At Kinsail, we help employers and parents access this benefit seamlessly. This guide will explain exactly how it works, how much you could save, and how to get started. We promise to keep things simple, no jargon, just the information you need.

What Is Salary Sacrifice for Childcare?

Salary sacrifice is an arrangement where you agree to receive a lower gross salary in exchange for a non-cash benefit, in this case, your employer pays your nursery fees directly. Because the payment comes from your pre-tax salary, you don't pay Income Tax or National Insurance on that portion of your earnings.

The Workplace Nursery Benefit is a specific type of salary sacrifice arrangement governed by HMRC rules under Section 318 of ITEPA 2003. Unlike Tax-Free Childcare, there's no cap on how much you can save, the bigger your nursery bill, the more you benefit.

To qualify, you need to be employed (self-employed individuals aren't eligible), and your child must attend an Ofsted-registered nursery that participates in the benefit. Your employer must also offer the benefit, though more and more companies are adding it to their benefits packages.

How Much Can Parents Save?

The savings can be substantial. Depending on your tax band, you could reduce your nursery costs by between 32% and 47%. Here's what that looks like in practice:

Example: If you currently pay £1,500 per month for nursery, here's what you could save:

Tax Band	Monthly Saving	Annual Saving
Basic Rate (20%)	£480	£5,760
Higher Rate (40%)	£630	£7,560
Additional Rate (45%)	£705	£8,460

Important note: Your employer needs to offer the benefit for you to participate. If they don't currently, it's worth asking, many employers are keen to support working parents with meaningful benefits.

How to Use Salary Sacrifice to Pay for Nursery Fees

Getting started is simpler than you might think. Here's the process:

1. Check if your employer offers the benefit. Speak with your HR or benefits team. If they work with a platform like Kinsail, the process is largely automated.

2. Confirm your nursery is eligible. Your nursery must be Ofsted-registered and willing to participate in the benefit. Many nurseries are already set up for this.

3. Agree your salary adjustment. You'll sign a simple agreement reducing your gross salary by the amount of your nursery fees.

4. Your employer pays the nursery directly. Each month, your employer sends payment to the nursery on your behalf, before tax is calculated.

5. You save immediately. Your tax and National Insurance are calculated on your reduced salary, so you see savings from your very first pay slip.

Workplace Nursery Benefit vs Tax-Free Childcare

Tax-Free Childcare (TFC) is the government scheme where you receive 20p for every 80p you pay into a childcare account, up to a maximum of £2,000 per year per child. It's a good option, but it has limits.

Here's how the two compare:

Workplace Nursery Benefit	Tax-Free Childcare
No cap on savings	Capped at £2,000/year per child
Saves Income Tax + National Insurance	20% top-up only
Best for higher earners & higher fees	Best for lower nursery costs
Requires employer participation	Available to self-employed too

Can you use both? No. You cannot use Tax-Free Childcare and a Workplace Nursery Benefit simultaneously for the same child at the same setting. However, some families continue to pay into their TFC for when their child leaves nursery, to support with breakfast and after school clubs once at school age.

Common Myths & Misconceptions

"My employer needs to pay extra." Not true. Employers actually save money through reduced National Insurance contributions. It's cost-neutral or even beneficial for them.

"It only works for big companies." Any employer can offer the benefit, regardless of size. Platforms like Kinsail make it straightforward for businesses of all scales.

"It will reduce my pension contributions." This depends on how your employer calculates pension. Many employers base contributions on your pre-sacrifice salary, so there's no impact. Always check with your HR team.

"It's complicated to set up." Modern platforms have automated the entire process. From enrollment to payments, everything runs smoothly in the background.

The Role of Employers

More employers are recognising that childcare support helps them attract and retain talented staff. The cost of losing an employee to unaffordable childcare, and recruiting their replacement, far outweighs the administrative effort of offering a nursery benefit.

Kinsail helps employers implement the Workplace Nursery Benefit properly, handling everything from HMRC compliance to nursery partnerships and employee onboarding. We ensure the benefit is set up correctly from day one, so employers can offer it confidently and employees can access savings immediately.

Real-Life Example

Sarah, a marketing manager from London, was paying £1,800 per month for her daughter's nursery. When her employer introduced the Workplace Nursery Benefit through Kinsail, she enrolled immediately. As a higher-rate taxpayer, she now saves over £750 every month, nearly £9,000 per year. "It's made a genuine difference to our family finances," she says. "I only wish I'd known about it sooner."

Frequently Asked Questions

1. Does salary sacrifice affect maternity pay?

   It can do. Statutory Maternity Pay is calculated based on your average earnings, so a lower gross salary could reduce your entitlement. It's worth pausing the arrangement before any qualifying period if this applies to you.

2. Can I switch from Tax-Free Childcare?

   Yes. If you're currently using Tax-Free Childcare and your employer offers a Workplace Nursery Benefit, you can switch. You'll need to stop using your TFC account for the nursery fees covered by salary sacrifice.

3. Does every employer offer this?

   Not yet, but more are adding it every year. If your employer doesn't currently offer it, let them know there's demand, platforms like Kinsail make implementation straightforward.

4. Are pension contributions affected?

   It depends on your employer's policy. Many calculate pension contributions on your pre-sacrifice salary (so no impact), but some use post-sacrifice figures. Check with your HR team to confirm.

5. Can it be used for part-time nursery?

   Absolutely. The benefit works for any amount of nursery fees, whether your child attends full-time, part-time, or just a few days a week.

6. How quickly does it start saving me money?

   Immediately. Once the salary sacrifice agreement is in place, your very next pay slip will reflect the tax and National Insurance savings.

7. What happens if I change jobs?

   Your salary sacrifice arrangement is with your current employer, so it would end if you leave. However, if your new employer offers the benefit, you can set it up again, or ask them to consider it.

Final Thoughts

Childcare costs don't have to consume your household budget. The Workplace Nursery Benefit is one of the most effective ways to reduce what you pay, and the savings can genuinely transform your family's finances.

If your employer already offers this benefit, the hardest part is simply signing up. If they don't, consider sharing this article with your HR team, you might be surprised how receptive they are.

For employers looking to implement the benefit, Kinsail makes it simple. And for parents exploring nursery options, Nuuri's nursery finder can help you discover great nurseries in your area. Parents can also use Nuuri’s nursery fee calculator to see average nursery fee’s in their area and for individual nurseries, prior to a salary sacrifice structure.

About the Author

Oliver Diggins is the founder of Kinsail, a modern workplace nursery benefit platform helping UK families save on childcare costs. With a background in Product Design and a passion for making quality childcare accessible, Oliver and the Kinsail Team work with employers and nurseries nationwide to deliver a modern approach to salary sacrifice benefits. Learn more at kinsail.co.