At Happl, we understand the importance of providing support for working parents. That's why we offer the Workplace Nursery Scheme, a benefit that helps make quality childcare more affordable and accessible to parents in the UK. This guide explains how the scheme works, its benefits, and how you can make the most of it through our trusted partner.
What is the Workplace Nursery Scheme?
The Workplace Nursery Scheme is a government-backed initiative that allows employees to save on childcare costs through salary sacrifice. This means that employees can pay for nursery fees directly from their gross salary, reducing their tax and National Insurance contributions. With this scheme, employees can access substantial savings while ensuring their children receive high-quality early education and care.
How does the scheme work?
Salary Sacrifice Arrangement: Employees agree to give up a portion of their gross salary in exchange for nursery fees being covered. This reduction in salary lowers the employee's taxable income.
Tax and NI Savings: Because the payment is made before tax and National Insurance deductions, employees can save up to 32% (or more, depending on the tax bracket) on their nursery fees.
Direct Payment: The employer directly pays the partner nursery on behalf of the employee, ensuring a seamless and straightforward process.
What are the benefits?
Significant Cost Savings: Employees can save hundreds or even thousands of pounds a year on nursery fees.
Quality Childcare: Through our partnership with Enjoy Benefits, employees have access to a huge network of high-quality nurseries.
Hassle-Free Process: Payments are managed directly through payroll, making it a simple and convenient solution for both employers and employees.
Enhanced Employee Wellbeing: By reducing the financial burden of childcare, employees can enjoy greater peace of mind and focus at work.
Support for Local Nurseries: Through financial contributions, you support nurseries in managing operational challenges and enhancing their services.
How does Happl help us manage this benefit?
If you choose to roll out this benefit for your team, Happl will handle your onboarding as well as any employee sign-ups or queries. We will always ask for approval before we allow an employee onto the scheme and use this data to support your tax reporting.
What are the parent requirements?
The employee chooses the nursery: Employees can select from a wide range of pre-approved nurseries nationwide, or, if their child's existing nursery. Employees have the freedom to choose the nursery that best suits their child's needs, ensuring flexibility and convenience.
Minimum £890 per Month Spend: To participate in the scheme, an employees nursery fees must be at least £890 per month. This threshold ensures the benefit is maximised for those with significant childcare expenses.
Savings Aren’t Capped: There is no cap on how much can be deducted from an employees salary as long as the dedication does not take them below minimum wage. This means employees can benefit from significant savings regardless of the total cost of their nursery fees.
More Than One Child: The scheme can be used for all children's nursery fees, making it an ideal solution for families with more than one child in nursery care.
Nursery Contributions: By participating in the scheme, aren't just benefiting their family—they're also helping to finance local nurseries and giving back to the local community.
Birth – 5 Years: The Workplace Nursery Scheme can be used from birth right up to the age of 5 (school age). It provides flexibility for parents throughout the early years of their child's life.
12-Month Term: The scheme requires a minimum commitment of 12 months. This term ensures stability for both the nursery and the employee's family, providing a consistent approach to managing childcare costs.
What are the employer requirements?
Financial Contribution: As part of your commitment to supporting local nurseries, your company, in partnership with Enjoy Benefits, makes financial contributions to the nurseries selected by your employees. A set amount of £1,800 is provided to the chosen nursery, either at the start of each contract or in monthly instalments of £150.
Additional Support Fund: An extra fund is provided to nurseries annually to help cover any financial losses or challenges they have faced. This additional payment comes from the savings the business makes by offering the Workplace Nursery Scheme.
Community Engagement: During initial discussions with the nursery, the employee (as a representative of your business) and Enjoy Benefits will work with the nursery explore ways to provide further support. This could include donating old equipment, sharing company expertise, or facilitating employee volunteer days at the nursery.
Management Meetings: Enjoy Benefits will schedule regular management meetings with the partnered nurseries and parents to discuss operational and managerial aspects. These meetings are recorded and documented to demonstrate ongoing management involvement, which is crucial to meet HMRC’s partnership requirements.
End-of-Year Contribution: At the end of each calendar year, you will receive a statement detailing the savings made in employer National Insurance contributions due to the scheme. Based on these savings, you may make an additional discretionary contribution to your partnered nurseries to further support their operations.
Contract Length: The scheme requires a minimum 12-month contract to ensure compliance with HMRC's ITEPA guidelines. If an employee wishes to stop using the benefit before the contract's end, the nursery fees can be set to zero, but the employer must continue the £150 monthly contribution until the contract concludes.
Policy Amendments: Before implementing the scheme, you should amend or create company policy documents to detail the operation of the Workplace Nursery Benefit, including scenarios like redundancy, employees moving nurseries, employees wishing to stop the benefit before the end of contract, or leaving the company.
Maintaining Minimum Wage Compliance: You must ensure that salary deductions do not reduce an employee's income below the minimum wage
Payments: Invoices for the scheme are issued monthly, and cleared payment must be received by the 20th of the month to ensure funds are transferred to the nursery on time
How does Enjoy Benefits comply with HMRC's ITEPA requirements?
Enjoy Benefits operates the Workplace Nursery Scheme in full compliance with the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) requirements. The scheme is designed to ensure that all conditions outlined by HMRC are met, particularly regarding salary sacrifice arrangements, financial contributions, and the management of nursery facilities. Here’s how Enjoy Benefits aligns with the key aspects of ITEPA:
1. Salary Sacrifice and Tax Exemptions
Effective Salary Sacrifice: The scheme ensures that the salary sacrifice arrangement is effective, reducing the employee's taxable income without compromising the integrity of the scheme. If the salary sacrifice is not effective, the employee remains chargeable on their original gross pay.
Exemption from Income Tax: From April 6, 2005, employer-provided childcare benefits, including workplace nurseries, are exempt from income tax. Enjoy Benefits' scheme adheres to this exemption, ensuring that nursery benefits are not treated as taxable earnings but as benefits-in-kind under Section 203 of ITEPA 2003.
2. Financial and Managerial Responsibility
Financial Contributions: The scheme includes a real and substantial financial commitment from employers, beyond merely purchasing nursery places. Employers contribute £1,800 annually to the nursery, demonstrating a commitment to funding the nursery.
Long-Term Financial Commitment: The scheme ensures that employers commit to supporting nurseries over a longer period, aligning with HMRC’s requirements that financial contributions are more than token gestures.
Responsibility for Management: Employers are required to take part in the management of the nursery, including attending meetings to discuss staffing, care standards, and long-term planning. This involvement satisfies HMRC’s requirement that employers must have a real sense of managerial responsibility within the nursery.
3. Partnership Arrangements
Joint Provision: The scheme allows employers to collaborate, jointly financing and managing nursery facilities, as specified in Section 318(7) of ITEPA 2003. This structure is designed to include both small and larger employers, ensuring compliance with the HMRC guidelines on jointly operated workplace nurseries.
Meetings and Collaboration: Enjoy Benefits facilitates regular management meetings between employers and nurseries to discuss operational and managerial aspects. These meetings are recorded and documented to demonstrate ongoing management involvement, which is crucial to meet HMRC’s partnership requirements.
4. Ensuring the Proper Use of the Benefit
Minimum Contract Term: The scheme requires a minimum 12-month contract, preventing employees from reverting to their original salary within a short period. This aligns with HMRC's stipulation that salary sacrifice arrangements should not be easily reversible, ensuring the benefit's longevity and compliance.
Provision for All Staff: To comply with HMRC guidelines, the Workplace Nursery Scheme is made available to all employees, ensuring fairness and equality. This provision helps maintain the tax-exempt status of the benefit under the law.
FAQs
Can parents use the scheme if their child is already in a nursery? Yes, as long as the nursery is registered with the scheme. If it's not, Enjoy Benefits can help guide the nursery through the registration process.
How much can employees save with the Workplace Nursery Scheme? Savings depend on your salary and tax bracket, but employees can save up to 32% or more on their nursery fees.
Can both parents use the scheme? Yes, if both parents' employers offer the Workplace Nursery Scheme, they can each participate, maximising the savings.
Does using the scheme affect employee pensions or other benefits?Salary sacrifice arrangements can affect other salary-related benefits. It's best to check with your HR department or a financial advisor to understand the impact.
Can parents still claim Childcare Vouchers or Tax-Free Childcare? No, the Workplace Nursery Scheme cannot be used in conjunction with Childcare Vouchers or the Tax-Free Childcare scheme. However, the Workplace Nursery Scheme often provides greater savings.