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Feature: Boosting the bottom line with childcare policies

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By Mark Reardon, CEO at Corporate Childcare Solutions Group

Improving the deal for parents was the central focus of the recent Pre-Budget Report, in this feature Mark Reardon looks at how working parents can get rich pickings from existing benefits including childcare vouchers.


Childcare policies
The Chief Executive wants to cut costs, employees hanker after increased spending power, managers yearn for improved productivity, quality recruitment and reduced attrition while legislation means having to deal with the underlying causes of stress.

While these goals may seem daunting for UK plc, there are incentives on the table that will help to improve the position on some of these issues but as the government puts funding aside to help out parents many companies are failing to pick up on the benefits.

So why miss out? The simple fact is that the majority of staff don’t realize what is on offer and most HR departments don’t understand their employees views on the subject. Some think that it’s too much work or they have a voucher scheme in place with a very small take-up and aren’t prepared to do anything about improving its distribution.

Employer National Insurance savings
Employers save on Employers National Insurance (NI) Contributions to the sum of the face value of childcare vouchers purchased by employees.

From tax year 2005/6, the benefit will be limited to £50 a week per employee, but for the employee, it will be extended to include tax exemption as well as NI.

Workplace childcare will continue to have no limit (except those under normal salary sacrifice rules).

Contented employees are more productive and less likely to leave – adding recruitment, training and productivity savings to the NI exemption benefits enjoyed by employers.

If just 25 employees on salaries of £20,000 chose not to leave because of the existence of a childcare policy and productivity for parents rose by just 1%, the example company could save a further £580,000 every year.

Example company

  • 1000 employees

  • 400 have children under the age of 16

  • Spend per year on Childcare Vouchers: £2,600

  • Company has not opted out of SERPS

Example saving

  • £2,600 x 400 employees = £1,040,000

  • Employers NI @ 12.8%

  • Saving: £133,120 every year

Employee savings

The savings possible for your staff are also considerable.

Vouchers this year attract NI exemptions and next year both NI and tax – although then limited to £50 a week.

Workplace nurseries have no limit and the savings can therefore be significantly higher, making quality childcare affordable and reducing the stress of work/life balance.

A Comparison of Tax & NI savings
A parent purchasing the maximum £50 a week of Childcare Vouchers would save between £858 and £1066 a year in Tax and NI.

A parent earning £25,000 a year, paying £45 per day (£11,700 per year) for a two year old child for full time nursery care, could save two-thirds of their NI and Tax bill through the use of a corporate nursery. This equates to a 20.6% increase in take home pay or a 55.2% increase in disposable income after childcare.

An examination of the figures clearly demonstrates the benefits on offer. Businesses now must pick up the baton of change and look at their childcare policies as tools to retain and reward employees while supporting them to achieve a fairer work/life balance.

The Corporate Childcare Solutions Group specialise in assisting the NHS/UK public and private corporations as well as County/City Councils.

2 Responses

  1. Communication is Key
    A valid comment about the slow take-up of vouchers in the past. However, surveys that we have completed recently show that with the change in legislation and with a full but easy to understand explanation of the benefits and impacts, over 95% of those parents surveyed said that they would purchase Childcare Vouchers. Now, not all would follow through,but this does give encouragement for a thorough campaign. It is also likely that we are moving to a position where Childcare Vouchers become a standard and expected part of flexible benefit packages.

  2. Be realistic about take up
    Yes – look into setting up a childcare voucher scheme, but it’s important to be realistic about take up that’s achievable – particularly if you’re using savings calculations to convince your boss it’s a winner!

    The example used in the feature article is misleading in suggesting that take up could be 40% of employees (400 out of 1000) particulary if a salary sacrifice scheme.

    Most organisations should expect take up of between 1-5% – built up gradually!

    The new legisation and increase in savings should boost awareness and take up significantly, but organisations shouldn’t expect huge savings after April 05.

    Although schemes can be cost neutral, it’s better to implement childcare vouchers to boost staff morale and improve retention/recruitment rather than see it as a big money making for the company.

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