The long-standing Childcare Vouchers scheme ended on 4 October and has been replaced by the government’s Tax-Free Childcare scheme. How can employers navigate the new incentive and communicate the changes to staff? Julie Barker from Hawk Incentives looks at the options.
Tax-Free Childcare vs Childcare Vouchers
After-school clubs, nursery, nannies and holiday schemes – the cost of childcare can be eye-watering.
For working parents, childcare vouchers – worth up to £2,916 annually per parent – offer significant savings and have often been an HR department’s most valuable salary sacrifice benefit for parents.
However, as many HR professionals and parents will have already noted, 4 October finally marked the end of the childcare voucher scheme for new joiners. From now on, Tax-Free Childcare will become the only option for new parents or parents moving employers.
Recent research revealed that although 391,000 parents have opened a Tax-Free Childcare account, less than a third – 109,000 parents – have used their account to make a payment to a childcare provider so far.
Here’s a quick overview of what the implications are for employees, the significant exemptions that will apply for as long as 20 years, and what you need to do now to inform and empower your staff.
Tax-Free Childcare Replaces Childcare Vouchers
Under the new regime, for every 80p paid by the family, the government will top it up with a 20p contribution, up to an annual cap of £2,000.
Both parents need to be working (at least 16 hours a week) to save on childcare costs and earning a minimum of £115 per week and no more than £100,000 per year each. The maximum age for childcare provision is up to 12 years for children, compared with 16 (or the 1 September following their 15th birthday with the childcare voucher programme).
So, is it a case of goodbye childcare vouchers, hello Tax-Free Childcare? The answer is a firm “no”, and nor do all parents previously signed up for childcare vouchers automatically have to move to the new scheme.
The (many) Exceptions to the Rule
An employee cannot benefit from both schemes – so anyone signing up for Tax-Free Childcare cannot subsequently move back to childcare vouchers if they previously used them.
But employees who are enrolled for vouchers, even if they are not currently sacrificing part of their salary to purchase them, are still eligible for these valuable benefits if their break is for 12 months or less.
For example, if first-time dad Shane signed up for childcare vouchers but is now on unpaid parental leave and not currently drawing a salary, his entitlement will be reinstated as soon as he is back on the payroll, provided his break in salary sacrifice payments is less than 12 months.
The same applies for other sanctioned leaves of absence including adoption, maternity and unpaid leave.
And as Shane will continue to be entitled to claim the vouchers until his youngest child is 15, he could be looking at many years (if not decades) of childcare vouchers to come.
Educating and Empowering Staff
As a first step, you should reassure staff that those who are eligible for childcare vouchers (especially those who are not sacrificing part of their salary but are still members of the scheme) that the vouchers will still be available to them.
Remember that this does not only affect staff who are on leave. Taking another typical situation: mum of three Sarah has changed her working hours so that she can pick up the kids, so she hasn’t needed childcare vouchers to cover after school care in the last eight months. However, a reminder from HR that she needs a gap of no more than 12 months to maintain eligibility may prompt Sarah to consider her future needs.
If employees are unsure how they can make the best savings on their childcare costs, they should visit childcarechoices.gov.uk
Recruitment and Retention
Employees can switch childcare voucher providers but importantly, they cannot switch employers and maintain their eligibility. So, if either Shane or Sarah move to a different employer, they will no longer be able to purchase childcare vouchers and will have to move to the Tax-Free Childcare scheme.
HR professionals can anticipate two potential consequences. Firstly, a slowdown in the natural turnover of staff, with staff who might normally move on reluctant to leave and lose their valuable vouchers. In terms of acquisition, new joiners might request additional compensation or specific alternative benefits to make up for the loss.
There is still a campaign in favour of re-opening the Childcare Voucher scheme, set up by parents and employers keen to save the previous regime. This shows ongoing support for the scheme to be brought back to life after the disappointment of its closure to new entrants.