Offering a Workplace Nursery Scheme is a fantastic way to support your team with their childcare needs. It allows them to swap a portion of their salary to pay for childcare, benefiting from tax savings in the process.
Since 2018, these schemes have become the go-to, replacing the older Childcare Voucher systems across the UK. It’s a great addition to your employee benefits package, showing your commitment to supporting parents’ work-life balance.
Here’s everything you need to know about Workplace Nursery Schemes, including how they work, why you should offer them, and how to get started.
Workplace Nursery Schemes allow employees to pay for childcare through Salary Sacrifice. By sacrificing part of their salary to pay nursery fees, they enjoy tax savings as a benefit, helping to make childcare more affordable.
Workplace Nursery Schemes are a win-win for everyone. They offer parents convenient and affordable childcare, making their lives easier and less stressful.
For employers, these schemes boost staff satisfaction and loyalty, attract top talent, and enhance the company’s family-friendly reputation. Plus, they can bring tax benefits, making them a smart choice for businesses looking to support their employees and improve productivity.
Childcare can be incredibly expensive, with the average cost of full time day nursery often costing more than £1,000 a month. A Workplace Nursery Scheme can significantly ease this financial burden for staff.
Having such a benefit can not only reduce stress but also enhance employee satisfaction and loyalty.
Joseph Toft
Senior Consultant, Employee Benefits
Before implementing a scheme, employers often meet with their desired nursery to establish a contract. It’s important to note that, as part of this contract, you as an employer may be required to pay an annual fee, e.g. £1,200, towards the running and upkeep of the chosen nursery/nurseries.
As part of the initial meeting, you will set the groundwork for how your contributions will be used, ensuring they align with both the needs of your employees and the operational requirements of the nursery/nurseries.
Once set up, your employees can opt into the benefit by contractually agreeing to have part of their salary swapped each month in order to pay for the fees. Your scheme provider will set up and handle any contracts between you and the childcare facilities, and you’ll be invoiced each month for the various services.
Because your employees’ deductions come from pre-tax salaries, both you and your employees save on tax and National Insurance contributions. It’s a cost-effective solution for everyone involved.
Nick Nelms
Senior Consultant, Employee Benefits
Any parent who’s a PAYE taxpayer is eligible for the scheme, but the chosen nursery fees must be at least £650 per month, or £7,800 per year.
Signing up for a Workplace Nursery scheme is easy with the right processes in place.
IMPORTANT NOTICE 🧐
If a Salary Sacrifice would cause an employee’s salary to fall below the lower earnings limit (£6,396 per annum for 2024/25 tax year) their entitlement to state benefits will be affected. It’s best to get expert advice before signing them up.
As an employee benefit, Workplace Nursery schemes are a win-win for both employers and employees. They provide an essential financial lifeline for staff by covering the upfront costs of childcare. This often results in significant savings compared to paying for nurseries without a scheme.
For employers, these schemes boost the attractiveness of your employee benefits package, helping to support talent acquisition and retention. They also help to foster a culture of support and inclusivity, supporting parents when they need it most.
So, what’s in it for you as an employer? There’s a number of great reasons to offer a Workplace Nursery Scheme to your employees:
While competitive salaries matter, the additional perks you offer can help you retain your top talent. 43% of UK workers cite financial concerns as a key source of stress, so by addressing parents’ biggest worry – quality, affordable childcare – you’re actively supporting their overall wellbeing. This leads to a happier, more productive, and dedicated workforce.
Access to reliable supervision means fewer days missed due to last-minute childcare issues, reducing absenteeism rates and boosting peace of mind.
Considering the substantial portion of their income many employees spend on childcare, offering financial assistance in this area can make your staff see you as a more considerate and valued employer.
Workplace Nursery Schemes can help foster a sense of community among employees. Parents have the opportunity to connect, share experiences, and support each other, strengthening the overall company culture.
By providing childcare solutions, you’re actively supporting gender equality in the workplace. Workplace Nursery Schemes make it easier for mothers and fathers to return to work and pursue their careers after having children.
Offering a Workplace Nursery scheme gives a real boost to your employer brand. It also helps foster a culture of support and inclusivity – supporting parents when they need it most.
Nick Nelms
Senior Employee Benefits Consultant
Workplace nurseries offer a range of benefits for employees. And as the average nursery place in the UK costs parents £15,709 per year, offering the scheme significantly contributes to their work-life balance, financial savings, and overall job satisfaction.
One of the most immediate benefits is the significant cost savings on childcare. Given the exemption from Tax and National Insurance Contributions for places in workplace nurseries, employees can save a substantial amount of money, which would otherwise be spent on external childcare services.
Knowing their children are close by and in safe hands allows employees to concentrate better on their work. This peace of mind can boost productivity and reduce workday interruptions related to childcare concerns.
By easing the childcare burden, employees can achieve a better balance between their professional and personal lives. This balance is crucial for long-term job satisfaction and mental wellbeing.
IMPORTANT NOTICE 🧐
Remember, your business is tied into a contract with employees’ chosen childcare facilities when you sign up for a Workplace Nursery scheme – so you’ll be liable for any fees during the 12-month period.
Workplace Nursery schemes are designed to be cost-neutral for employers while potentially offering savings through reduced National Insurance Contributions (NICs). Here’s a concise look at how the costs work:
By understanding these financial elements, you can effectively manage the costs and benefits of implementing a Workplace Nursery scheme.
The potential savings made through the Workplace Nursery Scheme can be huge for both employers and employees.
For this example, we’ve used Workplace Nursery’s savings calculator and based it on employees who currently spend £1,200 a month on childcare. We have calculated the savings for employees on basic (20%) and higher (40%) rate tax.
Annual Employee Costs | No Workplace Nursery Scheme | With Workplace Nursery Scheme (20% Tax) | With Workplace Nursery Scheme (40% Tax) |
|---|---|---|
£14,400 | £11,664 | £9,396 | That’s a saving of at least £2,736.00 per year 🤩 |
To give you an idea of how much you could save as an employer, we’ve put examples of potential National Insurance savings below. The more employees that use the scheme, the bigger your savings will be.
Employer NI Savings | Number of Employees | NI Savings |
|---|---|
1 | £638 |
5 | £3,190 |
10 | £6,380 |
50 | £31,900 |
Workplace Nursery schemes aren’t classed as a P11D Benefit In Kind, so your employees won’t have to pay any Income Tax or National Insurance Contributions (NICs) on this benefit.
To offer tax-exempt workplace nursery benefits, employers must carefully follow HMRC’s guidelines, taking on financial responsibility and actively managing the childcare provision. Merely paying for places at a commercial nursery or setting up fixed contributions won’t qualify. Instead, HMRC requires employers to share in the financial and operational aspects of running the nursery, or the benefit may be taxable.
Employers should also be aware that HMRC does not endorse any scheme as ‘tax compliant’. It’s up to employers to ensure they meet exemption requirements. If a scheme doesn’t qualify, employers must report it via P11D or through payroll to correctly handle tax obligations.
IMPORTANT❗️
With HMRC’s heightened focus on compliance and the complexities involved, employers should proceed carefully when setting up new workplace nursery provisions, seeking expert advice to ensure they meet all requirements.
Starting a Workplace Nursery is easier than you might think, here’s a straightforward guide:
Decide which local nursery you want to partner with for the scheme – your employee benefits consultant can help you choose the right one for your needs. A contract will be drawn up, outlining the fees to be paid to the nursery and any additional funding it’ll receive.
You have a few different options when it comes to your scheme provider, so you can choose the one that best suits your needs. The main ones in the UK are:
HMRC requires employers to contribute to the nursery during the contract term, so your chosen scheme provider will handle all administrative tasks on your behalf. You’ll be invoiced each month for the fees, with one monthly payment covering all the children involved in the scheme.
There’s no use offering this fab benefit if no one knows about it. Start promoting your Workplace Nursery scheme through channels such as your employee benefits platform (like My.Drewberry), Slack/Teams channels, intranet, and company newsletters. Mention it in your job ads, and make new hires aware during the onboarding process. Read our top tips for communicating benefits to staff.
To keep the scheme running smoothly, most providers require regular meetings with your chosen nursery. Attendees should include employees using the scheme, representatives from your scheme provider, and nursery staff. You should also regularly review takeup rates to identify the scheme’s success.
IMPORTANT NOTICE 🧐
Salary Sacrifice can affect an employee’s borrowing power. If a staff member is considering a mortgage, loan, or credit card, they should be made aware of this before signing up.
Workplace Nursery Schemes are one of the many brilliant benefits you can offer to your workforce. At Drewberry, we know setting up benefits can be time consuming for employers, which is where our employee benefits team can help.
We’ve helped UK businesses of all shapes and sizes to set up their employee benefits package. If you need advice or help with implementing these, get in touch. You can call us on 02074425880 or email help@drewberry.co.uk.
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Workplace Nurseries are a great benefit, but employees should think carefully before entering into a Salary Sacrifice arrangement. Here are the main downsides to make your people aware of:
Yes, any salary sacrificed for a Workplace Nursery Scheme will show up on an employee’s payslip. The amount sacrificed will appear as a deduction before National Insurance and tax is applied, though it may look differently from company to company.
Workplace Nursery schemes are open to any PAYE taxpayers who earn above the provider’s minimum salary threshold. All childcare facilities must be registered with Ofsted – so private homes are not eligible.
The scheme ties you into a contract (usually for 12 months, though the minimum is six) with a particular facility, so if an employee wishes to change nursery, you as the employer will need to pay the original nursery until the contract expires.
Employees can enjoy the scheme until their child turns school age (up to and including the term when their child turns five years old).
Usually, employees are only able to leave the scheme after their child is beyond nursery age, or they experience a “significant lifestyle change”. If parents wish to opt out, they’ll need to give plenty of notice. You – as the employer – are still liable for any costs to the nursery for the remainder of the contract, so you’ll need to ensure an employee’s departure doesn’t leave you out of pocket. If you’re feeling unsure about how it all works, give our friendly experts a call on 02074425880 or email help@drewberry.co.uk.
Because Workplace Nursery schemes are Salary Sacrifice, an employee’s resulting salary can’t fall below the National Minimum Wage. It’s your duty as an employer to safeguard this, and many scheme providers will have a minimum salary threshold for participants. It’s best to get expert advice before implementing a scheme. Give us a call on 02074425880 or email help@drewberry.co.uk.
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