What are some options for child care benefits?
Resource and referral services. The simplest program is for the employer to provide employees with resources and referrals to help them find child care providers. Employers may consider having a 24-hour telephone network with counselors who help parents make necessary arrangements for child care --especially useful in the case of a sick child who cannot attend school or regular day care while ill.
Dependent care assistance programs (DCAPs). A DCAP is a tax-advantaged benefits program that allows employers to pay or reimburse employees for qualified child and dependent care expenses. DCAPs are popular because they offer tax advantages to both employees and employers.
For the employee, any employer-paid dependent care assistance for qualified dependents (those under age 13 and dependents who are physically or mentally incapable of self care) is not included in the employee's gross income-so long as the DCAP satisfies the requirements of IRS Code 129.
Employers, at the same time, may deduct the cost of providing a DCAP as a business expense.
Types of DCAPs:
- The most common type of DCAP is a flexible spending account, which allows employees to use pretax income to pay for anticipated qualified child care expenses. The employee specifies the amount to be placed in the FSA and the employer deducts a portion of that sum each pay period. Employers may elect to contribute to employee FSAs.
- DCAPs may also be structured as voucher systems. In that case, employees submit monthly statements and receipts to their employers and are reimbursed up to a predetermined amount.
- A different type of DCAP is a vendor program in which employers purchase slots at day care centers and offer them at subsidized rates to employees.
- Or the employer may opt to sponsor its own child care center
Emergency or back-up child care. From time to time, an employee's established day care arrangements may fall through because of day care or school closings (for example, due to bad weather conditions), because the day care provider is unavailable or the child is sick or for any other reason. Emergency child care provides alternate child care for the employee to use in these instances.
Employers opting for these types of programs may set up their own on-site or near-site day care centers or contract with an established day care center. A third option is a program that provides in-home care.