Organizational Wellness

Dependent Care Benefits: A Comprehensive Guide for HR Leaders

Last Updated Dec 9, 2024

Time to read: 8 minutes

All generations in the workforce—Boomers, Gen X, Millennials, and Gen Z—have caregiving duties that can disrupt their ability to work. And if a company doesn’t help its staff find the right balance between these personal obligations and career responsibilities, it risks losing employees. Seven out of 10 of working parents would choose a company that offers childcare benefits over one that doesn’t, according to research by Care.com. Additionally, nearly 60% of workers would utilize caregiving benefits for elder care if offered by their employer.

These numbers show that on top of providing basic perks, such as health insurance, retirement plans, and sick days, organizations that want to attract and retain talent may need to consider dependent care benefits.

What Are Dependent Care Benefits? Why Are They Important?

These employee benefits help workers manage costs related to caring for a dependent. This could be a child, a spouse, or an older relative. Such benefits are designed to support employees in meeting both their work and caregiving duties, as working part-time or full-time while worrying about children or an older adult at home can be stressful.

If you offer dependent care benefits like on-premise daycare for children, for example, you help employees work with less stress because they know their dependents are well-cared for. This bolsters work-life wellness, which increases productivity, boosts retention, and improves employee mental wellbeing, according to Harvard Business Review.

Types of Dependent Care Benefits and Their Eligibility Requirements

When looking to support employees with caregiving responsibilities, you can offer them the following benefits to help make life a little easier:

Dependent Care Flexible Spending Accounts (DCFSA)

This employer-provided program allows employees to put a portion of their pre-tax salary in a special account that will pay for eligible child or adult care services, such as:

Daycare and nursery school
Nanny and babysitting
Summer day camp
Senior daycare

To be eligible for a DCFSA, the person an employee is supposed to look after must meet specific requirements. For example, the dependent must be less than 13 years old if it's a child. A dependent who is an adult must be either a spouse or a relative living in an employee's home (at least eight hours a day) and be incapable of self-care—maybe because of mental or physical illness.

If your organization decides to offer DCFSAs, here's how those benefits work:

Step 1: After understanding the purpose and advantages of DCFSA, employees enroll in their employer's dependent care FSA program.
Step 2: Workers decide how much per year they want to contribute to their DCFSA account, depending on the annual child or adult care expenses they expect to incur and the maximum limit set by the Internal Revenue Service (IRS)—up to $5,000 for 2024. They then authorize their employer to automatically withhold that amount from each paycheck and deposit it into the DCFSA account.
Step 3: Employees pay out of pocket for eligible dependent care services and are later reimbursed with DCFSA funds.

The most significant advantage of this program to employees is the tax savings. When you withdraw DCFSA funds from someone's wages before deducting payroll taxes, you reduce their taxable income, so that person pays less to the IRS and takes home more of their paycheck.

Employer-Provided Child Care

Organizations have been expanding their childcare benefits year after year, according to a 2022 report by Care.com. Yet demand for these benefits still outstrips what employers supply—nearly 60% of HR leaders get requests for childcare benefits that exceed what an employer currently offers.

That tells you how much the modern workforce values employer-supported childcare. Companies that don't offer this perk risk losing top talent to competitors that appeal to employees' needs.

Your firm can support employees with children in the following ways:

Create an on-premise childcare facility for your staff
Partner with a reputable daycare organization to provide discounted childcare services to your employees
Provide childcare resources and referrals to local daycare service providers

If you provide this benefit to employees, they are less likely to choose between work and taking care of their kids — they can comfortably do both. This can improve staff attendance and boost productivity.

With employer-provided child care, your organization also gets tax credits — up to $150,000 that you can deduct from your tax bill and reduce how much your business pays the IRS. This amount covers the expenses related to offering a childcare facility to your employees.

To be eligible for the tax credit, however, the childcare facility providing services to your employees must meet specific requirements, such as:

The daycare must comply with all applicable state and local regulations, including licensing requirements.
At least 30% of the enrollees in the facility need to be your employees' dependents.
Enrollment to the facility must be open to your employees during the year your organization plans to claim the tax credit.

Paid Family Leave (PFL)

The Family and Medical Leave Act (FMLA) guarantees eligible workers the right to take up to 12 weeks of unpaid leave to look after a loved one without losing their jobs and benefits. But what if your organization sweetens the deal by offering a partial salary when an employee takes time off to provide dependent care?

Doing so is optional under federal level because no national law requires employers to offer paid family leave. At the state level, however, places like California, Colorado, and New York require an organization to pay employees when they take time off work for eligible reasons, such as:

Bonding with a newly born or adopted child
Caring for a seriously ill family member
Taking care of an injured loved one who serves in the military
Making arrangements for a family member's military deployment

How long and how much employers must pay employees on a PFL varies with location. In California, for example, the duration is up to eight weeks per year, and the amount ranges from 60 to 70% of an employee's average weekly earnings in the last five to 18 months before the person took a family leave. California’s PFL only provides benefit payments but not job protection.

Other states, like New York, are more generous. Employees can take paid family leave for as long as 12 weeks in a year and receive 67% of their average weekly wages. State law protects the employee's job until they return.

When drafting paid leave benefits in your organization, consider your state's PFL laws and regulations to operate in compliance.

How to Implement and Manage Dependent Care Benefits

The step-by-step procedure below shows the essential things to consider when setting up a dependent benefits program for your staff.

Step 1: Evaluate Employees' Needs to Provide the Most Suitable Benefits

What type of dependent care do workers in your organization require —nchildcare or eldercare (or both)? Some may want time off to care for a sick spouse or an injured relative. You can conduct an internal HR survey to know the benefits that employees need.

If your main goal is to attract top talent in the recruitment process, job market studies can reveal dependent care perks that many job seekers currently expect from potential employers.

Step 2: Check Your Budget

Once you know the benefits employees want, shortlist options that best address their needs. After that, check your budget and choose the most affordable dependent care perk from the list. The right benefits support employees' caregiving responsibilities without breaking the bank.

Step 3: Understand Your Legal Obligations

Some dependent care programs like DCSFA are voluntary for employers, while others, such as paid family leave, are mandatory in some states. Check the laws in your location to know the benefits your employees are entitled to and the legal requirements for those benefits.

Step 4: Communicate With Employees

Use official means (a meeting or memo) to inform your workforce of the employee perks you've decided to offer. Make sure everyone understands the meaning of the dependent care program you want to provide, how it benefits them, any applicable eligibility requirements, and how to enroll. Additionally, clarify relevant internal policies that apply to the benefits so that all your staff members are on the same page.

In the long term, it's best practice to change dependent care benefits based on employees' shifting needs. Any time you adjust employee perks, communicate the updates to your team and create time to answer emerging questions.

Offer Employees All the Support They Need

Want to go the extra mile to help your team focus on the job without worrying about their loved ones' caregiving responsibilities? Offering them dependent care benefits can be a great way to achieve just that. It can help people give their best at work and jumpstart productivity.

However, balancing caregiving responsibilities with work may be just a fraction of the challenges workers face—other difficulties could include personal wellbeing issues like stress and burnout. That means dependent benefits might not be enough to improve the overall employee health.

A workplace wellness program that addresses your staff's social, mental, physical, and emotional wellbeing is the extra employer support that workers need. Wellhub's 2024 report shows that 77% of workers engage with their organization's wellbeing benefits.

Speak with a Wellbeing Specialist to find out how you can support workers with holistic wellness!

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See how we can help you reduce your healthcare spending.

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[*] Based on proprietary research comparing healthcare costs of active Wellhub users to non-users.