Childcare Salary Sacrifice Scheme – Terms of Scheme
Introduction
In 2012-13, the University will continue to offer University staff with children in the Pre-School Centre the opportunity to participate in the childcare salary sacrifice scheme which has formed part of the University's Flexible Benefits scheme since 1 October 2008. Staff who are eligible to participate in the scheme have the potential to reduce their tax and National Insurance contributions.
1. What is a salary sacrifice scheme?
A salary sacrifice happens when an employee agrees to an alteration to their contract of employment whereby the employee gives up the right to receive a portion of his or her salary. In return, the University agrees to provide you with a benefit by paying a corresponding sum to the Pre-School Centre to cover the employee’s childcare fees. In this way, the employee’s tax and National Insurance deductions are based on the lower, post-sacrifice salary. The benefit provided is not subject to tax and NIC.
2. How does the employee benefit?
Tax and National Insurance contributions are not payable on the sacrificed portion of an employee’s salary, thus reducing tax and National Insurance deductions, as demonstrated in the examples below. The following are illustrations only – the actual tax and National Insurance savings for each individual will depend on his or her particular circumstances.
Example 1:
An employee on a basic salary of £15,000 pa, with childcare fees of £2,500 pa, who is a member of the pension scheme:
| Original salary | £15,000 |
| Annual Pre-School Centre fees | - £2,500 |
| Post-sacrifice salary | =£12,500 |
Potential savings in tax £550 +
Potential savings in National Insurance £235
Potential total savings to employee = £785 pa
Example 2:
An employee on a basic salary of £30,000 pa, with childcare fees of £5,000 pa, who is a member of the pension scheme:
| Original salary | £30,000 |
| Annual Pre-School Centre fees | - £5,000 |
| Post-sacrifice salary | = £25,000 |
Tax and National Insurance will be payable on £25,000 rather than £30,000
Potential savings in tax £1,100 +
Potential savings in National Insurance £470
Potential total savings to employee =£1,570 pa
3. How does the University benefit?
The scheme is part of the University’s approach to work-life balance, and will help to attract and retain employees by giving them the option to make savings in their childcare costs.
4. Who can join the scheme?
Employees of Lancaster University who:
• Have parental responsibility for any child(ren) (this includes stepchildren) placed in the Pre-School Centre;
• Receive a regular, monthly salary.
5. Are there any other conditions?
• The post-sacrifice salary cannot take an employee below the National Minimum Wage or the Lower Earnings Limit. Further information about the Lower Earnings Limit and the National Minimum Wage can be found on the following websites (www.hmrc.gov.uk/rates/nic.htm and http://www.direct.gov.uk/en/employment/employees/thenationalminimumwage/dg_10027201/).
• Outstanding childcare costs must have been settled in full before an employee will be eligible to join the scheme.
6. What does ‘parental responsibility’ mean?
That the child is:
• A child of the employee maintained at the employee’s expense, or
• Is resident with the employee, or
• Is a child in respect of whom the employee has all the rights, duties, powers, responsibility and authority which by law a parent of a child has in relation to the child and the child’s property.
7. What is the role of HMRC?
The scheme has been approved by HM Revenue and Customs.
8. Can I leave the scheme at any time?
Because of HMRC rules, you cannot leave the scheme at any time. We will, therefore, offer the scheme on a yearly basis (from 28 Aug 2012 – 23 August 2013) and employees will not be permitted to leave the scheme during this time unless:
• Their child(ren) leave(s) the Pre-School Centre.
• The employee ceases employment with the University.
• The employee’s salary changes, such that their post-sacrifice income will be less than the National Minimum Wage, or below the Lower Earnings Limit.
• There is another significant change in the employee’s contractual hours or salary (for example, a member of staff on maternity leave).*
*Please note that the separate Pre-School Centre terms and conditions also apply:
Cancellation/Termination
1. Each booking is for a specified term date. No alterations can be made to the start or end date of a term booking.
2. If a child is to be withdrawn from the centre, notice needs to be given in writing. The remaining sessions of the terms booked dates will be charged, unless it is possible to reallocate the sessions.
9. What if I will be taking maternity leave?
In addition to completing the ‘Statement of Intent’ form (available on the Human Resources website), staff should notify their Faculty HR Assistant as soon as possible if they will be taking maternity leave.
Maternity pay is usually based on your salary during the 15th week before the expected week of childbirth (known as the ‘qualifying period’), so if you are participating in the salary sacrifice scheme during this week, your maternity pay will be based on your post-sacrifice salary. Should you wish your maternity pay to be based on your pre-sacrifice salary you must notify the appropriate HR Assistant, no later than the week before the ‘qualifying period’, that you wish to withdraw from the scheme. Once you have been withdrawn, your maternity pay will be based on your pre-sacrifice salary, and nursery sessions must thereafter be paid for upon receipt of invoices.
10. Can I join the scheme at any time?
The scheme will run from 28 Aug 2012 – 23 August 2013. Parents must sign up from the beginning of the year, and for the full scheme year (unless they are employed on fixed-term contracts that end part-way through the year – see point 23).
Staff who have children during the year and new members of staff are the only categories permitted to join part-way through the sacrifice year. Subject to availability, salary sacrifice arrangements may commence from the start of term.
11. How will the scheme affect booking periods?
Because of Inland Revenue rules, a contract variation must occur based on the amount of salary that is being sacrificed for the year. Pre-School Centre sessions will, therefore, need to be booked in advance for the salary sacrifice year (as was the case in previous years), so that we know how much to sacrifice from your salary.
It will not be possible to refund unused sessions, so we recommend that you think carefully when booking, and request only the number of sessions you believe you will use during the salary sacrifice year.
If, at a later date, you require sessions in addition to those you have booked through the salary sacrifice scheme, you will not be able to add these to your salary sacrifice allowance. Subject to availability, however, you may be able to book additional sessions directly with the Pre-School Centre (ie. outside of the salary sacrifice scheme) and pay for them in the normal way (currently via invoicing).
12. Are there any occasions when it might be possible to change the number of sessions I have booked through the salary sacrifice scheme?
You will not be able to change the number of sessions you have booked unless:
• There is a significant change in your salary or contractual hours (please see examples below).
• There is a significant and sustained change in the circumstances of you or your child (for example, you become seriously ill, divorce or separate, have another child or adopt, your partner becomes seriously ill or dies, or your child becomes seriously ill).
13. What if my salary is reduced (eg. because of a decrease in hours)?
If your salary is significantly reduced, it will be possible to decrease the number of sessions booked through the scheme. You could also, however, continue to use the original number of sessions, although your post-sacrifice salary cannot fall below the National Minimum Wage or the Lower Earnings Limit. If this situation arises, you must either leave the scheme, or decrease the number of sessions booked through the scheme so that your sacrificed salary rises to be above the National Minimum Wage and Lower Earnings Limit.
14. What if my salary increases (eg. because of an increase in hours)?
It may be possible, in this case only, to increase the number of sessions covered by the scheme, subject to availability, and in consultation with the Pre-School Centre Manager.
15. What is the process for applying to join the scheme?
Once you have read the Information Booklet (Terms of the Scheme) and sought independent financial advice, if appropriate, you will need to complete a Flexible Benefit Scheme booking form for the sacrifice year.
The Pre-School Centre will confirm that the sessions you have requested will be available, and you will be advised of the amount you will be salary sacrificing.
You will then be advised to visit the flexible benefits system to confirm the amount you are salary sacrificing.
If you decide not to accept the changes to your contract, or you are deemed to be ineligible to join, you must re-book your sessions via the appropriate form in the normal way.
16. What happens when my child becomes eligible for Early Years Funding (EYF)?
Most three and four-year olds are eligible to receive the Government-funded Early Years Funding. This entitles children to free nursery sessions. Parents whose children are eligible will have their fees reduced by the relevant amount before the salary sacrifice occurs.
Eligible parents must, therefore, indicate on the scheme booking form how much early years funding they intend to claim against their Pre-School Centre fees.
The amount of the EYF sometimes increases slightly in summer term. Should this happen, the reduction to your salary will continue to be based on the original amount (although parents should be reassured that any loss in EYF is likely to be offset by the savings potentially made by participating in the scheme).
17. What if I take unpaid leave?
You must let us know two months in advance that you will be taking unpaid leave. In most circumstances you must withdraw from the scheme, and revert to paying for your childcare sessions on receipt of invoices. You can apply to re-enter the salary sacrifice scheme when you return from your period of unpaid leave. You must give us two months’ notice of your return date.
18. Will I still be awarded any pay awards and increments?
Relevant pay awards and increments (including increases in salary due to promotion) will be added in the normal way (to your pre-sacrifice salary).
19. Will my pension be affected?
Both USS and LGPS have confirmed that members participating in the salary sacrifice scheme will not lose pension benefits, as both employees and the University will continue to make pension contributions on the pre-sacrifice salary. Those with personal pensions, or those paying AVCs, should seek independent financial advice, as these may be affected by the salary sacrifice scheme.
20. Will my child tax credit and/or my working tax credit be affected?
Tax credits may be affected by the salary sacrifice scheme. You may receive a higher or lower award. You should seek independent financial advice and contact the tax credit office before you join the scheme if you are in receipt of credits (or think you are likely to be in the future).
If you are in receipt of other benefits, these may also be affected. You should contact your local social security office or your local authority for independent advice.
21. Will allowances such as sick/maternity/holiday pay be affected?
Any sick pay, holiday pay or maternity pay (and most other allowances which are applied as a percentage of your salary) to which you are entitled will be based on your post-sacrifice salary (although see point 9 regarding maternity leave and pay). Overtime pay will be based on your pre-sacrifice salary.
22. What are the implications for entering into a mortgage agreement?
Entering the salary sacrifice scheme may have an impact on the amount of money you can borrow. Please check with your independent financial adviser if this may be an issue.
23. I am employed on a fixed-term contract. Can I still join the scheme?
Yes, if your fixed-term contract covers the period 28 Aug 2012 – 23 August 2013, or if it is very likely that your next contract extension will take you to 23 August 2013.
24. Will I revert to my original salary when I leave the salary sacrifice scheme?
When an employee leaves the scheme but continues employment with the University, their salary will be as if they had not joined the salary sacrifice scheme.
25. How will HR know if my child leaves the Pre-School Centre?
The onus will be upon members of staff to let their Faculty HR Assistant know if a child is withdrawn from the Pre-School Centre (including to start school). HR require TWO MONTHS’ NOTICE of such a change, unless there is an exceptional reason why it is impossible for such notice to be given.
26. My partner and I are both eligible to participate in the salary sacrifice scheme. Can we both join?
Yes, although you cannot sacrifice the same fees more than once (ie. the total amount you sacrifice between you cannot exceed the total cost of your fees).
27. Where can I get independent advice?
The University cannot give you independent advice. Employees interested in joining the scheme are first, therefore, advised to seek independent advice from, for example, their union, the Citizens’ Advice Bureau, an independent financial adviser, their social security office, their accountant, or their solicitor. You will need to confirm on the application form that you have been advised to seek independent advice.
Further information
Failure to comply with the terms of the scheme, as set out here, may result in the University removing an employee from the scheme, and/or the employee having to pay back any savings they have made.
• The University reserves the right to withdraw or amend the scheme at any time, should there be changes in Inland Revenue (or other relevant) guidelines or practice.
• The scheme will be reviewed on an annual basis.