The Bottom Line: Backup Child Care Strengthens Businesses

Submitted by RWaxman-Lenz on Sun, 03/06/2005 - 23:54.

I am a senior-level manager who has a meeting with a major client. One of my staff responsible for the meeting calls in sick. The truth is that her son’s caretaker is out sick. My employee’s child care support breaks down, so I will be left with a dissatisfied client. This scenario is more common than one would think. According to an article in the February issue of CFO magazine, a survey conducted by the National Conference of State Legislatures found that child care problems force 80 percent of employees to miss work. According to the Child Care Action Campaign, U.S. companies have losses of about $3 billion each year resulting from employee child care arrangements breaking down. “On average, working mothers lose eight-and-a-half days per year, and fathers lose five days annually. The result is lower productivity, stalled projects, and higher turnover.�

So what can a business do? Several companies in the U.S. have found that providing back-up care for the children of their employees can pay off. “According to WED Consulting, a research firm based in Watertown, Massachusetts, for every dollar invested in backup care, employers can expect a return of $3 to $4 in productivity and reduced turnover.� This return on investment calculation involves multiplying the estimated number of days lost due to breakdowns in child care by the average daily salary, and comparing that to the daily cost for backup child care.

Companies who have implemented this alternative form of care include Latham & Watkins, LLP in California and Credit Suisse First Boston in New York. The CFO article lists a variety of models for backup child care, including a consortium of companies pooling resources to set up and run a center; a membership model by which companies pay a child care center for each employee’s child attending; or a managed model involving the company owning and operating the center by itself or by hiring a child care provider. Companies have also designed models that utilize a combination of these arrangements, sometimes offsetting costs by selling spaces to other companies.

Companies willing to experiment with various modes of child care have found their bottom line strengthened. The licensing and liability issues are not as severe for backup care as for a full-service child care center. Furthermore, under the “Economic Growth and Tax Relief Reconciliation Act of 2001, companies can also take advantage of the same 25 percent federal tax credit (up to $150,000 per year) for qualified employer-sponsored child care expenses, whether for full-service or backup care.�

The number of enterprises finding that benefits outweigh the costs is growing. Five percent of U.S. companies provided backup child care in 1993. By 2004, the number has increased to 15 percent.

Some companies have decided to go the extra mile. One such business, Computer Associates International, Inc. in New York, has determined that the full-service center is the way to go. They believe the high-caliber employees they are able to attract and retain compensate for the high costs of the full-service center they have constructed to serve 370 of their employees’ children.

One caveat must be given in contrast to the praise several businesses now shower on this innovative mode of accommodating employers and employees. Thoughtful policymakers and parents must also consider whether this trend is really best for children and for families.

[The information in this blog was drawn from Melissa Hennessy’s article in CFO, February 2005, pp. 53-55.]