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How offering child care benefits can boost a company’s bottom line
by Matthew K. Rose, Contributor | November 9, 2018
As I conclude my career with decades of leadership positions for a Fortune 500 company, becoming forthright about the need for employers to invest in child care has surprised many. After all, I have not typically been an executive quick to offer public support for social causes. Rather, I believe in a return-on-investment approach to managing public companies, which is why I am calling on companies to invest in child care for their parenting employees.
Unemployment is at historic lows and the need for a trained, committed workforce is at a premium. Savvy employers are responding by re-examining their approaches to employment and benefits to both attract and retain talent.
The situation is bleak for families with young children. “High-quality child care is out of reach for working families,” according to the Economic Policy Institute. The average American couple spends 25.6 percent of net income on child care, and that percentage soars to 52.7 percent for single parents. In Texas, families may spend more on child care than they will on public college tuition for those same children.
Why business should get involved
Traditionally, many business leaders viewed this problem as a personal issue for families or assumed there must be publicly funded support to help families who really need it. However, the U.S. doesn’t have a public system designed to universally support families with child care needs. Companies are beginning to step in and create policies and cultures that support leave for parents with newborns.
The U.S. government is beginning to respond as well, represented by the significant 2017 federal budget increase in the Child Care Development Fund. The fund helps lower-income working parents offset the cost of child care. Despite this historic increase, the actual needs dwarf the funding.
In the North Texas, the Child Care Development Fund increase will enable our community to assist only about 10 percent of the families who economically qualify for child care assistance. Waiting lists are so long for the funding that families who sign up may actually send their children to kindergarten before they ever get assistance.
It is clear there is no likelihood of sufficient public funding to meet this child care need for working parents in the near-term. Companies whose success depends on a qualified workforce need to re-examine how they support child care to keep their talent. It’s a good return on investment.
Parents who are supported with high-quality, reliable child care can commit to their professions, stay with jobs longer, and miss fewer workdays. U.S. businesses lose an estimated $3 billion annually due to employee absenteeism because of a breakdown in child care coverage. Company-supported child care options simply help parents work consistently. I’ve heard from parents that they are proud to be connected to a company that helps with child care and work-life-family balance.
The motherhood penalty
The case for businesses to invest in child care is even more convincing when it comes to women in the workplace. Child care fundamentally supports the retention and advancement of women, especially during critical years for pursuing senior and executive roles. Women are still the primary gender opting out of work for a period of time to provide care for infants and young children.
For some families, having a parent at home to support young children is a priority. However, many women feel forced to stay home because of the cost of quality child care. And opting out has impacted women. Businesses have unintentionally left women with what could be called motherhood penalties, such as losing out on important salary increases and career progressions.
Business leaders understand the critical competitive edge of diverse teams, with women and men together leading innovation and profitability. Yet women are vastly underrepresented in management ranks across the U.S. Smart companies are re-evaluating how they support career tracks and employment for women with family benefits that include child care and paid family leave.
Some will point out that many women don’t have a choice to stay home. The 2017 U.S. Census counted 12 million single-parent households with children under 18 years old, and 80 percent of these households are led by single women. The child care needs of working single parents who lead their households are nearly insurmountable without significant assistance from businesses, government or family.
The corporate community also recognizes the need to invest in their future workforce by investing in education. Many corporate social responsibility plans include significant investments in local schools. However, these investments tend to focus on middle and high school programming or university scholarships versus recognizing that the social skills and educational outcomes needed for tomorrow begin with children ages 0 to 3.
The Federal Reserve has been arguing for investment in comprehensive early education and care services for young children for well over a decade.
Arthur J. Rolnick, formerly of the Federal Reserve Bank of Minneapolis, wrote, “Careful academic research demonstrates that tax dollars spent on early childhood development provide extraordinary returns compared with investments in the public, and even private, sector. The potential return from a focused, high-quality early childhood development program is as high as 16 percent per year.”
Not all child care is alike. Companies should help employees offset the cost of quality care that supports children’s development, not mere babysitting.
How companies can help meet child care needs
Large- and medium-size companies can help address these realities by first meeting with employees who have young children and understand their needs, costs and support requirements that may help them excel in the workplace and at home. Once employee needs are understood, consider these options:
- Employer-provided child care is tax-free to the employee, much like health insurance is tax-free. Providing child care for your employee is a game-changing benefit that increases retention and commitment to your company.
- Consider offering a dependent care flexible spending account or a dependent care assistance program for your employees and help contribute to that plan (up to allowable limits of $5,000 per year). Employees can then use pre-tax dollars to pay for child care expenses, possibly saving employees up to 30 percent in child care costs.
- Review policies that support parenting employees. That includes paid parental leave and flexible return policies for a parent who has taken time away from work upon the birth of a child. Women employees who are mothering young children especially benefit from flexible work schedules and an active human resources supporting her transition back to work.
- Offering on-site child care or contracting with nearby child care programs are highly desired options by families. Many companies have on-site gyms, eateries or health clinics, so perhaps it is time to look (again) at the benefit of on-site child care. When companies provide child care, employee absences decrease by up to 30 percent and job turnover declines by as much as 60 percent.
- Ask your local Chamber of Commerce for help evaluating the best options for a company’s situation.
- For small businesses, consider flextime and telecommuting not as perks but as business strategies that may help make a small business more attractive than a larger corporate environment. Consider whether existing roles in the business or combinations of roles could specifically support working parents. Parents who find the jobs that align with their lifestyle and family tend to be loyal.
How the U.S. government can help
It has been more than 17 years since the federal government last raised the limits on the Child and Dependent Care Tax Credit. It’s time to re-examine the tax credit and make it more useful. Congress should increase the limits to align with average actual costs and then index the limits to rise with inflation. Lawmakers should also consider making this credit available to low- and middle-income families as a kind of advanced refundable tax credit.
The U.S. government should also increase the limit for dependent care flexible spending accounts to align with the average cost of full-time child care. This means allowing the dependent care accounts to adjust with inflation each year as with other flexible spending accounts and considering an increase in the amount companies are allowed to invest in their employees’ accounts.
Lastly, if the federal government is interested in companies investing more in child care, policymakers should consider tax incentives to nudge executives to move quickly.
The time is right for companies to take a lead in supporting their parenting employees with child care. Leading companies are offering benefits that support families while supporting the bottom line.
Matthew K. Rose is executive chairman of BNSF Railway Co. and chair of the board of the Dallas Federal Reserve Bank. He wrote this column for The Catalyst.
Kara Waddell, president and chief executive officer of Child Care Associates, contributed to this column.
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