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First, they get pregnant. Then they go on maternity leave and you have to struggle with the complexities of SMP and KIT days, all the while having to find someone to cover their work. Then they want to come back to work, but only part-time or flexi-time. Eventually, they tell you that they would be happy to sacrifice some salary to get the non-taxable (up to £55 a week) benefit of employer-provided childcare.

Vouchers are the standard way of doing this, but it seems expensive and overly complicated for a small employer to make arrangements with a voucher-issuing company for just one employee's childcare. The alternative is direct provision of childcare by the employer, which means the employer contracting with the child-minder and paying her invoices when received.

But how do you contract for childcare costing (say) £150 a week when you are only going to pay £55 a week, with another £55 being paid by the employee's husband's vouchers from his employer and the remaining £40 being paid by the couple themselves? Does an agreement to pay a contribution only £55 a week satisfy the conditions for the tax-free benefit of directly contracted childcare?

Euan MacLennan


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Nilesh, to address your question
The employee can pay 100% of net salary into their pension. This will receive tax relief but not NI relief, which is the benefit of employer contributions.

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Salary sacrifice, NMW and pension
Thank you Paul

No, there is no one in scheme who makes 100% salary sacrifice. I just wanted to know how NMW and stake holders pension would interact. However, I am still puzzled as per new stakeholder pension rules, you can make pay up to 100% of your earnings.

Kind Regards


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From the information you have given, I believe the scheme you describe would lead to the company breaching the law. My understanding is that employees cannot (even if they want to) make salary sacrifices which take their pay below the minimum wage, and the company must ensure that they don't.

The only relevant payments in calculating NMW are wages paid and an allowance for accomodation provided (max £30.10 p.w.) so pension contributions, childcare vouchers etc don't count.

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thanks Euan - I enjoyed your vigorous response

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NMW & Salary sacrifice

Just for the curiosity, just wondering how NMW with salary sacrifice pension scheme. A compnay is running salary sacrifice pension scheme approved by Inland Revenue and meets all the criteria. Compnay runs this scheme so emplouees benefits from savings made on employers nic and employees nic. It is stakeholder pension scheme. Company pays full savings made on employers nic into employees pension. These payments are made to pension provider as employers contribution. Now if an employee decides to sacrifice 100% salary towards his pension. Does this mean company is not complying with minimum wages? Thank you in advance.


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Come on, Nick!
Keep in touch

The latest idea to allow women to come to the office on odd days during maternity leave without sacrificing SMP.

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what are KIT days please?
all very interesting but what are KIT days please?

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Or a cheaper option is to produce your own vouchers
You don't have to use a voucher company. You can print your own vouchers which you give to the employee each payday who then gives to the nursery/childminder etc who then has to present to you for payment.

If that sounds like too much hassle I did a google search on cheap childcare vouchers and came up with the company below who charge 2.5% admin fee. I have no experience of them as I only have experience of Accor and Leapfrog, both of whom have been easy to deal with.

Do I get the impression that you've had enough of being 'family friendly' for now?!

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Childcare voucher supplier
I am surprised to see your comment about setting up the scheme. It is not complicate. I work for a medium size company and we have just one person who uses child care voucher of £90.00 per month!. We have no problem with this at all. We deduce money from gross pay and pay to Child Care Voucher provider, who pays to child care person/compnay by bacs.

It is not expensive either, our voucher provider charges 4% of voucher value as admin fees. But on the same time the employer saves NIC 12.8%. Overall, employer would make small savings. Here is details of my child care voucher provider, AllSave Ltd,, 01256 339 100. Let me know if you need any further details. I have not connection with allsave apart from they provide child care voucher to us.

Kind Regards

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You need to have an amended contract of employment in place to effect the salary sacrifice and you will need to contract directly with the childcarer - if you are jsut going to be liable for the £55/week make sure the terms and conditions of the contract specify this and advise the childcarer all remaining fees are payable by the parents themselves.

If the employee is paid monthly then you should use a monthly childcare amount of £243 and pay the childcare fees across on a monthly basis.

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No problem
As long as there is a formal agreement signed by the employee under which she agrees to a reduction in the salary to which she is contractually enititled (the salary sacrifice agreement) and a separate contract between the employer and the childcare provider (under which the employer agrees to become responsible for paying up to £55 per week of the employee's childcare costs) the requirements of s318A ITEPA (Limited Exemption for other care) will be met.

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Just a reminder that childcare vouchers are not included in the calculation for minimum wage.

Therefore, you need to ensure that the amount you pay employees after the salary sacrifice is still above the relevant minimum wage.

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Thank you all
... for your prompt and extensive answers.

As I have to make one payment a month, whichever method I adopt, I can see no reason why I should not pay it direct to the child-minder and save myself the 2.5% or 4% commission (plus VAT, presumably) for having it paid via an agent. It might be different if we had more than one employee on the childcare benefit and hence, would have to pay more than one child-minder.

Of the alternative methods of paying the child-minder:

- a monthly standing order of £243, which fails to allow for holiday weeks when the employee is not using childcare
- against invoice from the child-minder for either 4 or 5 weeks a month (her normal billing practice), which requires her to raise a monthly invoice, and
- on submission of our own printed vouchers, which only requires the child-minder to put them in an envelope,

I prefer the latter because it gives control of the payments to the employee for the weeks she uses the child-minder. We might even be able to shortcut the process by taking the vouchers directly back from our employee.

Thank you everybody for your advice.

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