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Are child care assistance programs a crucial investment?

Are child care assistance programs a crucial investment? The American labor force is experiencing a metamorphosis. With more and more women at work, we feel pressures that didn't exist in a predominantly male workforce. In 1940, for instance, only 8.6 percent of all women with children worked. Today, that figure is 62.8 percent, and by the year 2000 it is expected to rise to approximately 75 percent. Whether from single-parent or dual-career families, 10 million children under the age of six have parents who currently work.

Finding affordable, quality child care for employees' children is a major problem that impacts every company. Parents must pay for child care in order to work. The cost for one preschool-aged child averages one-fifth of the gross income for working families and one-third of the gross income for low-income families. And unresolved child care issues "spill over" to negatively affect the attitude and productivity of all employees.

That's why some leading organizations, like Hoffmann-La Roche and the General Services Administration (GSA), are launching comprehensive child care assistance programs that they feel are an investment in human capital. They're raising the stakes for personnel recruitment at a time when the nation is anticipating a shrinking growth rate in the labor pool by the early 1990s. These companies believe progressive personnel programs such as child care assistance will give them a cost-effective edge and ultimately improve their bottom line profits.

Should your firm

help with child care?

People often think on-site child care is the only option for employer assistance. But a company exploring ways to help with child care shouldn't respond hastily by investing large dollar amounts in child care facilities.

You have to evaluate your need for child care, then determine the depth and the scope that you require. In this way, you can design a child care plan that uses the corporation's resources efficiently and yields the most benefits.

First, consider the child care options currently available during worwork hours to single-parent and dual-career households, such as hiring nannies and using day care homes or licensed child care centers. After identifying these alternatives, consider the child care assistance options that fit your firm's goals and are in line with the company resources allocated for the project. The choices probably are broader than you imagined. Here's what you can do:

* Establish an information and referral service--An information and referral service for child care provides the employee with a listing of licensed offsite child care facilities in the area. You can make available a description of the hours, fees, type of program, and number of current openings for each child care facility listed. The employee then chooses the child care facility that best meets his or her need.

* Offer counseling and parenting seminars--Help employees ease the stress of balancing work and family by offering counseling or parenting seminars. Sessions can be scheduled for breakfast, lunch, or after hours, and cover such topics as the selection and evaluation of child care services, agencies that provide child care for children with special needs, and age-appropriate behavior and disciplining methods.

* Provide support of existing programs--Support the existing child care programs through contributions of money, space, and/or inkind services, or by funding or underwriting a loan to local child care facilities or local child care planning and advocacy groups that cultivate the development of additional community child care services.

* Utilize flexible work schedules--Establish permanent part-time, flex-time, job-sharing, or work-at-home schedules for employees. Flexible work schedules allow parents to adjust their work hours to accommodate child care problems that might otherwise cause lost productivity on the job.

* Provide direct financial assistance to employees for child care--You can directly reimburse an employee with pre-tax earnings for all or a percentage of his or her child care costs. The employee privately selects the child care service that best meets the family's needs. Your company is not involved in selecting or evaluating the quality of child care service elected by the employee, thus you avoid any liability. And FICA savings offset the company's cost.

* Establish an on- or near-site center--The on-site or near-site child care center is usually the most expensive alternative for you. However, the cost can be shared with your employees. And you can manage the center or have it done by an outside child care firm. (Of the 6 million businesses in the U.S., only 2,000 now have child care facilities.)

* Participate in a consortium--If you are in close proximity to other employers, such as in an industrial part, that cannot individually support an on-site child care center, perhaps together you can pool your resources to establish a local child care program. Costs then are spread among the participating companies.

* Offer a cafeteria-style benefit plan--Cafeteria-style benefit plans maximize the value of benefit dollars, minimize benefit costs, and provide a program that addresses each individual's situation. You could make one of the plan choices a reimbursement program to assist with the cost of child care. This would work well for a dual-career family if the husband and wife worked for different companies. Rather than both carry a health insurance plan, one could select health insurance and the other, child care assistance.

Is on-site care feasible?

To determine the feasibility of an on-site child care facility for your company, first evaluate your employees' need and commitment. To dismiss any bias, ask an independent source, such as a process consultant, to perform employee surveys, interviews, and focus group discussions. These forums let you gather information and allow employees to provide input into the proposed project. The independent source acts as a liaison between the employees and the company to help the employees feel that the company is doing all that is realistically possible to meet their needs. It's imperative that both the company and the employees take ownership in the design and structure of the facility.

After establishing the need for and feasibility of an on-site child care service, you need to examine numerous base variables.

* The geography of the firm--Employees using an on-site child care service should be "centralized" at one location or in close proximity to the operation. Examine the mode of transportation employees use to commute to and from the work site. If parents travel by bus, for instance, you need to take into consideration the routing.

* Specific parental needs and preferences--Develop a more definitive list of your employees' needs, desires, and willingness--as well as ability--to share expenses.

* The number of employees to be assisted--In 1978, Kathryn Perry, an analyst for the Department of Labor, found that there is no optimal industry size associated with the decision to operate an on-site child care center. She also found that a high percentage of femal employees was not a prerequisite for companies to provide on-site child care services. The demand for child care is multiplying at all economic levels and, as a result, the child care issue is not a women's or social issue, but rather a business issue.

* The type of children to be served--Decide whether the program will minister to infants, preschoolers, and/or school-aged children.

* The type of program and range of services to be offered--Decide if the program will be offered only during regular workday hours or, for instance, also during the night shift. Will there be a sick bay? Will food service be offered?

* The cost of the program--Resolve whether this is to be a collective program, in that employees and the firm will share in the costs, or whether the costs will be paid exclusively by either the company or the employees.

Now, what's it going to cost?

Once you're relatively certain that an on-site facility is feasible and your employees will be committed to making it succeed, look more closely at the costs. These will fall into two categories: nonrecurring capital expenditures and recurring operating costs.

The nonrecurring caital expenditures will be for such items as:

* Space allocation--A child care site located within the existing corporate structure is optimum, because it usually provides the lowest cost space. When companies are forced to build additional space, the venture may no longer be economically practical. If existing space is not available, look for rental space that is nearby. If renting a facility becomes necessary, then the lease charges, of course, become recurring costs.

* The design of the structure--Expenses related to the facility's design come from two areas: consulting fees and construction or remodeling costs. You should solicit advice from a child care development consultant so that a safe learning environment is constructed to achieve quality child care. And the construction and/or remodeling costs will be dictated to some extent by state regulations, which identify the physical requirements for child care centers. These must be met before your center can be licensed.

* Furniture, equipment, and materials--These consist of such items as chairs, desks, cots or beds, toilet facilities, learning tools, and playground equipment, costed and assembled.

* Liability management--All city, state, and Federal (such as OSHA) government regulations regarding child care must be met. Also, you must give risk management a priority status during all phases of on-site child care planning and management. The liability issue is definitely the most negative component of the on-site day care question.

The recurring operating costs, then, will be for such items as these:

* Utilities--State regulations mandate that child care facilities be dry, heated, well lighted, and well ventilated.

* Food service and beverages--Children require snacks during the day in addition to three balanced meals. State licensure regulations usually stipulate a nutrition plan.

* Supplies--Educational, office, and housekeeping supplies are necessary on a regular basis. Sanitation requirements must also be met.

* Recordkeeping--Child care facilities are required by state regulation to keep records to meet administrative requirements, as well as to be sure that the individual needs of children and families are recognized.

* Toys, smaller equipment, and games--These items provide fun, stimulation, and education and are often referred to as "a child's work." Your child care facility should provide them in sufficient variety and quantity to meet the interests and needs of the children.

* Employee salaries--Personnel costs are the largest component of operating expenses, averaging 70 percent. Staff-to-child ratios are identified in the state regulations, with the highest ratio for infant care and a declining ratio for toddlers, then again for preschool-aged children. Student teachers, such as child care development or early childhood education majors, can be used in an internship program to help you reduce costs, since they generally are available at little or no cost to the sponsoring firm and can help to deliver quality child care.

* Insurance premiums--Factoring in insurance restrictions and costs requires detailed planning. Insurance coverage that is essential for a child care facility includes workers' compensation, auto liability, and accident liability. The average insurance cost per child today is $38 to $55 per year, depending on the level of coverage.

* Other expenses--Included in this category are such items as licensing fees and audit expenses.

Dana Friedman, author of Corporate Financial Assistance for Child Care and a member of The Conference Board, estimates the range for out-of-home child care to be anywhere from $1,500 to $10,000 annually per child. On the average, the cost for full-time, out-of-home care (this includes center and family day care) is estimated at $3,000 per year per child. Care for school-aged children is least expensive, while care for infants and toddlers is most expensive.

But, again, employers don't have to provide the full financial outlay. The costs can be offset by pre-tax employee contributions. (The amount of expenses the employee is willing to incur for the child care services should be an output of the open forums.) Of course, all of the above costs incurred by the company are tax deductible.

What's in it for the company?

While conducting the feasibility study and the analysis of costs, you should be asking two important questions: "Why should we establish an on-site child care facility? What benefit will it bring to the firm?" The answer, very simply, is: an on-site child care program can product tangible economic benefits that result in increased productivity. These benefits can be measured using the net present value method of quantifying personnel expense reductions.

As an example, Union Bank of California built a child care center for $430,000. In 1987, the bank subsidized the center with $105,000 and, after one year, realized an estimated savings from reductions in turnover, absenteeism, and so forth of approximately $232,000, an initial return of 43.4 percent.

In order to complete the net present value equation, you need to approximate cost reductions stemming from estimated improvements in the following productivity measurements:

* Employee loyalty--Employees realize that their most important concern, quality child care, is also important to the company. This creates a loyalty and commitment to the organization while strengthening employee/management relations.

* Reduced absenteeism--PArents will not need to miss work when caretakers are sick, unreliable, or other child care associated obstacles arise.

* Reduced "down time"--The number of work hours lost due to phone communication between employees and off-site child care providers or to "latch-key" children is curtailed. Also, you'll find that employee departures to deal with off-site emergencies are eliminated.

* Reduced turnover--The stress a parent feels when he or she is balancing a multitude of responsibilities is a major factor causing turnover. And turnover also is likely to occur if a parent feels the chance for advancement within an organization is minimal due to the constraints children place on a parent trying to work overtime, travel, or relocate.

Not surprisingly, turnover among nonparents also is affected by the turnover of working parents. The anxiety and tension felt by the remaining employees to absorb the work left behind by the absent or exiting parent is often not felt to be worth the struggle.

* Enhanced recruitment--As the disparity between the availability of and the demand for quality child care continues to widen, prospective employees will be increasingly attracted by a benefit not offered at most companies. As the available labor pool shrinks in the coming years, two-thirds of all new jobs will be filled by females as entrants or reentrants into the labor force. Offering a child care assistance program could mean the difference in hiring a highly qualified applicant or losing the prospective employee to another company.

* Elevated employee morale--The "spill-over effect" or tolerating unfit child care arrangements, which often results in inattentiveness, inefficiency, absenteeism, and turnover, can be eliminated. Parents have a more positive attitude and feel more secure knowing that their children are well cared for in a nearby location.

Who's making the decision?

Firms not willing to investigate the need for a child care management program by using the excuse of high cost haven't quantified the effects of absenteeism, turnover, and competitive recruitment on productivity. While you may think you're saving dollars, you're actually leaving the company open to substandard productivity and a potential loss of effective employees.

While costs to any individual firm are important in deciding which child care benefits to offer, they should not totally guide the decision-making process. From a macro perspective, the United State's future workforce is dependent on what individual companies do today to provide proper care for our children. One can be assured that the issue of child care will be addressed either entrepreneurially by the private sector or intrusively by the public sector. Should responsive management allow the Federal government another opportunity to dictate the shape of an internal issue such as child care assistance?

Kathryn G. O'Neill President Creative Child Care, Inc.

Anthony L. Tocco Associate Professor of Accounting Rockhurst College
COPYRIGHT 1990 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Tocco, Anthony L.
Publication:Financial Executive
Date:Mar 1, 1990
Words:2598
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