Changes to Childcare Funding: What It Means For Employers

Childcare Voucher schemes are set to change after the government announced proposals to help more working parents meet the cost of childcare.

The new Tax-free funding scheme, announced on 19th March, will replace the current salary sacrifice scheme that is used by around 500,000 working parents. It will be based on a subsidised funding model; for every £80 a parent pays towards childcare, the government will pay £20 towards their childcare fees.  There will be an annual limit to this scheme, the government will pay 20% of childcare costing up to £6,000 per child, per year - giving parents a contribution of up to £1,200 per child, per year from the government.

Under the new funding scheme, parents will be able to choose their own voucher provider as it will not be a salary sacrifice scheme operated through their employer. This will remove the administrative work that surrounds the current childcare voucher scheme, as employers will no longer need to make the deductions from their employees’ salaries.

John Woodward, Managing Director of Busy Bees, said: “We are pleased that the government is continuing to support working parents and recognise that the cost of childcare is a huge burden to parents. The new system will not only save recipients more money compared to childcare vouchers but it is also estimated will benefit around twice as many working parents.

“Busy Bees Benefits is delighted to embrace the new scheme and is well placed to offer it directly to parents due to our ability to adapt to the new market, our innovative online systems and our existing relationships with clients - not only those who already use childcare vouchers, but those 19,000 parents whose children attend one of the 213 Busy Bees nurseries every week.”

Offering a childcare voucher scheme has been an attractive option for employers because it is a cost-neutral benefit that can save them money by reducing their employer National Insurance contributions. This will no longer be the case under the new scheme. However, the less tangible benefit of keeping skilled parents on the workforce, and attracting those parents who want to work, will surely be welcomed.

Although businesses will no longer be a part of the chain in supporting parents with childcare costs, it is still in their interest to communicate with employees about the potential savings available to them and the introduction of the new funding scheme.

Childcare vouchers, first introduced in 1998, have been an important factor in supporting parents who work. According to research in November last year by Busy Bees Benefits, 1 in 3 parents said that the provision of childcare vouchers influenced their return to employment.

Until the new Tax-free childcare scheme is launched Autumn 2015, employers should continue to offer their staff childcare vouchers. Those organisations which do not currently have a scheme in place are still able to set one up and enable their company and staff to take advantage of savings available as well as giving parents the option when available to the most tax efficient method of paying their childcare fees.