Top Childcare Benefits to Offer Your Employees

December 15, 2022
Top Childcare Benefits to Offer Your Employees

Most people with children are employed. Specifically, 71.2% of mothers and 92.5% of fathers with children under 18 were working in 2021. Given those majority numbers, you likely employ working parents. But are you supporting them as best as you can? Working parents are susceptible to stress due to their parental obligations. If unaddressed, stress can adversely impact their health and productivity — and the bottom line. So, it’s important to support your working parents, including by offering childcare benefits. Before we explore different types of childcare benefits, let’s examine some issues working parents are concerned about, plus employers’ response in the wake of COVID-19.

What are working parents concerned about today?

A 2022 Forbes report says, “The future of work doesn’t look good for working parents, and especially for working mothers.” Research shows working parents, especially mothers, are concerned about:

  • Their children’s physical, emotional, cognitive, and academic development
  • Uncertainty regarding school or childcare schedules and finding quality childcare
  • Surrounding conditions, such as money, the economy, and housing costs
  • Rising childcare costs, and being forced to leave their jobs because of childcare challenges

What is employers’ response in the wake of COVID-19?

The COVID-19 pandemic taught employers many lessons, including when it comes to the working parents they employ. According to a CNBC report, “As working parents juggled their jobs and caregiving during the coronavirus pandemic, companies took notice.” Essentially, “employers are holding on to lessons they learned from the COVID pandemic about the importance of addressing workers’ needs by offering benefits that stretch into child care more deeply than before.” Another report found, “40% of employers have offered additional childcare assistance, benefits, or accommodations in response to the effects of COVID-19.” In addition, “25% of employers are willing to increase their organization’s investment in employee childcare needs.”

Top 5 childcare benefits to offer your employees

Next is a list of childcare benefits employers are leveraging to assist working parents.

1. Dependent care flexible spending account (DCFSA)

A dependent care FSA is a pretax benefit that employees use to pay for eligible adult or childcare expenses. The DCFSA basically works like this:

  • The employer establishes a qualified DCFSA program that meets Section 125 of the Internal Revenue Code.
  • The employee agrees to set aside tax-free money from their wages to pay for eligible dependent care expenses.
  • The employer deducts the employee’s DCFSA contributions from their wages on a pretax basis. The employer can contribute to the employee’s DCFSA, as well.
  • The pretax contributions deliver tax savings to both the employee and the employer. (They reduce the employee’s taxable wages, which means less taxes for the employee and the employer.)
  • The Internal Revenue Service (IRS) mandates the annual limits for pretax DCFSA contributions. Employees and employers can make pretax contributions, up to this limit.
  • The employee pays for dependent care services, then files a claim for reimbursement.

Eligible DCFSA childcare expenses include costs for:

  • Daycare
  • Nursery school
  • Before- and after-school programs
  • Babysitting
  • Summer day camp
  • Au pair
  • Sick childcare
  • Transportation pertaining to childcare
  • Childcare registration fees

2. Backup childcare services for temporary situations

Backup childcare helps ensure that an employee's work does not get disrupted by sudden changes in their childcare routine. For example, backup care may come in handy when a child is mildly ill or their school closes for a snow day. Note that backup childcare services are designed to meet childcare needs caused by temporary disruptions. For instance, it would not be ideal for a child who needs hospital care or has a prolonged illness.

The CNBC report says, “Backup care usage is on the rise.” According to 1 expert, “During the first three months of the pandemic, usage of backup care was about 20 times higher than pre-pandemic levels … And it continued to be on the increase throughout Covid.” One study reveals that without backup childcare during the pandemic:

  • 50% of employees would have needed to decrease their work hours
  • 33% of employees would have missed important deadlines
  • 20% would have taken a leave of absence or quit their jobs

To provide backup childcare, employers can partner with a reputable backup care organization. When eligible emergencies arise, working parents can utilize the backup care company instead of scrambling to find childcare.

3. Employer-provided childcare subsidies

A 2020 survey found that 73% of working parents with children under age 15 were considering making major work-related changes, such as:

  • Modifying their schedules (44%)
  • Looking for a different job (21%)
  • Quitting the workforce entirely (15%)

To keep their working parents happy and loyal, employers are increasingly turning to childcare subsidies. Employer-provided childcare subsidies are payments made to employees to help cover the costs of childcare. They may come in the form of:

  • Flexible spending accounts (e.g., up to $5,000 in pretax money to a DCFSA)
  • A one-time bonus
  • Regular bonuses, paid monthly
  • Expense reimbursement (e.g., a percentage of the total cost of childcare)

Some employers offer family stipends, which help cover family-related expenses like childcare, senior care, and fertility treatments.

4. Paid family and medical leave

A growing number of states require employers to offer paid family and medical leave, which includes paid time off to bond with a new child or care for a sick child. That said, employers should try to provide paid leave, even if the law doesn’t require it. These days, job seekers and employees expect employers to offer some type of paid leave. This is particularly true for working parents, as the need to take time off for parental reasons will likely arise at some point.

5. Onsite childcare services on the employer's premises

One of the biggest burdens some working parents face is having to drop off and pick up their child from daycare or school. On top of that, the lack of proximity between the workplace and the daycare could incite worry in some parents while they’re at work. Because of the distance, they may wonder if their children are being properly cared for in their absence. Onsite childcare can eliminate or reduce these worries because the childcare services are performed at the employer’s premises. Typically, the employer partners with an onsite childcare company to design a quality childcare center within the workplace. The onsite childcare company also helps to manage the program. They may also offer discounts to working parents who use their services. Notably, one study found “that employee performance was higher and absenteeism lower for employees using the on-site childcare center than employees using an off-site center or with no children.”

Working parents greatly desire childcare assistance

In the survey, respondents said they would trade the following benefits for childcare assistance:

  • Some of their paid vacation days (29%)
  • Commuter benefits (26%)
  • Tuition reimbursement (25%)
  • Paid maternity/paternity leave (18%)
  • Vision insurance (16%)
  • Health insurance (14%)
  • Dental insurance (13%)
  • Retirement benefits (12%)

While this doesn’t mean your working parents would be willing to trade in these benefits, it shows the importance of childcare assistance to some working parents.

Bottom line:

If you have working parents, they will likely appreciate any help you can provide. This assistance may include benefits such as dependent care FSA, backup care, childcare subsidies, paid leave, and/or onsite childcare services. Besides helping your working parents out, you may also qualify for federal and state tax credits. For instance, The Employer-Provided Child Care Credit lets eligible employers claim 25% of qualifying childcare expenses. So, talk to your working parents, find out what they need, and see how you can help.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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