By James Malia, Managing Director at P&MM Employee Benefits
In Autumn 2015 the Government is taking away the option for employers to offer a childcare voucher scheme to their employees. Businesses must start now to focus on the financial implications of this and look at the steps they can take to address the potential consequences.
Currently, employers who run such a scheme benefit from significant savings of up to 13.8% on National Insurance Contributions (NIC), which for larger organisations can run into hundreds of thousands of pounds. With the new Tax-Free Childcare scheme being administered by National Savings & Investment, employer involvement is not required and so employers will potentially be left with a big hole in their budget. For example, a company where 1,000 employees are taking £180 per month in childcare vouchers will be facing over £298,000 company NIC savings being at risk, money which is often re-invested in the provision of other employee benefits to create a highly attractive package that aids recruitment and retention, as opposed to simply being added to the bottom line. If a business was faced with even 20% of this as a guaranteed loss, they would certainly already be making provision to either replace the lost revenue or accommodate it.
What can employers do to ensure these changes don’t impact negatively on the employee benefits packages they offer and on the savings they make? The good news is that any employees registered on an existing employer-provided scheme as of autumn 2015 can remain on it beyond the launch of the new scheme, meaning the employer will continue to make NIC savings. With this in mind, employers should be working hard now to increase take-up. In addition, employers who don’t currently run a scheme still have time to set one up ahead of the autumn 2015 cut-off in order to offer their employees greater choice. The new Tax-Free Savings won’t benefit everyone and so offering employees the option of joining an employer-provided scheme before autumn, or the new one when it is launched, means they can determine which works best for them.
Businesses also need to be looking at other salary sacrifice benefits they can offer that will appeal to their employees and give them wider choice, as well as maintain or even increase the savings to the business itself. These range from pension schemes to cycle to work, annual leave purchase and car parking or mobile phone schemes.
There is no reason why the potential loss of NIC savings should be viewed differently to any other loss or budgetary change a business is facing. Whether £30k or £300k, the uplift in sales that would be needed to replace these savings on the bottom line is significant. Those that embrace the changes with a positive attitude rather than ignore them have the potential to enhance not only their savings but also the package they are able to offer employees.