Childcare costs are affecting recruitment and retention
Research shows the average cost of sending one child to nursery in the UK is almost £15,000 pa. The Standard recently reported that for those on average earnings, the UK is the third most expensive country for childcare costs in the world. For those earning less than the average it’s top of the list.
According to PM this is having a profound effect on worker morale with more than two-thirds of working parents considering quitting jobs because of childcare costs.
What is the workplace nursery scheme?
The workplace nursery scheme allows employees to pay for their children’s nursery fees on a salary sacrifice basis. As with other salary sacrifice benefits, employees enter into an arrangement where their employer pays the nursery fees for them, in exchange for a deduction from pay. This creates a tax saving for both the employer and the employee as the taxable salary of the employee decreases.
Here’s how it works:
- The employer signs up with a workplace nursery scheme provider.
- The employee chooses a registered childcare provider that is part of the scheme.
- The employee agrees to have a portion of their salary deducted each month to pay for their childcare fees.
- The employer pays the workplace nursery scheme provider directly from the employee’s salary.
- The employee saves money on tax and NI because the childcare fees are paid from their gross salary.
Employees are able to save on both National Insurance and Income Tax. As a result, those paying additional rate tax can save up to 47% of their fees, those paying higher rate tax up to 42%, and those paying basic rate tax up to 28%. The current average saving for employees is £6,500 pa.
“It has been life-changing, our childcare costs were resulting in us barely making ends meet.”
Parent, Nov 2023
By far the most important benefit that my employer offers – we don’t need to sell our house in the village we love. Thank you.
Parent, Feb 2024
Employers also save on National Insurance, currently 13.8%. But as part of the requirements of this scheme, the employer NI savings are used to generate extra funding for the nursery.
Who is eligible to take part?
Any employer can offer the scheme, and any employee can take part as long as:
- Childcare is provided by OFSTED or Care Commission registered childcare providers
- Children are 0 and 5 years of age
- Employees stay above National Minimum Wage
Approximately 80-90% of nurseries are utilising this scheme.
Is it approved by HMRC?
The Government provides a range of tax exemptions to encourage employers to support employees with childcare costs.
The scheme is available to employers who aim to provide support through a workplace nursery arrangement, where the employer contract(s) directly with a childcare provider, such as a commercial nursery. This legislation has been in place since 1990 but the workplace nursery approach has risen since the childcare vouchers scheme closed in 2018.
Critically, care must be wholly or partly financed by the employer. This is achieved by:
- The employer contributing substantial funding to the childcare provision – up to 10% of the employers’ NI saving goes to the childcare provider
- Ensuring the employee acts as a representative for the employer to determine how the extra financing is allocated
What’s involved in running the scheme?
With Maji, all the administration and the compliance of running this scheme is taken care of, including all contact with nurseries, implementation and NMW checks for employees.
What are the advantages of Maji’s offer?
- No cap on savings for parents
- No cap on the extra funding going to nurseries
- No sign-up or termination fees
- No minimum childcare fee
- Dedicated account manager
- Fully indemnified scheme
