The importance of child care benefits for employees

Companies are under increasing pressure to attract and retain top talent. Today, many organizations look to stay competitive through benefits packages, especially as employees struggle under higher costs. In recent years, a common area of focus for strategic benefits is child care.

Since 2020, daycare and preschool costs have surged by 22%, increasing strain on working parents — and workplace productivity. Innovative businesses are turning this challenge into an opportunity as more parents worry about affordability. Supporting parents with child care benefits for employees can create positive ROI in productivity, retention and recruitment success.

Offering child care benefits is one trend that can positively impact employees and employers in 2025. Here are the key details to know.

Types of child care benefits employers can provide

According to recent research, American companies lose $23 billion annually in productivity due to child care costs and challenges. This incentivizes corporations and small businesses to help parents manage family responsibilities in an effort to maintain strong business performance. There are many ways that employers can do this.

On-site child care centers

Larger companies may offer on-site child care facilities, giving parents the convenience of having their children nearby during work hours. This can help reduce drop-off stress, help build a family-friendly workplace culture and heighten morale overall. In fact, a survey found that 30% of respondents said on-site daycare could help reduce child care costs.

Financial assistance programs

Not every business can sustain an on-site child care center, but there are other ways to offer this type of support to employees. One popular approach is offering child care subsidies.

Subsidies help parents manage costs while giving them the flexibility to choose the care options that best work for their families. These structured benefits can include monthly stipends, reimbursements for child care expenses up to a certain amount and bonuses to help offset child care costs.

Companies can also partner with local child care providers to offer employee discounts or subsidized spots. This approach gives employees more choice but requires less administrative overhead from the business.

Dependent care accounts

Dependent care accounts operate like flexible savings accounts and provide child care benefits for employees by allowing them to set aside pre-tax dollars for eligible child care expenses. Funds for dependent care flexible spending accounts (DCFSAs) are pre-tax, and the limit in 2025 is $5,000 for married joint filers or single head of households.

Backup care

Some companies are beginning to offer backup care options for employees. These programs contract with local on-site centers and providers or offer discounts on in-home options on days when regular care routine falls through, up to a set number of hours or days throughout the year.

After UPS implemented a pilot backup care program for part-time employees, absences from participants dropped, and employee turnover went from 31% to 4%. As a result, the organization has since expanded the program to other shifts.

Flexible work arrangements

Employers may also consider expanding flexible work agreements. Remote and hybrid work models can help parents balance child care needs without sacrificing productivity or career growth. Additionally, the money saved on reduced commutes could go toward other child care costs and needs.

The business case for child care benefits

Offering child care benefits can be a strategic investment for employers. Supporting working parents can help companies see significant advantages in several areas.

Increased productivity

Nearly 90% of employers say child care benefits improve productivity, according to a joint report from Moms First and Boston Consulting Group. Providing child care benefits can help reduce absenteeism and distractions caused by caregiving challenges. In turn, these positive developments can translate into increased revenue for the organization.

Improved recruitment and retention

Family-friendly policies can be a key differentiator in attracting top talent. The aforementioned joint report found that over 85% of working parents are more likely to stay with an employer when child care benefits are offered. This improves retention, reduces turnover costs and strengthens workplace loyalty.

Boosted financial impact

Companies that invest in employee child care benefits report a positive return on investment. As part of the joint report mentioned above, organizations reported that the ROI of child care benefits ranged from 90% to 425%. These gains occurred for both hourly and salaried workers.

Potential drawbacks of child care benefits

While child care benefits can offer some clear advantages to both employers and employees, there are also potential challenges that organizations should consider:

• High implementation cost: On-site care facilities or comprehensive subsidy programs may require significant upfront investments. For small to mid-sized companies, these costs may outweigh the ROI.
• Administrative complexity: Managing child care benefits such as subsidies, DCFSAs or backup care services may add operational and administrative burdens, especially if the programs are scaled across larger workforces.
• Equity concerns: Another factor is ensuring all employees, regardless of income, role or location, have equal access to benefits. Programs that are perceived as unfair may lead to negative employee culture and dissatisfaction.
• Limited participation: Not all employees may take advantage of child care benefits, which could impact ROI or strain resource allocation.

Key considerations for implementing child care benefits for employees

Employers looking to introduce child care benefits should carefully evaluate several factors to ensure these programs are effective and sustainable. The following steps can help business leaders as they evaluate the feasibility.

Understand workforce needs

To begin, consider conducting surveys or gathering employee feedback around which benefits would have the most positive impact.

Perform a cost-benefit analysis

Balancing the costs of these benefits with potential ROI is important. Account for the potential savings from turnover and absenteeism as well as potential productivity boosts against the cost of implementation.

Review scalability and accessibility

Evaluate the best approaches to ensure benefits adequately meet the needs of employees — especially across different roles and locations — and can be accessed by those who are eligible.

Ensure regulatory compliance

Review local and federal laws to ensure any child care programs meet requirements and what's needed to stay within compliance. Also, the additional insurance costs, especially for on-site programs, should be considered.

Find a trusted partner for benefits plans

Child care benefits aren't just a perk — they can help businesses attract and retain top talent, improve productivity and create a supportive work environment. While implementing these programs requires careful planning and investment, the potential returns in employee satisfaction, loyalty and operational efficiency make them worth considering.

Ready to move forward with expanding your company's benefits offerings? Optavise is a trusted benefits partner, providing personalized solutions that help both employers and employees make better benefits choices. To learn more about potential updates that can be made to existing benefits programs, contact an Optavise representative today.