Why You Should Consider Childcare Benefits for Employees

Childcare has become a burden on American families. According to the U.S. Department of Labor, working parents pay between $5,357 and $17,171 annually on daycare and childcare, depending on their geography and the cost of living in the area. Paired with childcare issues and waitlists for proper childcare — illness, extracurriculars, and other life events — parents have a substantial financial burden to work and raise a child simultaneously.

Despite the combined childcare challenges, such as absenteeism and lost wages, only 12% of U.S. companies currently offer childcare benefits for employees. This has become an untenable situation that causes undue stress for a vast number of workers.

However, employers have an integral role to play in the childcare dilemma. Stressed-out workers suffer from burnout, poor productivity, and a general lack of engagement. The only win-win scenario is for employers to consider childcare benefits.

Traditional employer mentalities may put the onus of responsibility on working parents, but times are changing. In the spirit of employee retention and loyalty — as well as attracting talented new employees — companies should weigh the costs and benefits of childcare.

Learn more about childcare benefits for employees and how it may improve your employer-employee relationship now — and into the future.

What Are the Advantages of Childcare Benefits for Employees?

Childcare benefits and perks for employees certainly provide advantages for workers, including cost savings on childcare expenses, tax credits, and time saved. However, employers also stand to benefit from childcare benefits for employees. If you’re apprehensive about a childcare program, these bonuses may have you rethinking your stance.

Employee Retention

Childcare arrangements can pay dividends over time. Employer-sponsored childcare initiatives make employees far more loyal, especially considering the rarity of such benefits from most companies.

When you consider that the cost to replace an employee is roughly one-and-a-half to two times the salary of the position — according to a study from the Society for Human Resources Management — loyalty is worth a substantial amount to employers.

Return on Investment

Return on investment is an integral part of any business with benefits. If you’re shelling out money for employee benefits, perks, and stipends, you want to see a return on that money. Dependent care (or childcare) offers a superb return on investment by lowering employee stress, burnout, and absences.

Though studies on such a return are scarce, preliminary figures show that childcare benefits for employees can have a return on investment between 100% and 400% — an eye-popping figure too rich to be ignored. Employees also miss an average of 13 fewer days with employee childcare assistance, keeping them at the office and on the job without distraction.

Measuring Up to the Competition

Unless you’ve conducted a recent benefits benchmarking report, you’re probably unaware of what benefits your rivals and competitors offer. This gray area can often lead to employee poaching, especially if you lack all or some of their benefits package.

Childcare benefits for employees enable you to stack up to the competition, simultaneously creating loyalty and retention.

6 Types of Childcare Benefits for Employees

As an employer, you have plenty of childcare benefits to choose from. These childcare options depend on your budget and employee preference, allowing you to include one or several in your benefits package.

1. Onsite Childcare

Reputable childcare centers aren’t as easy to find as child-free parents may think. In the post-pandemic world, babysitters are back in school, eliminating in-home care, and over 16,000 childcare providers permanently closed during COVID. This leaves fewer available high-quality caregivers, which causes parents to take time off work or quit entirely to tend to their families. Moreover, parents typically have to arrive late or leave work early to drop off and retrieve their kids from school, reducing productivity.

To reduce the proximity between parent and child for any illness, issue, or pickup times, onsite childcare centers are a premium perk. Employees no longer have to leave work early, allowing them to work full-time instead of several fewer hours per week.

2. Employer-Provided Daycare

Employer-provided daycare is a viable alternative if you don’t have the room or resources for onsite daycare. Your company can partner with local daycare centers to offer vetted childcare sources, and you can work out a deal to cut costs or pay for all or part of the daycare.

3. Extended and Paid Family Leave

Extended and paid family leave is another excellent childcare benefit for employees, especially if your state doesn’t mandate it — 13 states already require it. Paid leave can go beyond sick/mental health/well-being days and maternity/paternity leave to include caring for family members. By offering paid leave for potentially extended periods, you reduce stress and enable open communication without fear of reprisal.

4. Dependent Care Flexible Spending Account

One of the more popular childcare benefits for employees is a dependent care flexible spending account, or dependent care FSA (DCFSA). A DCFSA works similarly to a healthcare flexible spending account or a 401(k) because it deducts pre-tax dollars from the employees’ wages and puts them into a separate savings account.

Employees can then use these funds for a variety of qualified expenses while also deducting the amount in the FSA from their taxable income. Some of the most common qualified expenses include:

• Daycare
• Au pairs and babysitters
• Transportation to school or other events
• Summer camp for teens and young children
• Before- and after-school programs
• Childcare for sicknesses
• Application fees for camps, daycare centers, and extracurricular activities
• School tuition reimbursement
• Fees incurred due to early dropoff or late pickup

A DCFSA can save employees around 30% on their childcare costs and taxes while also offering convenient, no-hassle ways to pay or get reimbursed. Employers can also reduce their costs with a DCFSA, as federal and state governments do not impose a payroll tax on it.

Note that a DCFSA childcare benefit for employees can only be used for children aged 13 and under.

5. Backup Childcare

Backup childcare is a temporary childcare benefit for employees. As the name implies, this benefit provides daycare or paid time off for non-permanent scenarios. It goes into effect when an employee has to care for a sick child or in inclement weather when schools close.

Keep in mind that backup childcare is only available in extenuating circumstances. It does not cover prolonged sickness, hospitalization, or other long-term care needs.

6. Childcare Subsidies and Stipends

Perhaps one of the best childcare benefits for employees is stipends or subsidies. Rather than offering a separate DCFSA, onsite care, or other often high-dollar benefits, a subsidy or stipend offsets a portion or all childcare costs, depending on the employee's expenses each month or year.

Most childcare subsidies and stipends are added to an employee’s payroll check in a lump-sum payment at the beginning of the year or divided into 12 monthly payments. The employee is free to use these funds as they see fit.

Some childcare stipends and subsidies may be taxable, while others aren’t. Familiarize yourself with the IRS guide to fringe benefits to learn if your stipends are taxable or how much you can spend before you incur additional taxes.

Are Childcare Reimbursements or Benefits Taxable?

Like food allowances or gas and vehicle stipends, the IRS levies a tax on employees who receive benefits of over $5,000 in a calendar year. The employer or employee must pay Medicare, Social Security, and federal income taxes if these benefits exceed this threshold. However, any amount under this can lower the amount an employee pays in taxes.

Tax Benefits for Employers

According to the IRS, employers may be eligible for tax credits depending on the services they provide.

“The Employer-Provided Childcare Credit offers employers a tax credit of up to $150,000 per year to offset 25% of qualified childcare facility expenditures and 10% of qualified childcare resource and referral expenditures. Find details in Internal Revenue Code (IRC) Section 45F.”

Eligibility depends on what you’ve spent money to supply workers with childcare. Qualified childcare expenditures include:

1. Costs associated with purchasing, constructing, rehabbing, or expanding property used as the taxpayer’s qualified childcare facility.
2. Qualified childcare facility expenditures are operating expenses made by the taxpayer, including amounts paid to support childcare workers through training, scholarship programs, and providing increased compensation to employees with higher levels of childcare training.
3. Qualified resource and referral expenditures include amounts paid or incurred under a contract with a qualified childcare facility to provide childcare services to the taxpayer's employees.

Gift Cards: The Perfect Complement to Childcare Benefits for Employees

Not every company has the capital or floor space resources to offer on-site childcare services or childcare facilities. However, even a small gesture to offset the costs of childcare needs will show your loyalty and appreciation to employees.

One unconventional way to help your employees and enable a stress-free atmosphere is through digital gift cards. Using Hoppier, you can provide gift cards for diapers, formula, toys, learning materials, and other childcare essentials. A gift card also allows employees to purchase what they need rather than receiving something unnecessary or redundant.

Your employees will surely appreciate the gesture.