Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1 The purpose of this paper is to set out proposals to change the way the Childcare Voucher scheme operates at Hampshire County Council (HCC).

1.2 This paper seeks to:

· set out the reasons for changing the way the scheme operates in response to changes to Her Majesty's Revenue and Customs (HMRC) guidance following amendments to regulations covering the provisions of benefits during maternity leave

· set out the potential cost liability of continuing to provide the childcare voucher scheme as a result of the HMRC changes

2. Contextual information

2.1 Childcare vouchers operate on a salary sacrifice basis. Salary sacrifice allows an employee to `sacrifice' a proportion of their salary in exchange for a non-cash benefit. Tax and national insurance (NI) is exempt on the `sacrificed' amount up to a certain value.

The childcare voucher scheme at Hampshire County Council is provided through Busy Bees and the contract was awarded following open tender.

The effect of the HMRC changes following amendments to the Sex Discrimination Order and Maternity and Parental Leave Regulations in October 2008 mean an employer must continue to provide non-cash benefits e.g. childcare vouchers, throughout the whole of an employee's maternity leave (Ordinary Maternity Leave and Additional Maternity Leave) if they were in receipt of those non-cash benefits at the start of their maternity leave. HMRC guidance confirms this must be provided at the employer's expense where there is no salary to sacrifice i.e. salary sacrifice cannot be applied to Statutory Maternity Pay (SMP) or nil pay.

3. HCC's practice since November 2008

3.1 Hampshire County Council has complied with the required change since November 2008 by not applying salary sacrifice to SMP or nil pay and has provided childcare vouchers without the potential to recoup the cost.

4. Influences for further change

4.1 Information has been emerging on different employers interpretation of these changes, particularly in relation to whether salary sacrifice can be applied to Occupational Maternity Pay (OMP). As a result of this, Remuneration & Benefits have liaised with legal and taxation and other stakeholders within HR, all of whom have agreed that the cleanest option in delivering legal compliance is to move away from what now appears to be incorrect practice of applying a `deduction' to maternity pay and instead to calculate Occupational Maternity Pay (OMP) on the reduced post-sacrifice salary and, as HCC is doing, provide vouchers throughout maternity leave without the potential to recoup costs.

HR, Taxation and Legal in HCC are agreed that this is the most appropriate route to ensure legal compliance. In the meantime our intelligence of other organisations is that they appear to be deferring making a change to the method of calculation to what we consider to be the correct interpretation of the guidance.

The situation continues to develop with various organisations lobbying the Government for change. The BBC reported in May that the Chamber of Commerce has been urging companies to withdraw from the scheme until the ruling has been tested in court and the cost liability to employers clarified.

4.2 Costing implications

The changes to the HMRC guidance in response to the statutory changes have significant costing implications, as outlined below:

4.2.1 For non-school departments:

a)Prior to November 2008 estimated National Insurance savings were approximately (based on the numbers in the scheme) £25,533

b) From November 2008 the estimated cost of providing the scheme after applying the HMRC changes is (based on numbers in the scheme) £47,814

c) The estimated costs of providing the scheme if we were to calculate maternity pay on post-sacrifice salary rather than `deduct' from salary would be £70,965

4.2.2 For Schools, the respective figures are:

a) saving of £36,144

b) cost of £109,227

c) cost of £156,200

These figures have been verified by the Financial Strategist who provides finance support to Schools.

4.3 Contract Renewal

The current contract is due for renewal or retendering in May 2010. In the period between now and then, it is proposed that the costs of operating the scheme are monitored, such that Employment in Hampshire County Council (EHCC) Committee can consider in early 2010 whether they wish to continue to operate the scheme

4.4 Potential mitigation

4.4.1 To help mitigate some of the cost liability, we would like to introduce the following changes to the way the scheme operates:

· that limits are introduced to the frequency an employee can change their order within a specified period i.e. can only make one change every 6 months. This is intended to prevent employees reducing the value of their vouchers before SMP is calculated (which is calculated on the post-sacrifice salary) and then increase their order prior to starting maternity leave to maximise the benefit. Whilst we have always had the facility to operate the scheme in this way, HCC had not chosen to do this previously in order to provide maximum flexibility and benefit to our employees.

4.4.2 To further help mitigate some of the cost liability, we are exploring the following changes to the way the scheme operates:

· that income-related earnings i.e. overtime, occupational maternity pay, occupational sick pay etc no longer be calculated on the pre-sacrifice salary but on the reduced post-sacrifice salary, with the exception of pensions. It is difficult to project the cost savings from this. These are probably relatively small i.e. as it is mostly employees at grade E and below that are eligible for overtime and it tends to be employees at grade D and above that participate in the scheme.

· County Treasurers have reported an increase in the number of requests for refunds for unused vouchers. This is a time consuming exercise because of the need to liaise with Busy Bees, calculate the tax and NI due and manually administer the refund. We are considering whether an administration fee should be introduced to cover some of the cost of this additional work and set a time limit for claiming.

5 Communication issues

It will be necessary to communicate to participants in the scheme the change to the frequency with which they can make changes to their orders. It is possible members may be asked about the changes and it is proposed to provide some contextual information to Executive Members to help them with this.

Scheme guidance would need to be updated if we were to introduce an administration fee for refunds.

6 Recommendations

a) That the Committee notes:

i) the change in HMRC guidance such that an employer must continue to provide childcare vouchers to employees in the scheme without the potential to recoup the cost during periods of SMP and nil pay.

b) That the Committee approves:

i) that the frequency with which orders can be changed is limited to once every 6 months

ii) that in principle, the calculation of maternity pay is changed so that it is calculated on post-sacrifice salary, recognising the potential cost impact, although it is proposed to defer at this stage whilst we continue to test whether this can be avoided

iii) that if the change in calculation is applied as outlined above, this will be accompanied by a change to the calculation of other income-related earnings on post-sacrifice salary

iv) that consideration be given to the introduction of an administration fee for requests for refunds and a time limit set for claiming a refund following the issue of vouchers

CORPORATE OR LEGAL INFORMATION:

Links to the Corporate Strategy

Other Significant Links

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. N/A

2. Impact on Crime and Disorder:

2.1. N/A

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

N/A

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

N/A