Work Matters: Management Focus - Workplace Nurseries - Benefits all round

What is your policy on allowing staff's children to attend your setting? If you do allow employees to book places for their own offspring and you charge them a fee, then it might be useful to know more about workplace nursery rules.

There are ways nursery staff can make tax and national insurance savings, effectively reducing the cost of their childcare to make it more affordable. Not a bad idea if, like many settings, you can't afford to dish out free places or big discounts for staff but want to make a gesture and help retain good talent.

Does mention of tax and NI savings sound familiar? It's all to do with employer supported childcare legislation, the same laws that cover childcare vouchers - you've probably heard of them. Sadly, not so much effort has gone into shouting about the benefits of workplace nursery schemes.

So what's it all about? Well, if an employee pays for childcare at a setting where they work (or another in the same group or chain) by definition it is a 'workplace nursery' (WPN). Rules state they can choose to swap salary to cover their childcare fees before tax and NI are calculated, meaning they take home more pay. Unlike vouchers, there is no cap on the tax or NI exemptions, so savings can be significant.

Last week, a deputy manager and I calculated that if she returned to work after her maternity leave, she would spend around £8,000 per year on a baby room place. With a WPN scheme, the nursery boss would allow her to save approximately £2,480 per year (20 per cent tax plus 11 per cent NI).

That's the equivalent of a generous pay increase and makes coming back a more viable option. Also, the setting would save on employer NI contributions too and could even claim further tax relief.

Setting up a scheme does require a little thought and paperwork but is surely worth looking into. You need to formally agree a change to your employee's contract - I've devised an application form and confirmation letter to satisfy this requirement.

You must also ensure the scheme is available to all staff, so you can't just offer it as a perk to your favourites. Finally, staff must not reduce their salary below the national minimum wage, and lower-paid team members may be better off claiming tax credits.

- For more information visit www.hmrc.gov.uk/childcare and download the E18 booklet.

- Derek Hayes is a senior consultant/trainer for The Childcare Consultancy; email: info@childcareconsult.co.uk