Lost earnings, productivity, and revenue stemming from child care challenges cost employers and employees an estimated $122 billion last year, according to a report from the Council for a Strong America. The issue for employees is two-fold: working parents struggle with not only finding child care assistance, but also paying exorbitant child care costs.
With government-mandated shutdowns impacting schools and businesses, nearly 9,000 child care centers closed in 37 states between the end of 2019 to March 2021, according to a Child Care Aware survey. That left many parents scrambling at the last minute to either find new child care providers or to juggle tending to their kids while trying to perform their job. Even if their child care center has remained open, its services often come with a hefty price tag. More than two-thirds (72%) of parents say they're spending 10% or more of their annual household income on child care costs, according to Care.com's 2022 Cost of Care Survey.
Meanwhile, these child care challenges impact the workplace by increasing employee stress, reducing employee productivity, and hindering work-life balance. As a result, the overall well-being of employees greatly suffers.
However, human resources professionals can help alleviate this growing burden for many families by implementing child care benefits.
In this post, we'll cover:
- What are Child Care Benefits?
- Types of Child Care Benefits
- Why You Should Offer Child Care Benefits
What are Child Care Benefits?
Child care benefits provide working parents with support for their children during the workday. These benefits have risen in popularity since the pandemic, with 56% of employers offering some form of child care assistance in 2022, compared to 36% in 2019, according to a Care.com report.
The U.S. Chamber of Commerce Foundation found that nearly 60% of working parents blamed their departure from the workforce during the pandemic on being unable to find child care services. More than a quarter (26%) quit their job because they were unable to pay for such assistance. Considering that many women are the primary caregivers in their families, responsible for elder care and/or taking care of children, it's no surprise that as many 2 million American women left the workforce in 2020.
At the same time, with more than half (52%) of essential workers in the U.S. being women, companies had no choice but to help these desperate employees find accessible and affordable child care centers or other child care providers. Perhaps the increase in these highly desired benefits is why women are returning to the workplace at a higher rate than their male counterparts, as reported by The Washington Post. After all, 46% of companies told Care.com that they're prioritizing benefits, perks, and services that support employee's children much more in 2023.
Types of Child Care Benefits
Child care subsidies
States give financial assistance to eligible working parents or parents attending school in the form of a child care subsidy, which is funded by the federal government. Depending on each state's specific criteria, a child care subsidy can help cover the cost of in-home care and/or attending a child care center. Employers may also provide child care subsidies, such as day care tuition reimbursement, to financially support employees struggling to cover expenses related to their children's care.
Since 2001, the Internal Revenue Service (IRS) has rewarded such businesses with an annual tax credit of up to $150,000. The IRS stipulates that the Employer-Provided Child Care Credit is "25% of the qualified child care facility expenditures, plus 10% of the qualified child care resource and referral expenditures paid or incurred during the tax year." The IRS says such qualified expenditures include expenses associated with acquiring, constructing, rehabilitating, or expanding property to be used as part of a child care center, like a day care, as well as for its operating expenses. Speaking of which...
On-site day care
Although an on-site day care would reduce commuting time and child care costs for workers, fewer than 6% of employers offer the benefit at their workplace, according to a 2022 survey by the Society for Human Resource Management (SHRM). Having an on-site day care can benefit not only workers by easing stress and separation anxiety from their child, but also employers interested in bringing employees back to the office.
A family stipend, or family allowance, is a sum of money given to workers in addition to regular wages to help them pay for family-related expenses, such as child care. Compt, a 100% IRS-compliant reimbursement platform, helps companies offer inclusive, personalized, and flexible compensation and benefits programs, which include family stipends. According to Compt’s 2022 Perk Study, the family stipend category jumped from No. 8 to the top 3 by money spent by employers compared to 2021.
Paid family leave
The U.S. is the only industrialized country in the world that doesn't guarantee paid family leave. Instead, the Family and Medical Leave Act (FMLA), which was passed only 30 years ago, requires companies with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave per year.
In fact, only Washington, D.C. and 13 states have enacted legislation requiring companies to pay workers during family and medical leave. Those states are:
- New Jersey
- New York
- Rhode Island
As for employers in the rest of the country, they get to decide whether to offer paid paternity and maternity leave. Although studies show that it's better for both parents to be involved in the early stages of a child's life, there's been a decline in companies offering these paid leave benefits since the pandemic. Paid maternity leave dropped from 53% in 2020 to 35% in 2022; paid paternity leave decreased from 44% to 27% those same years; and paid adoption leave shrank from 36% in 2020 to 28% in 2022, according to a SHRM survey.
Despite fewer companies offering paid leave, the fringe benefit remains highly sought after by job applicants, particularly young people preparing to start a family. As far as compensation goes, employers typically offer an employee about two-thirds of their salary while they are on leave.
Flexible spending accounts
Flexible spending accounts (FSAs) allow working parents to place a certain amount of pre-tax dollars from their paycheck into a separate account, which can then be used to pay for dependent care expenses, such as day care, preschool, after-school programs, and even summer day camps. (Summer school isn't included.) Dependent Care FSA funds can only be used for children under the age of 13, or for an adult unable to care for themselves that you claim as a dependent when you file your taxes.
In 2023, Dependent Care FSAs have a contribution limit of $5,000 per household and $2,500 for single filers or if married, but filing separately. Unlike other FSAs, dependent care accounts are "use it or lose it:" the IRS doesn't allow those funds to roll over into a new year.
Backup child care
Finding child care at the last minute is a nerve-wracking ordeal, which is why many large companies arrange backup support. If the children have to stay home from school because they're sick or if day care shuts down for the day due to an emergency, working parents can request backup in-home care, such as a babysitter or nanny, or even take their children to a backup child care center that their employer reserves space for, just in case.
Flexible work schedules
Here's a benefit that won't cost your company a penny. Flexible work schedules, such as remote and hybrid work, grant employees the freedom to design their workday to best suit their needs. Working from home, for example, allows parents to drop their kids off at school so they can truly focus on their job responsibilities until it's time to pick them back up in the mid-afternoon.
Why You Should Offer Child Care Benefits
Any human resources team that strives to cultivate a diverse, equitable, and inclusive workplace needs to be providing benefits that support employees with child care needs. Every employee who's a parent will have less stress in their life knowing that their employer truly values work-life balance.
As a result, employee productivity, morale, and well-being will increase, leading to improved customer service and revenue. Furthermore, when companies provide child care services, employee absences can decrease by 30% and the turnover rate can go down as much as 60%, according to the U.S. Chamber of Commerce Foundation. These benefits can also enhance recruiting efforts because every prospective employee wants to work for an employer that puts families first.
Don't forget the tax benefits that come with subsidies and FSAs. Those accounts favor the employee, as well as the company, by reducing taxable income for workers and Federal Insurance Contributions Act (FICA) and payroll taxes for businesses.
Child care benefits can positively impact all segments of your workforce. Every employee with kids – from newborns to preschool age to even those heading to college – will appreciate the support from their company. The morale boost will have a ripple effect throughout the company, even uplifting the spirits of employees currently without children.
Providing benefits that assist with child care needs and expenses is a worthwhile investment in 2023 and beyond. In today's highly competitive labor market, successful companies are those that cater to employees holistically, improving their professional, as well as personal lives. With the line between work and home blurrier than ever, employees must be able to trust that their employer will have their back when they need it most.
With Compt, you can offer a recurring, tax-compliant child care stipend to your employees. To learn more, schedule a customized demo with us today.