James G. Beierlein / James E. Van Horn
Professor of Agricultural Economics / Professor of Family Sociology
Agricultural Economics and Rural Sociology
Penn State University
Copyright/Access Information
In a voucher/reimbursement plan, the employee chooses the child
care arrangement best suited to his or her needs (child care center,
family day care home, after school program) and then receives
a reimbursement from the company for some portion of the costs.
The employer contribution varies from company to company and can
be a percentage of the total cost of child care, a flat amount
for all participating employees, or on a sliding scale (usually
according to the family's annual income). Vouchers or reimbursements
are either added to an employee's paycheck, reimbursed as other
"expense account" costs are reimbursed, or paid directly
to the provider via a check or paper voucher redeemable by the
provider upon presentation.
Vouchers or reimbursements give the employee considerable latitude
in providing a good fit between his or her child care needs and
the available child care services. It gives the employee individualized
choice in selecting a child care agency that meets personal criteria
for
location, hours of operation, and quality of child care.
In general, employers favor the voucher or reimbursement option because it offers less direct involvement in the business of child care. In this system, the care of children is placed in the hands of child care professionals and is essentially a bookkeeping function for the employer.
- Low start up cost.
- Can serve a wide age group of children.
- Offers a wide range of choices and allows parents to make their
own arrangements.
- Uses existing resources in the community.
- Employer does not get involved in the child care business.
- Involves relatively little exposure to liability.
- Is useful to the employer with many business locations or with
a very small or very large work force.
- Child care may not be available at hours that match employees'
work schedules.
- Low visibility for the company; not as effective a recruitment
tool as a direct service.
- The company may end up supporting a child care program that
is not of high quality, which may create exposure to liability.
- Directly impacts only the cost of care. Not a far-reaching solution
in a community that has additional child care problems such as
low supply, low visibility, or poor quality.
- Vouchers can be costly unless eligibility is limited.
A needs assessment should be conducted among employees to determine the interest in this type of assistance. A sample needs assessment with suggested questions can be found in this file under "Questionnaire." This questionnaire may be copied and distributed among employees as it is written, or changes may be made to reflect the needs and interests of a business.
A joint management-employee committee may be useful in developing the program. It can foster a sense of program ownership among employees and provide a forum for them to give input into design features of the program or service.
Although most employers offer a voucher/reimbursement plan
to all employees at a certain income level, a reimbursement can
be directed to specific employee groups, such as those who are
difficult to recruit or are at a specific worksite. Eligibility
criteria should be established with the
advice of a tax specialist who understands the provisions of Section
129 of the Internal Revenue Code, which applies if the reimbursement
is to be a nontaxable benefit.
A company may have a voucher program designed specifically for
new parents to reduce the amount of maternity leave taken by female
employees. This policy helps new parents afford the high costs
of infant care and provides an incentive to return from maternity
leave.
Decisions must be made about whether part-time employees are eligible
and whether to make adjustments for them. Answers to concerns,
such as how many hours a week employees must work in order to
be eligible, also need to be determined.
In determining the income cutoff for eligible employees, note
that the cost of child care presents problems for moderate income
employees as well as low income workers.
The employer may pay a flat amount to all eligible employees,
a consistent percentage of the cost of the care, or an individual
rate determined on a sliding scale.
Decisions must be made on whether to pay directly to the parents,
directly to the center, or on an annual basis to the program or
the center.
Companies have a number of choices to make about the type of care to be eligible for reimbursement. Section 129 of the Internal Revenue Code specifies and defines a "qualified care plan." Some employers allow use of care that is not required to be licensed (relatives, neighbors). Others allow the use of only licensed day care providers or only providers that meet certain employer requirements for location, quality, or service. The employer must determine the number of choices to be offered in relation to what working parents identify as their needs and what is useful to them.
The company needs to decide whether to administer the program in-house or hire an outside firm to do so.
An employer should make certain that employees understand how the system works. Management in-house may be by a child care coordinator or by the staff in departments such as personnel, employment benefits, public relations, community affairs, strategic planning, or recruitment. Information on the program can be disseminated via seminars or meetings, informational flyers, bulletin board notices, or articles in the company's newsletter.
Regular monthly recording of child care expenses should be maintained, depending on the type of program set up. Paperwork is generally minimal. In some programs, coordination between the child care center and the company may be required to keep track of the number of hours used each month.
Employers with voucher/reimbursement programs typically set
a maximum on the amount they will contribute to child care costs
- an amount based either on family income or the cost of care.
Companies may limit eligibility to certain income groups or ages
of children as a way to control program costs.
The simplest approach to vouchers is a flat-rate reimbursement
to all employees (or those within a specified income range), regardless
of the cost of care or family income. However, many companies
base their vouchers on a fixed percentage of total costs, establishing
a maximum ceiling on the cost of care for which reimbursement
may be received. Any maximum ceiling should be high enough not
to discourage the use of better quality programs (which protect
the employer's exposure to liability).
Administrative costs are relatively low because existing staff
can usually manage the program along with other responsibilities.
Almost all of the money spent goes directly into providing child
care services. Other than subsidy, there is no real cost to the
employer because the child care
program start-up fee is usually minimal. The voucher is also a
deductible business expense for the company if earmarked for the
employee.
The costs will vary depending on the type of programs chosen for
purchase and the administration of payment. The income restrictions
on eligibility may help to keep the overall costs low but also
may prevent most higher paid staff from participating in the program.
A cost-benefit analysis should be conducted that compares short-term
costs and long-term operating costs with the productivity, absenteeism,
and turnover advantages that the voucher or reimbursement assistance
provides. A child care benefits specialist can assist in this
analysis.
Once the program is in place, a mechanism should be developed
so that the employer can evaluate the adequacy and usefulness
of the program. The evaluation should include a monthly review
of the budget versus costs reports, usage figures, quality control
standards and measures, and an
annual program review.
A lawyer may be required to help the employer clarify the nature
of the option to the employee, so that the employer does not bear
responsibility for injuries that may occur while child care services
are being rendered. A management service might be hired to handle
the paperwork.
You may want to consult with your local Cooperative Extension
Service to help determine child care needs. The Cooperative Extension
Service could also present educational programs on child care,
parenting, and other work/family-related concerns.
Other people in your community may be consulted in planning a
child care assistance option. You should consider: nursery school
teachers, director or staff of day care centers, child care Resource
and Referral agencies, local Cooperative Extension 4-H agents,
retired persons with child development backgrounds, vocational
technical schools with child care curriculum, community colleges,
and local child care sponsoring agencies (such as a child care
council or community action agency).