This autumn the government will begin to overhaul the way working parents receive and pay for childcare in the UK. This will not only impact on working families, but also on employers who offer family-friendly choices as a key part of their benefits strategy.
The first change is the new Tax Free Childcare (TFC) system, announced in the 2014 Budget, which will replace the existing employer-supported childcare voucher system.
Currently working parents can claim vouchers through their employer worth up to £243 per month per parent, to help towards the cost of childcare until their child turns 16. Employees pay for the vouchers out of their pre-tax and national insurance income, often via salary sacrifice.
The new TFC scheme has been opened up to the self-employed, single parents and couples as long as both are in work. It won’t be provided through employers but from the government directly, through an online account.
Eligible families will get 20% of their annual childcare fees paid by the government, so for every 80p paid in by the parent or carer, the government will contribute 20p, up to a maximum of £2,000 annually per child until they are 11-years-old or 17 for children with disabilities.
Employers locked out
Government information on the phase-in of TFC is fairly vague so far, with autumn this year being targeted as a start date. But, crucially for employers, once TFC opens for business the childcare voucher scheme will close to new applicants and they will no longer be able to offer it as a benefit.
“It’s important companies tell working parents that if they aren’t yet on childcare vouchers, they should sign up before it’s too late. They can always move onto TFC later but they can’t move back once the current voucher scheme is closed,” says Iain McMath, chief executive of Sodexo Benefits and Rewards.
With employers being taken out of the loop under TFC, there is some concern that HR won’t help employees understand which is the right scheme for them and will potentially lose touch with their needs.
“We’re telling our clients to point their employees to a site like www.tax-free-childcare.info to get the right information,” McMath says.
Chair of the Childcare Voucher Providers Association (CVPA) Fiona Shields says HR staff should use the change as an opportunity to show they care.
“Employers are going to have differences in their workforce because some will be receiving childcare vouchers and others won’t so they really need to understand TFC,” she adds.
“I’m also concerned that many employers don’t yet realise that as the number of their staff on childcare vouchers drops, so will the savings they make on National Insurance. They need to prepare for all this.”
Parental Choice founder Sarah-Jane Butler echoes Shields’ concerns: “Half of the HR professionals we have spoken to weren’t even aware that the employer-supported scheme was due to close to new applicants.”
And Butler says that with the new scheme requiring claimants to re-register every three months, the administration may seem too much for busy working parents, who simply won’t apply.
“Eventually there could be a whole lot of new parents on lower pay who aren’t getting any help at all, and people who can’t afford childcare will simply stop working,” she warns.
Head of policy, research and communications at Working Families Julie McCarthy agrees and says that without offering the right support to working parents businesses risk losing or not attracting the right talent.
She adds: “Childcare vouchers are a way for HR departments to get to know and understand their working parents’ issues. Once TFC is introduced they may become disengaged, close their voucher schemes and not even know who their parents are.”
HR teams must think of new ways to stay relevant, she says: “They can develop a parents’ network or provide online signposting for things like babysitting and child minders.”
Some believe that employers may see the situation as a good opportunity to withdraw their voucher schemes. MD of Crossland Employment Solicitors Beverley Sunderland says “most well-written policies will state that a scheme can be withdrawn at any time”. Sunderland says she often receives enquiries from employers unhappy about having to continue to provide vouchers to someone on maternity leave, for example.
“I anticipate the current scheme will disappear once the TFC starts,” Sunderland says, adding: “It’s an administrative headache and we’ll see companies begin to pass the buck to the government-run scheme.”
But L’Oréal UK’s senior HR rewards officer Suzanne Lunnon says the firm won’t close its scheme, delivered in partnership with Parental Choice.
The company’s HR director, UK consumer products division Vanessa Palmer adds: “If anything, we will see more initiatives coming in now for our working parents. The voucher change is one that we need to manage and support our working parents through but it won’t drive a reduction in our overall support.”
Oberthur Technologies UK HR director Helen Ridler says it also has no plans to remove its scheme and will help as many staff onto the current one as possible before it closes. “We have a good take-up and it’s regrettable that it’s going to be subsumed by this new government scheme,” she adds.
The government claims TFC will support double the number of households currently using the voucher system and enable more parents to work by helping them meet rising childcare costs.
Free childcare hurdles
Furthermore, the government has brought forward its manifesto pledge to double free childcare in the UK to 30 hours per week for three- to four-year-olds. Pilots will begin in September 2016.
But childcare providers say the system is already woefully underfunded and the Pre-School Learning Alliance is warning of a “meltdown”, with grant funding for the current 15 free hours already falling 20% short and many nurseries forced to charge ‘top-up fees’.
David Cameron has admitted the policy will indeed take time to get right and has ordered a funding review.
McCarthy says: “It would be churlish not to welcome 30 free hours, but from a provision and quality point of view the funding review will be key. Parents are confused about all this and that doesn’t help employers.”
Meanwhile the focus will be on the launch of TFC, with parents, childcare providers and employers all hoping that the scheme is well bedded-in before any further ‘free’ childcare is implemented.