Workplace nurseries explained

A workplace nursery is a nursery set up or supported by an employer for its staff. It may be on site, near the workplace, or run by a nursery provider in partnership with the employer. Where the employer is involved in running or funding the nursery, staff may be able to pay fees through salary sacrifice, which can reduce income tax and National Insurance. Workplace nurseries are registered with Ofsted and follow the Early Years Foundation Stage like any other.

How they work

There are a few common arrangements:

• On-site nurseries run by the employer or by a nursery company on the employer’s premises, common at hospitals, universities and large offices.
• Partnership schemes, where an employer reserves places at an independent nursery and is involved in its finance or management.
• Salary sacrifice schemes, where you give up part of your salary and the employer pays the nursery directly.

Salary sacrifice

With salary sacrifice, your nursery fees are paid out of your salary before income tax and National Insurance. Workplace nursery places that meet HMRC’s conditions are a tax-exempt benefit, which can be a large saving, especially for higher-rate taxpayers. Not every arrangement called a workplace nursery qualifies, so ask your employer to confirm.

Things to check:

• The exact saving for your salary. Ask for a worked example.
• Effect on other things linked to your salary, such as pension contributions, mortgage applications and some benefits.
• Minimum wage: salary sacrifice cannot take your pay below the National Minimum Wage.
• How it interacts with funded hours, which should still be free.
• How it interacts with Tax-Free Childcare. You cannot normally use both for the same costs, so compare.
• Adjusted net income: reducing your salary can bring your adjusted net income below the £100,000 limit for funded hours and Tax-Free Childcare. Take advice if you are near the limit.

Pros and cons

Pros: close to work, often long opening hours matched to shift patterns, possible tax savings, and sometimes priority places.

Cons: if you change job you may lose the place, and the nursery may be far from home, which matters on days off and when the child is ill. Places may be limited, and the nursery may not suit a partner’s commute.

Funded hours

A workplace nursery that offers funded places applies funded hours in the same way as any other nursery. See 30 hours from 9 months and what funded hours really cover.

Parental leave and changing jobs

Ask what happens to your child’s place, and to any salary sacrifice, if you go on maternity or parental leave, reduce your hours or leave your job. Some schemes let you keep the place at the full fee; others end it.

What to ask

• Who runs the nursery, and what is the employer’s role?
• How does salary sacrifice work, and what will I save?
• What happens if I leave my job or go on parental leave?
• How are funded hours and extras handled?
• What are the opening hours and holiday closures?

Then judge the nursery itself like any other: visit with our visit checklist, read the latest Ofsted report and compare the cost using our childcare cost calculator. The workplace nursery glossary entry gives a short definition.