How to Offer the Best Childcare Benefits for Employees

Sudden chicken pox outbreaks. Year-long waiting lists for the local daycare. Rising childcare costs. This is just a glimpse of the childcare challenges working parents face while trying to keep a roof over their heads and progress in their careers. 

That’s why companies that recognize how difficult it can be to balance work and family life add childcare to their overall compensation package. Our guide covers how offering childcare benefits for employees supports them in forming and supporting their families at any stage in their parenting journey. We’ll discuss:

• The types of childcare benefits available
• The advantages of these benefits
• How to create a strategy that your working parent employees will love

What types of childcare employee benefits are available?

Employers handle childcare in a variety of ways. Common childcare benefits include everything from paid family leave to backup childcare in unexpected circumstances and even onsite daycare for some office-based workers. Flexible spending accounts (FSAs) also enable working parents to choose childcare benefits that make the most sense for their specific situation. Let’s look at each of these childcare options in more detail. 

Family and Medical Leave Act (FMLA) 

The Family and Medical Leave Act (FMLA) is a federal law that provides eligible employees with unpaid, job-protected leave for specific family and medical reasons. While FMLA itself doesn’t directly provide childcare benefits, it offers certain protections and allowances relevant to employees needing time off for childcare purposes.

However, the Department of Labor highlights that FMLA is limited to specific groups of people, including: 

• Employees of public agencies 
• Employees of all public and private elementary and secondary schools 
• Companies employing 50+ employees 

These groups can receive up to 12 weeks of unpaid, job-protected leave per year for the following reasons: 

• The birth and care of a new child
• Placement of a child during adoption or foster care
• Caring for an immediate family member with a serious health condition 
• Medical leave when an employee is ill due to a serious health condition

Clearly, the FMLA is lacking and doesn’t cater to regular, ongoing childcare support for most U.S. workers, which is where companies can offer additional financial support such as the following. 

Backup childcare services 

Backup childcare exists when a family’s regular childcare is unavailable. Fractional Finance Director and CFO Michelle Caira highlights some reasons a working parent may require access to backup childcare:

“We need to make sure benefits are significant, including what we do when our kids are sick, school meetings, doctors appointments, and so on.”

In any of these situations, backup childcare ensures that working parents are not impacted by their sudden loss of childcare and can continue to work for their employer. 

Onsite daycare 

Onsite daycare allows working parents to keep their children onsite during the workday. This convenience saves money and time, as there’s no need for the A to B to C commute between home, childcare, and workplace. Onsite daycare can reduce stress and anxiety among parents by allowing them to stay connected with their children while still managing work responsibilities. 

Childcare subsidies 

Childcare subsidies are payments made by employers toward childcare expenses. They are an excellent way to ensure parents have access to quality childcare without spending a fortune on monthly fees. Companies may pay childcare subsidies as: 

• Regular reimbursements based on receipt of childcare expenses 
• One-time allowance  
• Stipends paid on a monthly, quarterly, or annual basis 

Dependent care FSA 

A dependent care flexible spending account (DCFSA) is one of the most popular pre-tax benefits in the U.S., as it puts employees in the driving seat by allowing them to choose their preferred benefits. One of the primary advantages of DCFSAs is the potential for significant tax savings. Employees’ contributions to their DCFSAs are deducted from their gross income, reducing their taxable income.

Our 2023 Benepass Benefits Benchmarking Guide found that among companies offering pre-tax benefits, 63% offer DCFSAs. These accounts are the third most-popular pre-tax benefit following health FSAs and health savings accounts (HSAs).  

Download the full report to uncover more 2023 benefits trends. 

Why offer childcare benefits for employees?

Childcare benefits offer support for children, parents, and their employers. Here’s why companies should consider them a must-have when designing their benefits strategy. 

Retaining highly skilled women

Women have lost ground in terms of labor force participation. The U.S. Bureau of Labor Statistics reports that overall women labor force participation peaked between 60% and 61% between 2002 and 2010. However, December 2022 data suggests that this rate has dropped to 58.1% for women, compared to 70.4% for men. Of course, the pandemic has impacted these figures; women lost 64 million jobs in 2020, with Black and Latinx women making up nearly half of these workforce losses. 

With rising childcare costs, women are leaving the workforce in spades to raise their children—60% of parents state that lack of childcare means it no longer makes financial sense for them to work. Companies that want to retain those highly skilled women must shoulder childcare costs to support families.

Reducing absenteeism

When employees don’t have solid childcare, they have no choice but to be absent from work. BLS data shows that a record-breaking 104,000 workers missed work in October 2022 due to childcare problems. And it’s now typical to experience higher rates of absenteeism during the fall and winter months due to what doctors describe as a “tripledemic” of COVID-19, flu, and other respiratory illnesses colliding. 

While children cannot attend regular childcare providers (such as school or nursery) when illness strikes, companies with flexible childcare policies may enable parents to work from home while caring for infants with minor ailments. 

Improving engagement

Many parents have struggled to remain productive as work and home life lines have blurred. Two years post-Covid, when life is largely business as usual, 58% of working moms believe the pandemic has made it increasingly challenging to handle childcare responsibilities. These figures remain similar to data collected by working parents in October 2020 when schools and childcare centers were closed. 

When working parents are distracted by childcare arrangements, it impacts their ability to be engaged and productive at work. Companies that offer a suite of childcare benefits may help parents strike the right balance between home and work life, enabling them to be more present in both areas.

Receiving tax benefits 

Companies that provide childcare benefits may be eligible to deduct the costs associated with these benefits as business expenses to reduce their overall tax liability. This includes expenses related to operating an onsite childcare facility or partnering with external childcare providers. 

Similarly, when employers offer pre-tax benefits such as flexible spending accounts, they can help employees save money on childcare expenses while lowering the company’s payroll taxes.

Attracting great talent

Care.com reveals that more than half of employers now offer some form of childcare benefit, representing a significant 20% increase of companies investing in childcare since 2019. Candidates who are working parents will undoubtedly be attracted to companies willing to support their family needs. 

How to design a child care benefits package your employees will love

Once you’ve decided to make a commitment to your working parents, follow these best practices to create a strategy that works for all parties. 

1. Set goals for your childcare policy 

When designing any benefits program, you need a north star to aim for. Identify what you want to achieve through your policy, whether it’s increasing employee retention, reducing stress levels, or improving engagement and productivity. You might follow the SMART method to choose Specific, Measurable, Attainable, Relevant, and Time-Bound goals.

Example: Your childcare policy might be to increase employee retention by 10% in one year through the introduction of onsite childcare. 

2. Consider your employees’ needs and preferences 

Your employees will need different types of support depending on the stage of their parenting journey. For instance, some employees may need family formation support or fertility treatment, while established families may require regular support with managing children of varying ages. Meanwhile, pregnant working parents will benefit from paid maternity or paternity leave. 

On this last point, founder and CEO of Manzanita Cooperative, Jed Wheeler, explains why companies must tailor their benefits equally. 

“As a father, it is a grotesque injustice for a workplace to assume that my work is more important than my wife’s or that my relationship with my children is less important than hers. There is also clear data across multiple countries and years showing that equalizing parental leave and allowing fathers the same flexibility afforded to women measurably and consistently reduces discrimination against women.”

The best way to find out what your employees need is to ask them. Send out surveys to gather a mix of opinions or turn to employee resource groups to discuss what your working families want. 

3. Create a childcare benefits budget 

Understand how much your business can afford to offer in terms of childcare benefits, and remember to factor in rising childcare costs per year. Start by benchmarking what other companies in your industry offer to ensure you remain competitive. The Benepass Benchmarking Guide provides access to the latest trends. 

It’s also important to consider how much of the cost your employees will shoulder. Some employers may choose to cover the entire cost of childcare, while others may require employees to contribute a portion of the costs.

4. Familiarize yourself with legal and compliance requirements

Invest time in understanding the legal and compliance requirements associated with providing childcare benefits, such as the Family Medical Leave Act. If you’re part of a larger organization with multiple locations, make sure to factor in differences in local laws.

Note: Always consult a legal professional before rolling out any childcare benefits program to protect your business and your workers. 

5. Select an appropriate benefits provider 

There are two aspects to consider when selecting a benefits partner for childcare:

• A benefits provider 
• An affiliation with childcare services 

Depending on the type of benefits package you wish to offer, you may partner with organizations that offer discounts on services for your staff or consider creating an employee referral program for childcare providers and nannies.

A convenient and flexible alternative is to use a platform like Benepass that auto-delivers benefits to employees and allows them to make the best childcare choices for their individual situation. 

6. Communicate your childcare benefits policy to your workforce 

Uptake of your childcare benefits program will only be successful if your employees know about it and understand how to use it. Take the time to prepare materials that explain the details of your childcare policy and get input from your employees on how they want to receive communications. Ensure you highlight: 

• Who is eligible to receive childcare benefits 
• Any limitations of the program
• The process to apply for these benefits
• All deadlines associated with the application and usage of these benefits
• Key points of contact for any queries or concerns about the childcare benefits
• Detailed explanation of any related tax, legal, and compliance requirements 

Remember to offer this information in a variety of formats, such as flyers, emails, or webinars, to accommodate different learning styles. Also, maintain a clear and open channel for any questions or concerns to ensure the smooth implementation of your childcare benefits program.

7. Streamline childcare benefits enrollment and administration 

Introducing a childcare benefits program can involve a lot of red tape and paperwork, from employee onboarding to managing eligibility criteria. Choosing a benefits provider with auto-enrollment can save you and your employees time and money in the long run. 

8. Obtain feedback and review 

Review the success of your program to check you’re continuously supporting your working parents in the way you’d envisaged. Measure progress toward your SMART goals, obtain regular employee feedback, and consider what changes could improve the childcare benefits package for all parties involved. 

Prioritize childcare employee benefits with Benepass

Benepass recognizes the importance of supporting working families regardless of their stage in their parenting journey. We offer a few options for employers seeking to provide robust childcare benefits:

Flexible family care stipend

Our Family Care and Formation Account is a versatile solution that enables companies to provide their employees with comprehensive family planning and childcare benefits. Here’s how three workers may use theirs: 

• Grace, 31, from Minneapolis, pays for fertility services as she and her partner are trying to have their first child.
• Hector, 40, from São Paulo, Brazil, subsidizes daycare for his 4-year-old son, allowing him to work from the office on those days.
• Andrea, 36, from St. Louis, covers expenses related to a local adoption services provider as she and her partner seek to adopt their second child.

Dependent care FSA

Benepass supports dependent care FSAs for companies that want to offer a pre-tax benefit to working parents. The Benepass FSA is modern, streamlined, and easy to understand with over 90% customer satisfaction scores. Employees will manage their DCFSA through the Benepass web and mobile apps, and they’ll receive a virtual FSA card along with a physical card for easier spending.

Lifestyle spending account

Another option is to add childcare expenses as an eligible spending category within a lifestyle spending account (LSA). Our benchmarking guide found that 45% of companies include parental support as a spending category so their employees can spend LSA funds on childcare and related expenses. 

How to get started

It’s super easy to start supporting your employees with their family-related expenses by following this four-step process: 

1. Choose your program: If you’ve chosen a family care stipend or LSA, you’ll define eligible categories such as childcare, family planning, adoption, or fertility services. 
2. Implement your policy: We’ll code your policy template to create your customized benefit configuration and send employees Visa cards for spending. 
3. Connect to payroll to automate enrollment. For DCFSAs, employees will enroll into the account and elect their contributions during open enrollment. 
4. Join Benepass: Employees will effortlessly join Benepass, accessing their childcare benefits from day one.

Want to know more? Sign up for a free Benepass demo, or contact sales@getbenepass.com with any questions.