Childcare Vouchers: What's the Law?

Childcare voucher rules, regulations, and responsibilities

No matter how committed and enthusiastic employees are, family commitments outside of work will always affect productivity and engagement.

Many families face difficult decisions over whether to give up work to reduce the costs of childcare. If both parents go back to work after parental leave, the cost of care can quickly take a toll on finances, with nursery or childminder fees to pay. And that's if they can even find a childminder to fit around their schedules, with the number available falling by 10,000 in the last five years.

Here we'll look at the legal responsibilities an employer has for childcare vouchers and supporting childcare in general, as well as discussing further ways to engage employees with children, helping to make their lives a little more manageable.

A quick summary of childcare vouchers

Childcare vouchers are an option for staff to save money on their childcare costs – with a little bit of help from their employers. The current scheme launched 12 years ago, in a bid to reduce the cost of using registered childcare providers. Vouchers have shown to be extremely popular, and are a massively sought-after employee benefit.

Childcare vouchers don't provide a discount on childcare – the provider is still getting paid the same amount as if your employees were paying cash. The savings are made through the salary sacrifice arrangement, which reduces your employees' taxable salary, and hence lowers the proportion of the overall salary lost to tax and National Insurance contributions.

What's changing about childcare vouchers

From October 2018, childcare vouchers will be changing. They'll be closed to any new entrants from this date onwards, but businesses who have signed up before then will be able to use them indefinitely for now.

Childcare vouchers are changing because the government has launched a new scheme, called Tax-Free Childcare, which should be available to all those eligible by the end of the year. The main difference between childcare vouchers and tax-free childcare is that, for this new scheme, parents would pay for childcare with their salary after tax, with the government providing a top-up that matches the basic tax rate.

So, essentially for every 80p put into their online account to pay childcare providers directly, the government adds an extra 20p onto it. The other difference is anyone can pay into the account too - so grandparents, employers and so on can also contribute – and parents will be able to withdraw any money they have paid in (but not the government's contribution) at any time.

Each option has its pros and cons, with some employees being better off under childcare vouchers, and others saving more with tax-free. You can find the full details in our ebook, Family Matters - The Importance of Childcare in the Workplace.

Free ebook: Family Matters  Childcare support is now expected from employers more than ever. Find out what  your options are, and why it's so important, in our ebook.

How else can companies engage staff with children?

Childcare vouchers make a big difference, but there are plenty of ways you can go further to support employees with children.

Offering flexible working for staff could be an easy way to accommodate their lives outside of work. Introducing optional earlier starts and finishes to make the school run or dash to the childminders stress-free, for example, is a small gesture that makes a big difference. Legally, parents have the right to request flexible working in order to care for their children – and employers must have a sound business reason for rejecting any request.

If flexible working isn't financially feasible, then annual leave purchase could be a great solution, allowing staff to pay for extra days holiday if they sacrifice part of their salary, spreading the cost over the entire year. This allows time for staff to spend time with their family and look after their children – and could be particularly useful during school holidays.

Plus, as an employer, you'll see a reduction in the wage bill, and in turn a reduction in national insurance from salaries. Another option is on-site childcare – convenient childcare that fits into the working day. Goldman Sachs have run a popular crèche for employees' children, offered as part of the company’s benefits package.

As profiled in The Guardian, the programme began in London in 2003, offering all employees with children 20 days of free childcare a year. By 2010, the nursery had been extended, providing four weeks’ free childcare after parental leave ended to help the back-to-work transition, and full-time care for children up to age three.

But Goldman Sachs has a net income that runs into the billions every year, and can afford the costs comfortably. When you look at the challenges facing smaller organisations, it’s obvious that they’re not for everyone. However, workplace nurseries are also exempt from PAYE tax and National Insurance, adding further financial benefits – provided employers can afford to offer them.

Our advice

Remember, it's all down to the individual, and what they need from you as an employer. If you're supportive and accommodating to their childcare needs, then they'll appreciate that. But the scheme has to work for the business too – our advice is to explore a few of the suggestions mentioned, discussing them with staff to see what's in the highest demand.

Whatever you do, just do something. Our own survey of 1,000 parents in the UK found that two-thirds have had to make financial sacrifices to cover the cost of childcare. A little can go a long way!

Free ebook: Family Matters  Childcare support is now expected from employers more than ever. Find out what  your options are, and why it's so important, in our ebook.