Benefits Strategy

Why You Should Offer Day Care Benefits for Employees & How to Offer Them to Your Team

Written by Kate

Daycare is often one of the most expensive items for working parents with young children. That’s why many employers are now opting to offer day care benefits for employees, as a fringe benefit to cover this expense. While these costs may vary from state to state, in many areas, daycare can be over $1500 a month for one child and more than $2500 for two or more children. That’s more than half of an average household’s monthly income and higher than tuition at a four-year college!

Outrageous costs aside, accessing quality care is another problem. Since the pandemic, there’s been a childcare services shortage because some providers closed for good. The remaining facilities are overcrowded with waitlists so long your child will likely be grown before your name comes up. Others have inconvenient hours or locations, which can mean longer commutes for drop-offs and pickups.

This leaves working parents in a dilemma: How do they balance work with childcare? The good news is that some employers are already realizing this crisis and stepping in with daycare benefits for employees.

In this article, we’ll discuss different daycare benefits you can offer your employees, why they are essential, and how you can offer them at your company. We will also look at how other companies offer daycare benefits and how that benefits them.

What are Day Care Benefits for Employees?

Daycare benefits are employers’ response to the fast-paced talent market. In the simplest terms, the term refers to employee benefits that provide families with affordable, reliable childcare options during work hours. This includes but isn’t limited to both full-time and part-time daycare centers and home childcare providers.

 A employer may provide other company perks, such as paying for half the cost of tuition at a preschool to increase access to high-quality education programs. Daycare benefits can also cover travel costs when looking for an appropriate place to leave children while on duty.

Why Do Employers Sponsor Child Care and Day Care Programs for Their Employees?

Admittedly, sponsoring employee childcare and daycare programs can be hard on your budget. However, this is one situation where the pros outweigh the cons. Firstly, offering daycare benefits enhances your employees’ work-life balance. Secondly, it saves your company money. Here’s how:

It Lessens Financial and Emotional Strain on Employees

With the cost of living rising faster than wages, many parents are forced to work more hours just to keep their heads above water. Worse still, few can afford the obscene childcare costs even with a full-time job. That has forced many parents, particularly women, out of the workforce, and they now have no choice but to stay home with their children. Some employers also offer work from home stipends that may cover a part of cost of living for their employees. Alternatively other employers offer a travel stipend for employees to make their commute less expensive.

Investing in dependable childcare and daycare programs saves employees thousands of dollars and improves their quality of life. The less stress an employee has to deal with, the happier and more dedicated they will be.  

It Improves Employee Morale and Engagement

Quality, employer-sponsored daycare isn’t just about financial relief. It’s about peace of mind for employees who are parents and those who aren’t. For example, an onsite daycare can reduce the tardiness that comes with drop-offs and long commutes. It can also provide emotional security and reduce separation anxiety.

As a result, these parents are more engaged and focused on their work. That then boosts teamwork, creativity, and overall employee productivity. Happier employees are good for workplace synergy as well.

Studies show U.S. companies lose over $3 billion annually from childcare-related absences. The study also noted that employer-sponsored childcare programs can reduce that rate by 20-30%. In other words, providing onsite daycare reduces the time people take off from work to care for their children, potentially saving the company millions of dollars yearly.

It Boosts Employee Satisfaction and Loyalty

Many working moms are turning down job opportunities because they cannot take care of their kids while working. A recent study shows that childcare benefits are important to 80% of working moms looking for new jobs. Further, the study found that 73% of employees would stick with their current employer if they started offering daycare benefits.

As multiple studies have found out, children will often come out on top if parents have to choose. Providing quality childcare eliminates the need to choose between their careers and their children’s well-being, boosting their satisfaction and loyalty.

What Are 5 Ways Companies Are Benefiting by Providing Child Care Benefits?

Tech companies like Google and Netflix are famous for their fantastic childcare benefits. The question is, what do they gain by investing so much money in these programs? What’s the economic sense behind their generosity?

Well, here are the top 5 benefits according to various HR experts:

  1. Strengthens talent recruitment: Childcare benefits are a big game changer in recruiting and employee retention. For example, adding onsite daycare can be a valuable incentive to qualified single parents with young children who may otherwise turn down the job because of childcare-related constraints. Employees may also be more likely to recommend your company to prospective hires.
  2. Increases diversity, equity, and inclusion: Employer-sponsored childcare programs help address the lack of affordable, quality childcare that is often an obstacle for Black, Latinx, and indigenous families. It also attracts more millennials (who currently account for the majority of U.S. births) and Gen Zers.
  3. Enhances corporate image: Companies with more progressive and up-to-date policies are more attractive to prospective employees. They are seen as progressive leaders who value family life and diversity, resulting in a better workplace culture. 
  4. Reduces staff turnover: Employee turnover is expensive and disruptive to a company’s operations. When one person leaves, the company must find a replacement in order to maintain its current workload. A good childcare program improves staff retention rates, which means less time spent finding replacements and more focus on business goals.
  5. Increases productivity: Access to high-quality, reliable childcare has significant benefits beyond the individual family. Parents’ physical and mental well-being has been linked with increased productivity, reduced workday absenteeism, and improved parental education (this may even take the form of an education stipend, or tuition reimbursement). That allows them to take on more responsibilities and advance their professional development. 

Are Daycare Benefits Tax-Deductible?     

Daycare benefits are tax-deductible, but there are some conditions you must meet per the Internal Revenue Service (IRS). The tax code requires that expenses be “ordinary and necessary.” Simply put, an employer must demonstrate the benefits they offer are useful, not just the newest and most expensive.

Another thing to consider is the amount. A tax credit can be claimed for 25 percent of qualified childcare costs, up to a maximum of $150,000. Qualified childcare costs include all expenditures incurred from property acquisition to operating expenses. Employers can also receive up to 10% of resource and referral expenditures (expenses incurred when a business contracts with off-site facilities or carers).

Services must be accessible to all employees without favoritism for the company to qualify for these credits.

5 Examples of Employers that Offer Day Care Benefits

Offering childcare and daycare programs for employees is becoming more popular. Here are 5 examples of employers that provide great daycare benefits:

  1. Google: Childcare package includes backup babysitting and Mothers’ Rooms for moms to breastfeed and change their babies at work. They also offer up to 18 weeks of paid parental leave.
  2. Aflac: The insurance and financial services company provides daycare centers onsite, so employees can drop off their children at work. They also offer child care services after regular hours if an employee needs to stay late due to an emergency or extended overtime shifts. 
  3. Adobe: They offer a Dependent Care FSA as well as Center-based and in-home backup child care services. 
  4. Best Buy: Offers an annual 10-day Backup Childcare benefit to its part-time and full-time workers in the U.S. Also has a paid caregiver leave plan.
  5. Major League Baseball: Top benefits include access to backup childcare, babysitter and pet sitter networks, nanny placement services, and discounts on tutoring and test prep programs.

How to Offer Day Care Benefits at Your Company

Depending on your budget, you can provide a wide range of different programs to meet your employees’ needs. A well-designed, affordable benefits program can optimize utilization rates, so you must take time to decide what works best for your company’s needs. (Here’s an in-depth guide on designing and implementing an effective benefits plan.)

Popular daycare benefits include onsite childcare, paid family leave, flexible spending accounts, childcare subsidies, and backup childcare.

Employer-Sponsored Onsite Childcare

Onsite child care is one of the most important benefits you can offer your employees. Onsite means the school or center where employees’ children will be going is located in the same building as your workplace. Some benefits of such programs include:

  • It offers convenience and peace of mind and helps the parent get back to work quickly.
  • It’s easier on the child because they’re not constantly being transferred from one location to another, which can be tiring for them and make it difficult to adjust.
  • It saves the employee time and money they’d spend in a private daycare facility.

The United States is the only first-world country without a federal policy on paid maternity or family leave. The Family and Medical Leave Act (FMLA) guarantees 12 weeks of unpaid leave to workers who have been with a company for more than one year, but it only applies to about 50% of workers in the country.

A growing number of employers are offering paid family leave benefits at their discretion, recognizing that new parents need time to bond with their children after they’re born or adopted. A combination of paid and unpaid family leave can be a win-win for you and your employees.

Childcare Subsidies

There are two types of childcare subsidies: one-off payments and recurring reimbursements (or employee stipends). Some employers even offer these subsidies in the shape of a lifestyle spending account or lifestyle benefits (sometimes even as a wellness reimbursement). You can offer a childcare subsidy program to your employees as part of the employee package, such as paying a certain percentage of daycare costs each month or week. Alternatively, you can offer a one-time pre-tax baby bonus. That will reduce stress on your staff by making their work lives easier and creating a happier workplace.

Backup Childcare

Parents often have to scramble when their child’s care falls through, or even worse, during work emergencies. Some are fortunate enough to have a spouse or other family member that can step in and provide the necessary care, but not everyone is so lucky.

Help your employees by lining up convenient and speedy backup childcare when needed. Some companies work with third-party childcare providers to offer temporary in-home assistance, such as nannies. Another option would be reserving space in a different daycare from the one your employees use.

Flexible Spending Accounts

A Flexible Spending Account (FSA) is an excellent tax-advantaged way to show your employees you appreciate them and want to provide benefits to help raise a family. FSAs allow employees to save pre-tax dollars to pay for work-related daycare expenses such as daycare, preschool, after-school events, etc.

These accounts provide some relief and flexibility for working parents by allowing them to cover childcare expenses that would otherwise be considered “extra” or not reimbursable. (Learn more about FSAs and how they can help your employees here!).

Final Thoughts

Daycare is expensive and can be a drain on any budget. But, it’s an investment in your workforce that can pay off in increased productivity and loyalty from staff members who have their childcare needs met by you. If you would like to learn more about fringe benefits, check out this guide on the different types of fringe benefits you can offer.

Schedule a free consultation call with our team today if you are interested in learning more about setting up a daycare benefit policy for your company. Our experts will help you navigate the best way to make this decision for your business so that everyone wins!

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