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Backup day care can cut absenteeism, decrease turnover, and save employees from the stress of lining up a last-minute caregiver.
Melissa Hennessy, CFO Magazine
February 22, 2005
It's every working parent's scheduling nightmare: a child-care arrangement evaporates during a busy workweek. Cathryn Mehrtens, U.S. director of business development at Latham & Watkins LLP, was stranded when her nanny's father died suddenly and the caregiver needed to return to Jamaica. "She was on a plane that afternoon," says Mehrtens. The nanny's departure left her without child care for her three-year-old son, Gavin, and although it took three weeks to find alternate care for him, Mehrtens didn't have to miss even one day of work at the Menlo Park, California, law firm. That's because her firm offers backup child care.
Through an arrangement with Boston-based ChildrenFirst, Latham & Watkins employees can bring their children to a backup center near one of the firm's 11 U.S. offices. The law firm considers such care a benefit that pays dividends to the firm as well. "One of our attorneys had a child-care provider cancel at the last minute," recalls Mimi Krumholz, chief human-resources officer. "If not for our backup-care program, that attorney would have missed an important deal, seriously compromising client service."
Unforeseen situations like school closings, employee relocations, or an at-home spouse being summoned for jury duty can leave employees who have children with no alternative but to stay home from work. A National Conference of State Legislatures survey found that 80 percent of employees miss work because of child-care problems.
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. The Child Care Action Campaign estimates that U.S. companies lose $3 billion each year due to absences resulting from breakdowns in child care.
To protect against unplanned absenteeism due to such breakdowns, more companies are offering backup child care. Unlike with traditional "full-service" child care, parents use backup care only when their regular arrangements fall through. Such services may follow one of several models (see "Typical Models for Backup Child Care", at the end of this article). But whether located on- or off-site, all of them typically accept children with as little as one-day or even same-day notification.
Parents are limited to a specified amount of usage per year—usually in the neighborhood of 20 days—and pay a modest co-payment for each day of care, often between $15 and $35. The concept is growing in popularity: in 1993, 5 percent of large U.S. employers offered backup child care as an employee benefit, according to Hewitt Associates. By 2004, that number had grown to 15 percent.
For Emergency Use Only
Backup child care is creating a cottage industry of providers that cater to companies that want to offer the benefit to their employees. ChildrenFirst, established in 1992, and Washington, D.C.-based Lipton Corporate Child Care Centers Inc., established in 1990, have cropped up exclusively to service the backup-care market.
And traditional full-service child-care companies are also entering into the backup-care arena. Bright Horizons Family Solutions, one of the nation's largest child-care providers, with more than 500 centers around the world, introduced the concept via its national network-access program in 1998. The program gives parents at participating companies priority access to available space in existing full-service centers for drop-in emergency care. Some centers are now managed as hybrids, offering both full-service and backup care within the same facility.
For many companies, backup care is a realistic alternative to providing full-time child-care benefits or building an in-house child-care facility. Full-time centers are expensive, and come with licensing and liability headaches. With real estate construction estimates of between $125 and $175 per square foot (depending on geographic region), the total capital cost to design and build a full-service center can exceed $2 million, even before factoring in the cost of staffing, equipping, and operating it. And once a company commits to an on-site center, there is little flexibility, even if its workforce needs and demographics change over time.
Further, a company unwilling to fully invest in and subsidize a center (including all capital costs and at least one-third of operating costs) risks having the program fail.
A few years ago, Credit Suisse First Boston took a look at full-service care, but the cost and licensing regulations created an impasse, says Judy Heicklen, managing director of CSFB in New York. "We didn't go far down that path before realizing that full-service care wasn't going to work," she says.
One problem was that CSFB couldn't get a full-service day-care license, since it has no dedicated outdoor space. Instead, the company decided to expand its backup-care program, even though CSFB was in the middle of a companywide cost-cutting effort. "We quickly realized that backup care had a clear impact on attendance and productivity," says Heicklen. "There was a compelling business case to make the benefit more accessible, despite the budget implications."
The company ended up selecting ChildrenFirst to provide care out of its centers in eight cities near CSFB offices. CSFB won't reveal how much it pays for the benefit, but the typical membership fee to an outside center can cost employers between $20,000 and $40,000 annually per facility, depending on the size of the center, its location, and the structure of the program.
Employees have embraced the concept, says Heicklen. "The benefit is open to all of our staff, and it allows us to reach employees at every level, regardless of where in the country they are located." CSFB doesn't keep track of its return on investment, but Heicklen insists the benefit saves the company more money than it costs. "It's been very successful for us," she says.
Others say that the returns for backup child care are easier to measure than those for full-service care. According to WFD 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 ROI is usually calculated by comparing the daily expense of offering care to average daily salary multiplied by workdays saved.
Offering backup child care can also save money by reducing turnover, because many working parents are forced to leave their job when a child-care arrangement breaks down. According to the Families and Work Institute, the cost of replacing an employee is estimated to be about 150 percent of a professional or management employee's annual salary, and about 75 percent of an hourly employee's salary.
Do It Yourself
Contracting with outside vendors isn't the only option. Because in-house backup centers are subject to less-stringent licensing standards than those that apply to full-service centers, which may host a large group of children full time, companies find they typically cost less to design and build. Industry experts suggest that a typical full-service center requires about 10,000 square feet of dedicated space, while an in-house backup center can be created with as little as 2,500 square feet.
Although licensing regulations vary from state to state, day-care regulations that mandate minimum square footage per child, outdoor play areas, or staff-to-child ratios—or those that prohibit the mixing of age groups within a classroom—are usually more relaxed in backup-care environments. As a result, backup centers typically cost less to design and build. And 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.
Backup care does have its limitations. Because demand varies and enrollment can fluctuate seasonally at backup centers, such as during school vacations, waiting lists may be common during high-demand periods. Furthermore, most center-based care, whether full-service or backup, is restricted by state or local health regulations from accepting sick children if there is a danger of contagious illness. In these situations, referral services for in-home sick-child care by trained providers could be considered.
Finally, as with full-service care, employers shouldn't rely on parents to fund the cost of a backup center benefit. As an incentive for use, companies usually choose to keep parents' co-payments low, and these fees can cover only a small fraction of the cost of the benefit, usually ranging from 1 to 10 percent of the employer's investment.
For many employers, backup child care may be a trend whose time has come. For Mehrtens, whose nanny had to return home, backup care saved the day. "I don't know what I would have done without it," she says.
Melissa Hennessy is a freelance writer in Grafton, Massachusetts.
Handle with Care
Once expected to become the next "hot" benefit provided to employees, employer-sponsored child care has largely failed to take off for two reasons: high costs and liability concerns associated with building and operating full-care centers.
For some companies, however, offering state-of-the-art, full-service child care has more to do with corporate culture than with verifiable return on investment. The Islandia, New York, headquarters of Computer Associates International Inc. boasts a 110,000-square-foot (including indoor and outdoor space), full-service center serving 370 children. The center, heavily subsidized by the company, features a high-quality, educationally focused curriculum and employs 115 teachers, who are all on CA's payroll. "We really want to be different—a unique and special place to work," says Lisa Mars, CA's vice president for corporate child care. "I'm not aware of many other companies willing to commit the dollars and effort to running this type of program." CA has six child-care centers that serve more than 600 children.
While the cost is significant, Mars says the center gives the company a unique advantage in attracting and retaining talent. CA isn't concerned about getting a tangible financial return on the investment; rather, says Mars, "our primary goal is to support the needs of parents." In 2003, the company was named one of the 100 best companies for working mothers by Working Mother magazine, thanks, in part, to its child-care center.—M.H.
Typical Models For Backup Child Care
A group of companies pools members' dollars to create and operate a center. Consortium members act as owners and collectively assume start-up and overhead costs as well as liability risks.
A sponsoring company fully owns and manages the center, operating it internally or outsourcing it to a service provider. The sponsoring company may choose to sell membership spaces to other companies to offset operating costs.
This is the most popular model. Companies purchase memberships from an external vendor, buying spaces for their employees in a center. The care provider—not the employer—retains profit-and-loss responsibility for the center. Contracts with vendors can often be adjusted from year to year to reflect the company's needs.
Flexible Or Mixed.
A combination of approaches, this model provides a tailored web of services for parents. For instance, a company may purchase a membership space in a local backup center, as well as offer access to child-care resource and referral hotlines and dependent-care tax-savings accounts. Employers may also partner with external services that offer in-home emergency care, such as Parents in a Pinch or Caregivers on Call.—M.H.