Andy Philpott presents some common misconceptions about childcare vouchers, which may prevent employers from providing this service, and provides the real facts in relation to each one.
It’s now 18 years since the introduction of childcare vouchers in the UK. Since 2005, the vouchers have been tax and NI-exempt up to £55 per week, enabling workers with childcare responsibilities to squeeze more childcare out of every pound they are paid by opting into salary sacrifice schemes.
Through a staff childcare voucher scheme, employees could save up to £1,195 per year – and employers around £375 for each staff member. Increasingly, childcare scheme providers are tailoring their services to clients’ needs, making it easier to set up schemes addressing each employer’s requirements.
Aside from financial concerns, evidence from government and from employers themselves suggests that childcare benefits can help in recruiting staff and in motivating new mothers to return to work. Interestingly, the research shows that you can also expect improved productivity and reduced absenteeism as a result – and that childcare benefits can build feelings of loyalty in the workforce.
Some 17,000 organisations already help working parents address their childcare needs, but this amounts to just 2.5 per cent of employers nationwide. Why don’t more organisations offer this benefit to their employees? Experience shows that there are seven myths about childcare vouchers that often put employers off.
Myth 1: “Childcare vouchers are only for large companies”
In fact, childcare vouchers are a valuable benefit for staff in companies of all sizes. In smaller organisations, the vouchers can be valuable for SMEs who are more affected by key individual employees’ maternity leave or childcare crises than larger organisations. Administering the scheme doesn’t need to be a headache for a small business, who may not have an HR team, as scheme providers will manage the scheme for you. You can also run a childcare voucher scheme with just one participant, making it more cost-effective than the alternative staff childcare options of a workplace nursery or directly-contracted childcare.
Myth 2: “You have to invest time and resources promoting the scheme”
The best providers help an employer to promote the scheme to staff, bringing with them a wealth of resources, experience and materials to do this effectively. Many have ready-made literature or online materials that they can provide, and the best will tailor-make communications to reflect an employer’s own branding to encourage a feeling of ownership. They’ll make sure that your employees know what’s on offer, how they could benefit and how to sign up. Our advice is always to choose a provider which goes beyond a ‘launch and go’ approach so they can help to keep the momentum going after an initial flurry of activity.
Myth 3: “There’s too much paperwork involved”
These days, the ongoing admin of a voucher scheme is increasingly managed by the voucher provider. This minimises the paperwork that employers have to deal with so you can get on with your core business. Good providers will keep you informed as employees sign up and the scheme takes off.
Myth 4: “It’s a hassle to sign up”
In recent years, providers have worked hard on reducing the hassle for employers, so if this is the barrier that’s prevented you from offering childcare vouchers in the past, it’s worth revisiting the idea. The best providers increasingly manage most of the process, including the record-keeping required by HM Revenue and Customs. They will guide you through the set-up of a scheme, offer you the chance to enrol online and can even help with details like amending employee contracts. Make sure your provider will also be able to reassure you and advise on how to get over any teething problems you experience in the early days, such as low take-up rates.
Myth 5: “Childcare vouchers are only for parents of babies and toddlers”
Childcare costs are often one of the biggest concerns for new parents returning to work, so they perhaps value this benefit most amongst the workforce. But it’s a common misconception that vouchers can only be used against childcare for younger children, when in fact care for children up to the age of 16 is covered. This means that often there are many more working parents in an organisation who could benefit than employers initially think.
Myth 6: Childcare vouchers are only for working mothers”
Voucher schemes are not limited to mothers. If both work, both parents are eligible for childcare vouchers up to the value of £55 per week, tax and NI-free, through salary sacrifice. Vouchers taken up by a working parent can also be used by their stay-at-home partner – for example to pay for approved crèche facilities while they take a break or go to the gym.
Myth 7: “It’s difficult to switch providers”
On the contrary, it’s actually very easy to switch. Once the initial work has been put in to organise and launch a childcare vouchers scheme, one provider simply takes over supplying the vouchers from another. The new provider, though, needs to plan carefully how to communicate the change to the workforce. They must convey the changes to the scheme to its existing members, but also take the opportunity to attract new members by promoting the benefits now on offer.
Childcare voucher schemes can work for every employer. They key is in how you choose your provider. Be clear about what you need, identify the right mix of capabilities and resources and choose a provider who will help you deliver the right scheme for you and your employees.
Andy Philpott is marketing director for Accor Services. Its childcare voucher scheme clients include organisations of all sizes in both public and private sectors.
4 Responses
WHAT ABOUT THE PITFALLS?
As a follow on from my previous message, the article was picked up as a main headline by ITN, Channel 4, web sites and a number of newspapers and as a consequence I was inundated with calls from concerned employers who had implmented schemes without looking at the risks and were now worried about the consequences.
I was also contacted by the Low Income Tax Reform Group who had been lobbying the government on the pitfalls encountered by people on low incomes.
Introducing benefit schemes is all very laudable but businesses need to look at all aspects of them rather than just the headline savings that can be achieved!
WHAT ABOUT THE PITFALLS?
The position is not as clear as Andy Philpott makes out, I looked into vouchers last year and as a consequence of the issues I found, wrote the article below (I have used the core aspects of it).
ARTICLE
Thousands of employees across the UK may have been ‘mis-sold’ childcare vouchers leaving them financially worse-off, according to experts.
Publicity material produced by voucher providers makes great play on the tax/NI savings that could be made by employees and employers but what it fails to make clear are the implications to employees if the schemes are run on a ‘salary sacrifice’ basis. Many voucher companies only provide firms with basic information packs about how to set up a scheme and leave them with the impression that they are so easy to set up they can do everything themselves; even if they are an SME without any recognised HR or accountancy support!
Under a ‘salary sacrifice’ scheme an employee agrees to change their terms and conditions of employment by allowing the employer to reduce their gross salary in return for tax/NI free childcare vouchers. It is clear that many businesses are failing to ensure that employees are fully appraised of the potential pitfalls with salary sacrifice, including a loss of pension rights, state benefits, and other benefits that are related to their salary; some unscrupulous employers could also use this as a means of reducing pay rises given to employees by basing them on the reduced gross salary!
Concerns also exist about how ‘salary sacrifice’ schemes are accounted for to the Inland Revenue; advice from the Revenue and accountants seems to suggest that the way many employers account for salary sacrifice through their payroll is questionable! Could these schemes go the same way as computers for homes and be withdrawn due to the loss of tax revenue to the Exchequer?
The vouchers are supposed to provide working parents with a more cost-effective means of paying for childcare but some employers could now be put off providing them when they realise how much work is involved in ensuring schemes are acceptable to the Inland Revenue and employees have been provided with all relevant information to make an informed decision.
Missed: the biggest myth of all
Underlying Andy Philpott’s seven myths is the biggest myth of all – that to be able to provide childcare vouchers an employer needs the services of a voucher provider. It doesn’t.
The essential features of a scheme are that the employee validly agrees to sacrifice salary in exchange for vouchers and that the money representing vouchers is paid only to a qualified carer. Vouchers can be, almost invariably are, virtual, in other words just book entries. Armed with the appropriate templates an employer can very easily set up its own scheme requiring no more effort for its administration than for liaising with a voucher provider. And the expense of self-administration will be a fraction of the cost of using a voucher provider. Any employer willing to set up a scheme, for all the good reasons mentioned by Mr Philpott, needs as a first step to ask itself if it really needs an agent to distribute its money to the carers of its employees’ children.
Useful article as Sweet TLC are compiling case studies around in
Hi Andy
Very timely article from our perspective as we at Sweet TLC are just putting together an number of case studies around Creative Ideas, Initiatives and Income Generation for 3rd Sector Organisations ~ especially Social Housing Providers.
Do you have any Social Housing contacts who use your Childcare Voucher services who you think would like to be featured as a case study?