tax bracket. If they’re close to the £100,000 threshold, this could help take them over it.
What’s the best approach as an employer?
If you have higher-earning employees with families, you may want to introduce one or more salary sacrifice schemes to help them access their free hours.
Introducing salary sacrifice benefits can take a bit of thought and planning, as most schemes will involve some compliance and you will also need to educate employees on the agreement to give up some of their pay.
You might also want to think about how to support employees to make the most of the schemes, and place them into the context of their wider finances. For higher-earning employees, concerns around the cost of childcare might come alongside worries about other aspects of financial planning, such as maximising ISA and pension allowances, or managing a mortgage. You might want to provide financial coaching as a support mechanism, perhaps in the context of a holistic financial wellbeing app like Maji.
Maji can also help you introduce salary sacrifice schemes with less hassle, with a supportive team to make sure everything gets up and running smoothly. If you’d like to find out more about how salary sacrifice could help your higher-earning employees, get in touch.
Frequently asked questions
Does a partner’s income count as part of the £100,000 threshold for free childcare hours?
Yes, a partner’s income counts when considering the £100,000 threshold for free childcare hours. If you and your partner both earn £90,000, you can still claim the 30 hours of free childcare. However, if you earn £30,000 but your partner earns £105,000, your family is over the threshold and you cannot claim the free childcare hours.
Is it legal to use salary sacrifice to reduce pay to access free childcare hours?
Yes, it is legal to use salary sacrifice to reduce taxable pay, which may result in adjusted net pay coming under the threshold for free childcare hours.
