Employers and childcare costs

How childcare vouchers can save your business money.

With parents representing almost 40 per cent of the UK workforce, quality and affordable childcare is becoming as important to the employer as it is to the employee. Losing valued personnel carries a heavy financial penalty, not only in terms of wasted investment in training and experience, but also:

  • recruitment costs such as advertisements and agency fees
  • agency costs to cover the period during which there is a vacancy
  • induction training for the new employee
  • productivity lost during the training period.

By helping with childcare costs, employers may be able to retain more employees for longer. A simple, flexible solution is to offer childcare vouchers, financially supporting parents with childcare costs for children up to 16 years old.

Childcare vouchers

Childcare vouchers are a flexible way of paying for registered and approved childcare. They present employers with an excellent opportunity to help their employees meet the cost of childcare, whilst at the same time enjoying considerable savings and improving employer/employee relations.

The benefits


Childcare vouchers are exempt from National Insurance Contributions (NIC) and tax on the first £55 a week or £243 per month of childcare costs.

  • For the basic tax payer (22 per cent) the saving will be over £962 per year.
  • For the higher tax payer (40 per cent) the saving will be over £1195 per year.

(Each employed parent can claim these exemptions, so you could receive twice the saving).

Vouchers give flexibility and freedom of choice. They can be saved up by the employee and used when needed, making vouchers extremely popular for parents who only use childcare at certain times of the year, for example, to pay for a holiday playscheme. There are no costs to the childcare provider. All they are required to do is register with the voucher provider.


Saving up to £373 per year (12.8 per cent NIC) for each employee using the scheme, through the savings made on employer National Insurance Contributions.

Other benefits will include happier, flexible and more motivated employees. This in turn has a positive effect on improving recruitment, reducing absenteeism and helping to retain key members of staff. By promoting a caring image, you are expressing support and an understanding of the issues that parents face in balancing their working lives with their children's wellbeing.

"We started the childcare voucher scheme in April to tie in with the new legislation. Now four months later, we have 50 staff members taking advantage of this tax benefit, saving them money on their childcare costs as a result. So far this has saved Oxfam approximately £15,000 per annum."

Karyn Panting, Human Resources Executive at Oxfam's Oxford Head Office

How childcare vouchers work

An employer contracts with a childcare voucher provider to supply vouchers to their employees as:

  • a benefit-in-kind in addition to their existing pay, or
  • as part of their salary, commonly known as a salary sacrifice*, reducing the employees taxable salary and replacing it with the equivalent amount in childcare vouchers, up to £55 per week.

If you decide to enter into a childcare voucher scheme, you have to make it generally available to all employees where the scheme operates.

*A salary sacrifice happens when an employee gives up the right to receive part of their salary under their contract of employment. The sacrifice is made in return for the employer’s agreement to provide the employee with a non-cash benefit, in this case, childcare vouchers.

How the childcare voucher scheme works

  • Employees request their childcare vouchers from the voucher provider for the upcoming month.
  • The voucher provider will notify the employer’s payroll, appropriate deductions are made from salary and the vouchers are sent to the employee.
  • The employee will give the vouchers to the childcare provider as payment.
  • The childcare provider will redeem the face value of the voucher from the voucher provider.

The sort of childcare that can be paid for

Vouchers can be used to pay for all registered and approved childcare, for example:

  • Day nurseries
  • Childminders
  • After school clubs / holiday playschemes
  • Nannies approved under the Childcare Approval Scheme

How much it will cost

The only cost to the employer is the management fee. This is payable to the voucher provider and is negotiable, but tends to be a percentage of the overall value of those childcare vouchers provided (generally ranging from 5 to 9 per cent). The management fee will usually be less than the saving being made on the employer National Insurance Contributions (12.8 per cent).

What extra work is involved for our organisation

The voucher provider will be responsible for administrating the scheme but there will be additional work for those in charge of your payroll.

Do it yourself

You can produce and administer childcare vouchers yourself as long as you make sure the conditions for tax and NICs exemption are met and you keep records to support your scheme.