Funded hours rates for nurseries: what providers are paid

The entitlements you can deliver

The offer in England has expanded substantially, with working-parent entitlements now reaching children well below the age of three [1].

How hourly rates are set and reach you

Central government funds local authorities through a national formula. Each local authority then sets its own provider rate, retaining a small proportion centrally and passing the remainder to settings [2].

1. The Department for Education sets a national funding rate per authority.
2. The local authority applies its own formula, including any supplements for deprivation, quality or rurality.
3. A capped proportion may be retained centrally for administration and inclusion funds.
4. The remaining base rate is paid to providers per funded hour delivered.

Two consequences follow. First, your rate is not negotiable at setting level, but the local formula is consulted on annually through the schools forum — attend, or send your association representative. Second, neighbouring authorities can pay materially different rates for identical provision, which matters if you operate across a boundary.

Compare your rate against your true hourly cost of delivery, not your headline private fee. Cost of delivery is staff cost per occupied hour plus premises, food, consumables and overhead, divided by realistic occupancy. If the funded rate sits below that number, every funded hour you add makes the shortfall larger.

Charging rules: what you can and cannot do

The funded entitlement must be genuinely free at the point of use. You may charge for things that sit outside it, provided those charges are optional and clearly separated [2].

Publish a clear fees and charges statement showing the funded hours, the optional extras with their prices, and any additional hours. Invoices should mirror it line by line. Most disputes and most local authority interventions start with an invoice a parent could not decode.

Eligibility codes, headcount and claims

Working-parent entitlements require the parent to obtain an eligibility code through the government childcare service, which you then validate through your local authority portal [3].

1. Collect the code, the child’s date of birth and the parent’s National Insurance number before the child starts.
2. Validate the code in the provider portal and record the validity end date.
3. Confirm the child is on roll at the headcount or census date — this is what triggers payment.
4. Track reconfirmation: parents must reconfirm eligibility periodically, and lapses are the most common cause of lost income.
5. Keep a parent declaration form on file for each funded child, signed and dated each term.

Supplementary funding worth claiming

Beyond the base rate, several streams are underclaimed — usually because nobody in the setting owns them.

• Early Years Pupil Premium — additional per-hour funding for eligible 3 and 4-year-olds. It requires the parent’s details to be checked and must be spent on improving outcomes, with a record of impact [4].
• Disability Access Fund — an annual lump sum for each eligible 3 or 4-year-old in receipt of Disability Living Allowance, paid to the setting the child attends [5].
• SEN Inclusion Fund — locally administered support for children with lower-level or emerging SEND, usually applied for through the local authority’s inclusion team.
• Local supplements — deprivation, quality or flexibility supplements built into some local formulas and paid automatically, but worth verifying you are receiving.

Give one named person responsibility for checking eligibility for every new starter. A single missed Disability Access Fund claim is worth more than most settings spend on resources in a term.

Cash flow, clawbacks and forecasting

Funded income behaves nothing like private fee income. Private fees arrive monthly in advance; funding typically arrives partly in advance of a term and partly in arrears after headcount adjustment, with corrections applied later [2].

• Build a 13-week rolling cash-flow forecast that separates funded and private income streams.
• Assume adjustments: leavers, code lapses and headcount corrections all reduce a later payment.
• Hold a reserve equal to at least one month of payroll before you rely on funded volume.
• Reconcile every funding payment against your own attendance records within a fortnight.
• Never treat the summer term payment as available cash across a low-occupancy August.

If you are building or revising a financial model around a funding-heavy roll, our nursery business plan template sets out the cost categories and break-even method to use.

How Nursery Advice helps

Funded-hour availability is one of the first things parents filter on and one of the last things most nursery listings state clearly. Vague wording costs enquiries from exactly the families you want.

A claimed listing lets you state precisely which entitlements you accept, from what age, whether you stretch hours across the year, and what optional extras cost. Parents self-qualify before they call, and your enquiries get better rather than merely more numerous.

Claiming takes just a few minutes. Claim your nursery listing, or see what a claimed listing includes