The Government has made it easier for employers to provide childcare, but there is still a lack of awareness of the options.
It looked like an excellent early Christmas present for working parents. In December last year, paymaster general Dawn Primarolo announced that the Government would be reforming tax and National Insurance relief on employer-supported childcare, and on childcare vouchers in particular.
From April 2005, employees will be eligible to receive up to £50 a week of their childcare costs, free of tax and National Insurance, when their bosses either agree a contract with an approved carer, or provide them with childcare vouchers.
“Employers have a very important role to play in helping parents to balance work and family life, and particularly in helping parents to meet their childcare needs,” says Primarolo. “We are committed to supporting them in this and today’s announcement will help to ensure that more parents have access to affordable, good quality childcare.”
The question worrying HR professionals who have managed to convince their organisations to embrace the current childcare voucher scheme, is whether she is correct. Some fear the proposed changes may actually deter employers from offering vouchers altogether.
They certainly hope she is right. The cost of childcare is one of the main barriers preventing parents – predominantly women – from getting back into the workplace, and denying employers a pool of talent they would like to tap into.
The Centre for Economics and Business Research has estimated that the UK is now the most expensive place in Europe to raise children. The average childcare bill for children between the ages of two and five is a whopping £25,000.
Yet, according to figures published exclusively in Personnel Today from voucher provider Accor Services, the vast majority of employers singularly fail to offer workers benefits such as childcare vouchers.
Its study of 113 HR professionals, carried out in March this year, found that while 96 per cent of firms had heard of the vouchers, just 18 per cent offered them to their employees. Of those organisations not currently offering vouchers, 30 per cent planned to do so in the future, and 41 per cent said they would be offering them from April 2005.
Despite the best efforts of Primarolo and chancellor Gordon Brown, only 58 per cent of companies were aware of the tax changes coming in, and just 3 per cent of the staff responsible for administering childcare voucher schemes personally used them.
Anne Ross, Accor Services corporate business manager, concedes the lack of awareness is a concern. “A lot of people have never heard of childcare vouchers, which is quite worrying,” she says. “We get so many enquiries about it that it can lead to a false sense of it [being widely in use].”
Accor currently has between 700 and 800 childcare voucher clients, and around 30,000 parents take the vouchers. This, she admits, is “tiny” compared with the number of parents in the workplace. She predicts that with the changes, the market – currently worth £69m – could rise to £300m by 2006.
In the past, there have been misconceptions among employers that the vouchers were expensive and difficult to administer. But with the introduction of salary sacrifice schemes – where the employee takes a chunk of their salary as vouchers – and now the tax reforms, that should no longer be the case, she insists. “Once it gets going it is really quite straightforward.”
The firm is currently working with tax consultants to produce a guide on the changes. The message is also beginning to get through that, by offering benefits such as childcare vouchers, employers are adding a vital retention and recruitment weapon to their armoury. “They are finding that, by offering childcare vouchers, they are becoming an employer of choice,” Ross says.
“HR is fundamental to it. They are the people who need to convince management that it is a good thing. We have seen growth in the past three years of around 30 per cent year-on-year. But the take-up is still relatively low,” she adds.
While changing the tax regime will undoubtedly bring some benefits, fiddling with something that currently works relatively well when used is a worry, argues Richard Stokes, HR services director of employment and reward at AstraZeneca. The company has been a longstanding advocate of childcare vouchers (see case study), but Stokes is concerned the change could actually deter some employees from entering the market.
As it stands, all childcare vouchers are exempt from Class 1 NI contributions. Therefore, capping the NI exemption at £50 a week, even with the accompanying tax break, could make it less attractive to employers.
“At the moment, people can take quite significant amounts of vouchers and not have to pay NI on them. Even though there is a tax advantage now, clearly there may be a problem for people who use them for more than that £50,” he says.
At AstraZeneca, for instance, there are people who are second-salary earners in the household, and so sacrifice the vast majority of their income into vouchers.
While the reforms are still work in progress and may yet change, if they go ahead as currently laid out, there may be some hard thinking to do. “We will have to consider over the coming months what our response is going to be in terms of our benefit plan,” he explains. “We can see there is potentially a quite significant downside.”
But others predict the change will make a difference. Nancy Weeden, childcare services manager for voucher provider Sodexho Pass, believes having a tax break will raise interest in the vouchers, and could lead to a flood of employers coming on board.
“We think there could be a huge growth in demand, with employees asking employers why they aren’t offering them, so it might be a bottom up change,” she suggests.
Childcare vouchers are a central element of the flexible benefits plan at manufacturer Cadbury Schweppes, which employs just under 7,500 people in the UK. Called ‘Choices’, it was introduced in April 2002.
A key challenge has been getting the message, that the vouchers are there and available, out to the workers on the factory floor as well as to clerical and office staff, says UK employee benefits manager Sue Laverick.
“More than 70 per cent of our employees are manufacturing based, and it can be incredibly difficult to reach them and get them to understand the great value of the benefits that are on offer,” she says.
This year, the company has launched a communications programme to get out and speak to workers at the various sites around the country. “We find that talking to people and telling them how they can save money really works,” she explains.
Around 1,900 employees use the Choices benefits package in some shape or form, and the numbers have gone up 5 per cent since last year. “This year, the focus is very much about how we communicate the benefit. It is a learning process,” she says.
The company is keen for male employees to take the vouchers, too. Because of the mix of office and manufacturing staff who do not have access to computers, the firm uses paper vouchers and is testing electronic ones.
How the childcare voucher scheme works
Setting up and running a childcare voucher scheme need not be an administrative headache, voucher providers stress.
At its simplest, the employer – normally through the HR department – signs up to a childcare voucher company, paying an administration fee for the service.
The voucher firm then supplies the vouchers, either to the employer to distribute them or directly to the employee. Conventionally, they have been paper vouchers, but they are increasingly being sent electronically.
Once in receipt of the voucher, the employee simply ‘pays’ it to the childcare provider, who then redeems the value of the voucher from the voucher provider, usually by direct payment into their bank account.
Pharmaceuticals and healthcare giant AstraZeneca embraced childcare vouchers when the two sides of its business, Astra and Zeneca, merged in 2000.
The scheme is run as part of a wider benefits package launched in 2001, called Advantage, which offers employees a ‘menu’ of flexible working benefits from which they can choose.
The company subsidises the voucher scheme, offering employees a £10 voucher for £8 rather than the £9 that an employee would pay if they were simply taking the NI relief. This means that, for every £100 of vouchers received, the employee spends £89.
The Advantage programme is communicated to staff through team meetings, articles in the in-house magazine and posters, plus two internal websites. This year, an electronic brochure has been introduced for existing employees, with a printed version available for new recruits.
Of 9,300 employees eligible to take part in the flexible benefits programme, 603 are currently taking childcare vouchers.
“Childcare vouchers have been an integral part of the Advantage programme. We are a very competitive industry and there is quite a war for talent, so this is part of our positioning as an employer of choice,” says Richard Stokes, HR services director of employment and reward. “Advantage is a benefits package that has a very high level of visibility.”
One positive change has been switching from paper vouchers to electronic ones. This has meant vouchers no longer get lost in the mail, and has made administration much simpler.
Getting good take-up of any benefits scheme is down to ‘communication, communication, communication’, he stresses.