A childcare stipend is a fixed sum of money employees can use to cover childcare expenses, from nanny services and daycare centers to summer camps and after-school programs.
Finding quality childcare is both expensive and time-consuming, especially if your office is in a major metro area.
It's a source of constant stress that stifles productivity. And, for many working parents, a lack of access to affordable childcare can even put their participation in the workforce on hold.
Recognizing the issue, top employers are implementing a childcare stipend program to promote work-life balance and support their employees' families.
Here's what's covered in this guide:
What a childcare stipend is
Which expenses it covers
Different ways to offer them
Reasons to include them in your benefits
Childcare stipends in practice
Tax implications
Implementing your own childcare stipend program
What is a childcare stipend?
Before anything, a definition:
A childcare stipend is a fixed sum of money employers provide working parents to help cover childcare costs.
As an employer, you can offer them as a standalone perk or as part of a broader childcare benefits program. And, like other types of stipends, you can distribute them to qualifying team members monthly, quarterly, or annually, depending on your company's policy.
You might also hear childcare stipends referred to as:
Child care benefits
Dependent care assistance
Child care reimbursement
Child care subsidy
The amount of the stipend varies from company to company, but it typically ranges from a couple hundred dollars per month to up to $5,000 per year. You can set the amount based on the cost of living in your area, number of dependents an employee has, or other factors.
Note: Childcare benefits are non-taxable income, but only up to a certain amount. This makes it absolutely essential for any employer offering these stipends to use a 100% tax-compliant system.
Help working parents cover child care costs with a family stipend
Employees can spend their childcare stipend on a wide range of expenses, including:
Licensed daycares and preschools
In-home daycare services
After-school programs and camps
Babysitters or nannies
Summer care programs
Backup care services
Drop-in childcare services
Specialized programs for children with disabilities or special needs
The best thing about offering a stipend is that it gives your employees the flexibility to choose the type of childcare arrangements that works best for their family's needs. As an employer, it's the ultimate way to provide flexibility.
Three ways to offer a childcare stipend
Companies can either offer a childcare stipends as a standalone perk, integrate it into their overall benefits package, or offer them as reimbursements on a case-by-case basis.
Childcare stipends as a standalone perk
As a standalone perk, the stipend is typically awarded to employees who have children under a certain age.
The process is simple:
Members of your team apply for the stipend.
HR reviews their situation.
Your company disburses a recurring allowance through payroll.
And voila! Childcare costs are covered!
Stipends as part of broader benefits for employees
You may already offer childcare benefits like on-site daycare or a dependent care FSA (flexible spending account). You might even offer family benefits, like fertility benefits or family stipends (for other family-related expenses).
In this case, you'll need to be mindful of how the stipend works with your existing benefits. For example, if you offer both a dependent care FSA and a childcare stipend, employees will have to choose which benefit to use when it comes time to pay for expenses. And you'll have to pay close attention to tax implications.
The good news is, as part of an overall benefits package, the process is much the same. In your benefits software, you can add the child care stipend just like you would family stipends, health and wellness stipends, or any type of stipend/reimbursement arrangement.
Stipend reimbursements
In some scenarios, employers choose to cover childcare costs for employees on a case-by-case basis rather than providing a fixed amount through payroll. Unlike typical reimbursements, though, employees still have the freedom to choose the type of care they need - they aren't limited to using a specific service or provider your company has pre-approved.
Employees make upfront payments to childcare providers.
They submit receipts or invoices for childcare expenses
Your company reimburses them up to a predetermined amount.
Reasons to offer childcare benefits
For one, childcare is remarkably expensive. And it's only going up. According to Care.com data, the average weekly daycare price ($327) is up 13% from just last year. And no...not everyone can offload their parenting duties to a family member.
Beyond the simple fact that it's a fantastic way to support working parents, there are a few reasons to offer a stipend for childcare:
They improve employee morale. When your team members have to bear the full expense of childcare on top of their living expenses, it's a heavy financial burden. And that's not to mention the stress and uncertainty of finding reliable care near their home or work. Childcare stipends reduce that burden and create a more supportive work environment.
They bring in (and retain) top talent. Working mothers and fathers will always prioritize companies that provide childcare benefits. And, by offering them, you're also enabling parents to return to the workforce.
Employees value family-friendly benefits more than ever. The proof is in the pudding. Our 2024 Lifestyle Benefits Benchmarking Study, we found companies spent more on family stipends than all but two categories.
If you're here, you're here early.A 2022 SHRM report found that just 6% of employers offer access to childcare services at or near their workplace. By adding this stipend to your benefits stack, you're putting yourself way ahead of the pack...
Leading companies support families by offering childcare stipends.
Offering childcare benefits through a stipend (or stipend reimbursement) is something more and more companies are doing to support their employees' families.
Some prominent examples include:
Adobe offers up to 100 hours per year for emergency sitters, child care center fees, or backup care in-home or at a child care center.
Bank of Americaallows parents to claim up to $100 per day in childcare costs for children up to 12 years old (or 21 if they have special needs).
Citi has an extensive childcare benefits program that includes preferred childcare enrollment access, discounted backup care, and help with finding and paying for nanny services.
Patagonia offers on-site childcare facilities in some locations. In places without, the company gives stipends to support parents who need affordable nearby childcare.
PwCreimburses employees up to $2,000 per year for backup care services when their typical childcare arrangements fall through.
Tax implications of childcare stipends
Now, for the fun part. Taxes.
Childcare stipends are fringe benefits. This means they're generally taxable, with a few special exceptions. While childcare itself is an exception, childcare stipends are not. They are taxable income.
As an employer, you can provide childcare benefits that employees can exclude from their taxable wages. This exclusion is only available under a Dependent Care Assistance Program (DCAP), where employees can set aside pre-tax earnings (up to $5,000 per year, or $2,500 if single or married filing separately) to pay for qualifying dependent care expenses (which include childcare).
However, a childcare stipend is an on-demand benefit. Employees don't need to save pre-tax money in order to receive the benefit — it's just available when they need it. It doesn't meet the requirements for a DCAP, so your employees will pay federal, Social Security, Medicare, and possibly state taxes on the stipend amount.
Equally importantly, employees cannot claim the Child and Dependent Care Credit on childcare costs you've reimbursed them for or paid for with a stipend.
Implementing your own childcare stipend program
Stipends are remarkably easy to set up. Let's dive into the process:
1. Evaluate the need for a childcare stipend.
Childcare isn't the right stipend category for every organization. When deciding where to invest in benefits, you have to consider their demographics, interests, and financial needs.
You might have an idea of how many team members are parents, but the best way to do this is t run an employee benefits survey. In it, ask questions about parenting, family size, and interests in childcare benefits (including stipends and reimbursements).
Many of our customers offer a family stipend, a more inclusive benefit, which employees can use for childcare, pet-related expenses, and anything else that falls under the "family" category.
2. Evaluate stipends vs. a DCAP.
Most of the time, DCAPs are better for employers because they reduce their employees' tax burden while allowing them to save pre-tax dollars for expenses. However, they require more work to set up and administer.
If you work with lots of contractors, are just starting with benefits, or are looking for a fast, easy, and inclusive way to cover childcare for your team members, a stipend is the way to go.
3. Determine eligibility criteria.
The great thing about stipends is you have 100% freedom over who you can offer them to. Most companies offer stipends to:
Full-time employees
Contractors working 30+ hours per week
Employees who have worked for the company at least six months
You might also want to consider offering prorated stipend amounts based on financial need, hours worked per week, or other factors.
4. Set a budget and reimbursement amount.
How much should you offer? $5,000 per year, like the Dependent Care Assistance Program? How about more or less? The answer varies.
Start by looking at average childcare costs in your area. For most US metro areas, the weekly cost is somewhere between $200 and $400.
You can start lower ($100 to $200 per month) and see how effective it is. You can also provide an amount that would cover a specific number of backup care days (3 to 10 days per year, for example)
5. Launch your program with stipend software.
What makes Compt so great is companies can use it to cover more than just childcare — fitness, learning, and numerous other category of employee benefits are a breeze to set up and manage with Compt.
Custom perk stipend: Companies combine one or more of the stipends above together to create a general perk stipend that gives employees even more flexibility to choose what matters to them.
Sarah Bedrick
Chief Marketing Officer
Prior to Compt, Sarah worked at HubSpot for 6+ years, where she helped to build, scale, and grow the HubSpot Academy division. She is obsessed with understanding what makes a company culture great, being a career and life coach to people in tech, and creating cherished memories with her husband and two young kids. Her favorite Compt stipend category is Health & Wellness.
See how Compt is helping companies like yours
What HR leaders are saying about why they love using Compt for their stipends
“Prior to Compt, we offered a corporate gym membership with two local gyms. As we completed our annual benefits and perks analysis, we wanted to offer a broader stipend to support our global employee base. Compt helped us achieve that global reach and flexibility.”
Kelley Nekota
People Operations Specialist, Nextdoor, Inc.
It’s been a really easy and fun way to offer perks to our employees, which has added to the experience our employees are having. It’s low lift on the HR side which goes a long way with employees.
Leslie Neitzel
CHRO, Carrot
We asked ourselves ‘if we were to design a perfect employee wellness program that fit our needs, what does that look like?’ With all of our research, Compt was the obvious way to do everything we would want at once.
