With childcare costs rising steadily in the UK, childcare vouchers can be promoted as a valuable part of a benefits package and a means of increasing recruitment and retention rates. But seeing as they are not relevant to childless employees and can potentially be quite an expense for the employer, are they really worth it? Lucie Benson asks HR Zone members for their thoughts and opinions on the matter.

According to a report earlier this year by the Daycare Trust, childcare costs for pre-school children have risen by almost 6 per cent since last year, with a typical full-time nursery place for a child under two now costing £152 a week.

Added to that, with employers constantly trying to find ways of improving retention rates and ensuring mothers return to work after maternity leave, childcare vouchers are proving to be a popular, family-friendly benefit being offered these days.

But, even though there are significant savings to be made on tax and national insurance (NI) payments, is it still a cost-effective and valuable scheme for both employer and employee?

“Our employees greatly value the childcare vouchers,” remarks Nina Waters, head of HR at the British School of Osteopathy. “As an employer we decided to contribute the vouchers in full, rather than allowing them as a salary sacrifice. Our employees therefore get a contribution of up to £55 per week (pro rata) towards their childcare costs. With nurseries in our area charging between £850 and £1000 per month, our contribution represents about a quarter of this amount for a full-timer, which is a very welcome benefit.”

Small expense

Jo Guy, HR manager of Racal Antennas, did a great deal of research before introducing childcare vouchers to the company and has since found that it is a really good benefit for both employer and employee and has not been expensive at all. “In actual fact the expense need only be a very small amount involved in setting up the scheme,” she comments.

She has also saved money by avoiding using a childcare provider company. “Most employers think they have to sign up with an outside childcare voucher provider, but this is not the case. As long as the scheme is approved by the Inland Revenue (as a salary sacrifice) employers can run their own scheme with very little ongoing administration, and of course the employer also gains by the reduction in NI payments.”

Guy adds that she gets the employee to sign an agreement to the salary sacrifice, the organisation prints their own vouchers and then pays the money over to the childcare providers every month.

Of course, there is a more considerable cost to Waters because her organisation contributes the vouchers in full. “Obviously there is a significant cost to us, but otherwise there has been no dissatisfaction with the scheme,” she says. “All staff recognise that it is a very positive benefit – even if they have older children or no intention to have children; they recognise the very high costs faced by their colleagues and don’t begrudge the contribution.”

Guy agrees that it has not had a negative impact on those employees without children. “I can understand people getting upset about non smokers resenting cigarette breaks, but not children,” she remarks. “So, no, we do not have a problem with that in our company.”

So what are the actual savings that both employees and employers can make? Catherine Maddox of Allsave Ltd, a childcare voucher provider, explains: “Working parents can save up to £1,195 per annum in tax and NI and if both parent’s employers run a scheme they may double their savings. There is no expense to the company – only NI savings – so they are definitely worthwhile. Allsave has an ethical approach to charging and offers a low flat fee to all employers which means that employers save two-thirds of their NI saving.”

Recruitment and retention

A major advantage to childcare vouchers is that the scheme can really help with recruitment and retention rates. HR Zone member Annette Eggleton says that her organisation operates a salary sacrifice scheme and she has one particular example of how the scheme helped with recruitment.

“While there are only a few people who have taken it up (about 5 per cent of the workforce) one chap recently told me that before he came to work for us he had two jobs to choose from, both equally good – but when he realised we offered the childcare vouchers he opted for the job with us, not just for the vouchers themselves but for what he felt that said about the company,” she comments. “As this was for a job that had been very difficult to fill, any hassles with the scheme have more than been offset.”

Waters also believes the scheme has helped with retention at her organisation. “We took the decision to contribute to childcare costs because we realised we were losing a lot of senior female tutors at the school, who could earn more in private practice than by working for us, and who therefore stopped teaching when they had children,” she explains. “Although the vouchers are obviously given to all staff equally, this has lead to more equal numbers of men and women working for us in a senior capacity.”

Maddox says that, although take up of the scheme can be low, those who do benefit value vouchers highly. “This is because, firstly, childcare costs are such an emotive subject and secondly, because they see this benefit, month on month on their pay slip. We are now seeing employees moving from one employer to another and asking if this is a benefit that is offered.”

HR consultant Iain Young had a childcare voucher scheme in his last organisation. “Whilst the take up was not large, those that did use the scheme were very happy with the savings it made for them in tax and NI,” he comments. “[Although], like many things offered by management, there was an element in the workforce that thought the only reason we were offering it was so that the workers could be ripped off.”

It would appear that one problem that employers encounter, when offering a childcare voucher scheme, is low take up. Maddox has a number of suggestions for employers in this situation: “Try marketing to male employees and making it clear that vouchers may be used for childcare up to 15 years-old (or 16 if disabled),” she advises. “Childcare use for older children, although not the largest, is the fastest growing segment in childcare voucher use.

“Allsave also provides considerable support to employees through our helpline, childcare locater links and a tax credits and childcare voucher savings calculator, which helps employees determine the financial benefits of the vouchers,” she adds. “An active marketing campaign is essential but employers need to be realistic about take up levels.”

Guy says her organisation actively encourages employees to take up the scheme through effective communication. “When we first introduced the scheme we sent a communication to every employee explaining what was involved, and it is included in our induction pack for new employees,” she says. “Also, if we have any employees who have subsequently become parents, we have again highlighted the scheme to them if they have not previously been affected.”

Waters takes a similar approach: “We regularly advertise the scheme to staff, and talk to all new members of staff about it. As we only offer the paid contribution to those with children under the age of five, we also send relevant information to staff taking maternity and paternity leave.”

With financial savings to be made for the employer and employees, and the benefits to recruitment and retention rates, plus the fact that childcare costs in the UK are a substantial expense for many families, it appears that childcare vouchers can only become more popular and valuable as time goes on.