How employers should budget for childcare benefits

Pedro Silva
  • For parents of young children, childcare benefits are more relevant than a retirement plan.
  • Childcare benefits have increasing relevance in the current economy as 42% of employers are likely to offer additional childcare assistance if more than 20% of employees cannot return to work due to childcare concerns. 
  • Every net dollar invested in childcare benefits can generate up to three times more in direct value to working parents because of federal and state tax incentives.

Every benefit program is under financial scrutiny as employers continue to face economic uncertainty.

As HR leaders strive to spend their limited resources on the programs that will gain the most for their people, it’s easy to see why childcare benefits would be high on the list. Employers that provide robust support for working parents can raise productivity and lower turnover. In competitive labor markets, childcare can make the difference between top performers staying with a company or moving on to a rival. It is the single most desired benefit among parents of young children after healthcare, but ahead of a retirement plan.

Take these three steps to build a budget for childcare benefits that meets the demands of the bottom line and improves employee satisfaction and engagement.

Evaluate Your Employees’ Childcare Needs

Working parents make up a critical demographic for many employers, but not every company. It’s vital to tailor benefit programs to your employee population.

Gaps exist in employer-sponsored childcare benefits. Roughly 65% of employers offer a dependent care flexible spending account and 4% provide subsidized childcare, according to the Society for Human Resources Management. The percentage of employers that offer childcare benefits has stayed steady since 2015. Still, it is poised to increase as finding reliable childcare has become a barrier to parents returning to work or working productively from home. 

Employers should survey employees to identify needs and preferences in the range of childcare benefits available in the market. Remember that childcare benefits are not just for parents of young children. These benefits play an essential role in the financial well-being of all families. Organizations should analyze the data they collect to understand what benefits would impact their employees.

Consider Flexibility and Affordability

Every benefit program is under financial pressure to have a meaningful impact. Childcare benefits are more relevant and desired by parents than retirement plans. These benefit programs can be more dollar-efficient if set up properly. 

Childcare is one of the biggest hurdles for working parents returning to the office after the pandemic. A recent U.S. Chamber of Commerce Foundation survey found that 42% of employers would likely offer additional childcare assistance if more than 20% of employees cannot return to work due to childcare concerns. 

An investment in childcare benefits isn’t just the right thing to do, it’s cost-effective. Every net dollar invested in childcare benefits can generate up to three times more in value to working parents because of federal, state and local tax incentives. For example, Patagonia reduced its employee turnover by 25% in five years and recouped 91% of its on-site childcare costs through the effective use of tax credits. In fact, all of its working moms returned to the company after maternity leave during the five-period the company studied. An outcome Patagonia credits to its childcare benefit program.

Take a Holistic Approach

Employers should have a multi-pronged strategy to help parents and improve workforce productivity.

How benefit programs are designed can drive tax-efficiency to lower costs. A variety of childcare benefits, including primary childcare, dependent care FSAs, online search tools and backup care, can be tailored to fit the needs of employers at different cost levels. Direct employer contributions can be more dollar-efficient than employer contributions to Dependent Care FSA.
Companies have always struggled with providing flexible childcare benefits. With Arvorie, it is possible and all the operational complexity is taken care of, so your company can focus on its core business.

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