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Since September 30 2023, when $24billion in federal funding grants expired, America has been plunged even deeper into a childcare crisis.
A report from The Century Foundation predicted this cliff would force some 70,000 childcare centers to close, resulting in more than three million children losing their childcare spots.
Reflecting the anticipation of this added pressure, the cost of childcare grew by 1.7% in September. This acceleration reflects the pattern of rising childcare costs over the past five years, with prices growing 20% since January 2019. Over the past year, the growth in childcare costs outstripped the rate of inflation.
This is having a substantial impact on working parents, particularly women. A lack of accessible childcare facilities or an ability to cover the costs of childcare forces workers to reduce working hours as part-time carers or even leave the workforce altogether. The Century Foundation finds this will cost families $9 billion each year in lost earnings.
Indeed, per data from the Bureau of Labor Statistics (BLS), in January 2024, childcare was the reason 3.7% of part-time workers cited for not working full-time, up from 3.2% in 2019. Other include workers either declining promotions or disruptions leading employees to be overlooked for career growth and pay increases.
As the supply of childcare dwindles, costs become outright unaffordable, and employees are forced into decisions that hurt their careers. “When you think about the cost of childcare in the United States, the gap between benefits or tax credits and what you have to pay for childcare is enormous, especially for child care where you'd be comfortable leaving your child for a day four or five days a week,” says Charles Lee, former Head of Global Benefits at Mandiant (acquired by Google.)
Lee argues government policy support in America is lacking, meaning employers typically only provide benefits that are consistent with the U.S. market. “There are only a select number of employers in the minority that provide generous and appropriate benefits,” he explains.
In the wake of this crisis, employers must consider what they could do to join this minority and what benefits they could offer to increase their support for working parents.
How can HR help protect working parents?
This is undoubtedly a systemic issue that requires far greater intervention than any company can provide. In October, President Biden asked Congress for $16billion in childcare funding, and the welcome reports from Bank of America, The Century Foundation, and others offer deeper analysis on the urgent need for action.
However, employers no doubt have a responsibility to care for their employees who are facing the childcare crisis. There are several options – both monetary and non-monetary – for supporting working parents that employers can consider. Let’s unpack some of the main options:
Dependent Care Flexible Spending Accounts (DCFSAs): This scheme allows employees to reduce their tax bill. Employees estimate their childcare costs for the year and sacrifice a proportion of their income bi-weekly or monthly (depending on their pay cycle) into a flexible spending account. This means workers do not have to pay tax on the cost of their childcare.
Given analysis from the Bank of America estimates childcare costs an average U.S. couple with two children over 30% of their annual wage, this can result in significant savings. However, employees can only contribute up to $5,000 a year filing as individuals or with a joint tax return, or up to $2,500 for married couples filing separately.
Provide a qualified childcare facility: Some companies now offer parents access to a qualified childcare facility, having built their own, contracted with third-party facilities, or contracted with referral services. Johnson & Johnson, for example, built its first childcare center in 1990 and currently runs over five childcare centers at its U.S. offices.
It offers employees access to these facilities “at a subsidized cost for employees,” as well as discounts for third-party facilities for employees working remotely or in offices without a childcare center. Employers are also entitled to claim an Employer-Provided Child Care Credit to claim 25% of the costs of providing these facilities or setting up contracts with third parties, or 10% of the costs for contracts with referral services. However, states Lee, these centers do come at a “monumental cost”.
Childcare vouchers: Working with third-party vendors and platforms can offer employees a range of benefits including subsidy programs. Under such programs, employers can help employees by providing them with vouchers that can offset the cost of childcare.
Educate employees on any benefits you offer: There are many further benefits employees can offer working parents to support them through America’s childcare crisis, from childcare directories to back-up care programs. However, there is also a financial literacy crisis in the U.S., with a study from Ramsay Solutions finding 88% of U.S. adults admitting their education did not leave them fully prepared to handle their finances in the real world.
Many of these benefits are complex and have strict rules and limitations for use, particularly those involving tax deductions. Providing clear education and advice to employees is crucial to make sure they understand the options available to them and are given the best possible support to make financial decisions that ease the pain of spiraling childcare costs.
Create flexible working structures: Beyond these benefits, employers should consider baking in flexible working structures to support parents who experience disruptions due to unexpected demands for childcare. “Employers need to consider, how can we provide working parent employees with uninterrupted time off so they can focus on their child, and not wonder about whether they’ll have a thousand emails to go through when they return to the office,” suggests Lee.
“Employee referral services, for example, are great – but employees still need the time off to look after the process. It’s about how you help each person gracefully step away from their job, and gracefully come back to it, without impacting their pocketbook.” Creating a culture of flexibility and educating managers and leaders on the difficulties facing working parents can ensure they are not unfairly treated, overlooked for promotions, or pressured into leaving the workforce altogether.
By creating and continuously updating a comprehensive set of childcare benefits, and nurturing a culture that supports working parents, employers can vastly improve the wellbeing of these employees and prevent issues such as understaffing or disengagement from arising.
