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A Case For Child Care

April 1, 2004
Related Topics: Work/Life Balance, Benefit Design and Communication, Attendance, Featured Article, Compensation

While most American companies, sadly, don’t seem too interested in what happens to employees’ kids while their parents are on the job, Abbott Laboratories isn’t one of them. At its headquarters campus 30 miles north of Chicago, the Fortune 500 medical-technology giant has built a $10 million state-of-the-art child-care center where each day, more than 400 preschool-age offspring of Abbott workers scamper through an outdoor shrubbery maze, take yoga lessons and stimulate their minds in an art and science studio.

    For parents who didn’t land one of the highly prized spots at the center or prefer a different arrangement, Abbott offers a 10 percent discount at several national child-care chains, and works with community organizations to recruit and train local child-care providers. If an employee’s babysitter is sick, Abbott provides emergency backup. For older kids, on school holidays the company offers field trips, science experiments and games on-site to keep them occupied while their parents work. And for workers who want to be stay-at-home parents some of the time, the company offers flextime and other arrangements. "We’re trying to meet everyone’s needs, whatever they turn out to be," says James Sipes, Abbott’s human resources director for child care.

    Abbott and other forward-thinking companies--including IBM and Procter & Gamble--have developed cost-effective models for analyzing and meeting employees’ child-care needs, and innovative approaches to problems such as the 24-7 workplace. Business once viewed child care as a way of helping out employees, says Sandra Burud, author of the upcoming book Leveraging the New Human Capital. "In the future, they may think of it as something they must do to be competitive."

"If you make $40,000 a year and you have two kids, you’re basically working just to break even."

    Throughout the American workforce, the needs of parents and children are acute. Because of economic necessity and a desire to keep their careers afloat, six out of 10 American mothers return to work within a year of having children, compared to less than 40 percent two decades ago, according to U.S. Census data. About half of working families rely on child-care centers, a third for more than 20 hours a week. But finding quality, affordable child care is difficult. A 2000 Children’s Defense Fund study found that in most urban areas, fees at child-care centers were higher than tuition at a state university. "If you make $40,000 a year and you have two kids, you’re basically working just to break even," says Kathleen McCartney, an education professor at Harvard University, who herself faced that dilemma early in her academic career. "You may decide just to drop out of the workforce."

    Quality is another issue. Research shows that teacher interaction, learning activities and stimulating play are profound factors in preschoolers’ future performance in reading and cognitive tasks, but not enough providers measure up. Only one in eight child-care centers across the nation has earned accreditation from the National Association for the Education of Young Children, the recognized standards-setter. With salaries for child-care teachers hovering under $20,000 nationwide, qualified and talented caregivers are hard to find.

    Those who have studied the child-care problem say that employers could do a lot to help solve working parents’ worries, and in the process help themselves reduce absenteeism and improve productivity. Research shows that child-care breakdowns cause a quarter of employees to miss work at least several times a month. But even so, few companies are making the effort. A 2003 Bureau of Labor Statistics study found that only 5 percent of employers provided on-site or near-site care; an additional 3 percent helped subsidize care elsewhere, and 10 percent provided access to telephone referral services to help find child care.

    Big employers do a bit better, but not by much. In a 2003 Hewitt Associates study of 975 large companies, 10 percent offered company-subsidized on-site or near-site care, 9 percent arranged for discounts from local child-care providers and 42 percent offered referral services. Even federal and state tax incentives haven’t been enough to overcome companies’ fear of the added cost and responsibility and their shortsightedness about the larger benefits to workers and the bottom line. But the time will soon come, experts say, when employers will no longer be able to avoid the issue, as anticipated shortages of workers of childbearing age force them to view child care not as an expensive perk but as a critical part of meeting their staffing needs.

Why companies aren’t doing more
    There’s evidence that helping employees with child care pays off. A 1997 study by researchers at Simmons College in Boston found that at companies with on-site care, 42 percent of employees cited child care as the reason they’d joined the company, and one out of five said they’d passed up an opportunity elsewhere because they wanted to keep their kids at the company center. Child-care assistance can also make a major dent in absenteeism caused when the babysitter is sick or doesn’t show up, according to research cited in the Journal of Accountancy. A study of six Canadian companies that provide backup child care for emergencies found that they save $176 in lost productivity each time a worker uses it.

    At Abbott, employees whose kids attend the on-site center score at the "exceeds expectations" level in evaluations a third more often than the norm, and their retention rate is a third higher. Abbott’s child-care benefits also provide an advantage in competing for talent; one software engineer, for example, reportedly decided to jump to Abbott as soon as he heard that the company had an on-site center.

    So why don’t more companies offer child-care assistance? In a 2000 study by the opinion-research organization Public Agenda, 62 percent said they didn’t have the resources or expertise to run a child-care center, and 59 percent didn’t want the responsibility and potential legal liability. For many companies, expense is the major deterrent. Rick Brandon, a faculty member at the University of Washington’s Human Services Policy Center, pegs the cost of providing child care to employees at $4 to $8 an hour, substantially more than the $2.50 that companies typically pay in total benefits. "A lot of executives have trouble looking past their quarterly earnings report," says Susan Seitel, president of Work & Family Connection Inc., a consulting firm in Minnesota. "They can’t see a capital investment in child care as having an impact on that bottom line."

    Reluctant companies also view it as an equity issue. "They’re thinking that if they pay $10,000 to subsidize child care for an employee with a family, that’s unfair to someone who doesn’t have kids," Burud says. "That only makes sense if you keep looking at child care as a benefit, and not a tool that serves your business objectives. If an engineer needs a high-powered computer to do the job, you don’t give the person a less powerful one because it would be unfair to someone else in the company. The results for the company are what matter."

    In a 2002 study, the National Women’s Law Center reported that few companies have even bothered to take advantage of the lavish tax breaks offered by the federal government and 28 states, which cumulatively may enable a company to write off as much as 50 percent of the cost of building and operating a child-care center. (One state, Florida, is willing to match companies’ child-care investments.)

"Some companies have good on-site centers, but they’re not for everybody. If you’ve got 800 employees, you aren’t going to have enough children to make it work economically."

    Seitel and others point out that in the near future, companies may find themselves forced to look at child care as an essential part of doing business. "The forecasters are predicting an eventual shortage of younger workers, as the U.S. population gets older," Seitel says. "When you combine that with the trend of age-55-plus people staying in the workforce, companies run the risk of ending up with a workforce that’s really old." That skewed demographic balance could wreak havoc with salary scales and succession planning, and deprive a company of up-to-date skills and fresh ideas, she says. In that scenario, the company that is able to attract and retain workers of child-raising age will have an increasingly significant competitive advantage.

    But experts caution that there’s not a one-size-fits-all answer. Instead, a company has to find an approach that is tailored to the particular needs of its workforce and the location or locations in which it operates, and makes the most effective use of the resources that the company can invest. "You really can’t squeeze every company into the same mold," says Judith Presser, a senior consultant for WFD Consulting, a firm in Watertown, Massachusetts, that helps companies find child care. She also works with the American Business Collaboration for Quality Dependent Care, a consortium of 10 companies that work together to provide employee child care and elder care. "Some companies have good on-site centers, but they’re not for everybody. If you’ve got 800 employees, you aren’t going to have enough children to make it work economically."

    Consultants say that the first step in considering a child-care facility is to conduct in-depth research. The study should include both an employee survey and a more detailed needs assessment in which a company projects demographic patterns in its workforce 5 or 10 years into the future. After that, a corporate human-resources team should study the capacity and quality of existing child-care facilities near its workplace and in the communities where its workers live.

    That data can yield surprises and, possibly, help a company to get more bang out of the millions that it may have to invest in child care. After Texas Instruments surveyed its 11,000 workers, who are spread among three separate corporate campuses in the Dallas area, the company discovered that parents already were using existing child-care centers in their own communities. Instead of spending as much as $5 million to build a company center that wouldn’t be conveniently located for everyone, TI invested its money in improving the quality of existing centers, underwriting health and safety-training programs, and offering free management consulting expertise. The company also worked with local community colleges to recruit students to alleviate the chronic shortage of day-care workers.

    "We figure that with these [benefits], we’re affecting the maximum number of employees’ lives," says Betty Purkey, TI’s manager of work/life strategies. The human resources team at the Calvert Group, an investment firm in Bethesda, Maryland, that is part of the Ameritas Acacia insurance family, discovered that many employees had long commutes from homes in Virginia and didn’t want to bring their kids with them to work. Calvert instead opted to set up child-care savings accounts for employees, in which the company would match a portion of their pre-tax salary deductions.

    In contrast, when Abbott Laboratories studied its workers’ child-care needs in the late 1990s, it found that the Lake County area around its headquarters had a severe shortage of quality child care, with spots available for only two out of five preschoolers in the vicinity. And very few facilities offered infant care. Abbott also sent an employee task force to visit corporate child-care centers around the nation to benchmark quality and compile best practices. Experts heartily endorse such an approach, because quality is an area where community child care is often lacking--and where corporate-caliber resources and planning expertise can make a major impact.

    Burud, who has found that corporate centers are about eight times as likely to be accredited as the norm, says that companies often provide superior care because they don’t want to attach their names to something shabby. Not only does that quality emphasis result in nicer carpeting and plenty of avant-garde educational toys, but it also is a solution to one of the child-care field’s persistent woes--the difficulty of finding and retaining qualified workers. A University of California at Berkeley study found that in community day care, turnover among $10-an-hour teachers averaged 75 percent over a five-year period.

    At SAS, a software company in Cary, North Carolina, turnover is very much lower. Teachers at the four SAS on-site centers make above-market salaries, and many have been on the job for 10 years or more. "Everybody knows the teachers, and that makes parents really comfortable," says Dianne Fuqua, director of the program. At Procter & Gamble’s $2.5 million near-site facility in Cincinnati, child-care workers usually are college educated and often have master’s degrees.

"With backup care, you can cover a far greater number of people than with conventional on-site care because they’re not going to be using the center every day."

    Companies increasingly are realizing that basic daytime care fills only part of employees’ needs. Procter & Gamble’s new on-site center at its plant in Albany, Georgia, will be open around the clock to accommodate night-shift workers who can’t leave their kids at home alone. About seven million Americans whose work hours fall outside the 9-to-5 norm have kids, and about half of those workers are mothers, according to Circadian Technologies in Lexington, Massachusetts. Circadian found that by providing after-hours care, companies could reduce absenteeism by 20 percent, and recover the cost of an on-site center in five years.

    Companies also are trying to help workers who either don’t have access to a corporate on-site or near-site center or prefer having relatives take care of their kids. The problem becomes what to do when the babysitter comes down with the flu or the church day-care center is closed for a religious holiday. Backup care is the fastest-growing new service, says Kathie Lingle, the former work/life director for KPFG Insurance and now membership director for the Alliance for Work-Life Progress. "With backup care, you can cover a far greater number of people than with conventional on-site care because they’re not going to be using the center every day." The return on investing in backup care, she says, is high. KPFG found that it generated $5.50 in saved productivity for each $1 it spent. Some companies are creating on-site backup care; others are reserving spots in local child-care centers for employees’ emergency use.

    Forward-thinking companies also are looking at child care not as a stand-alone program but as part of a larger work/life balance that will benefit both employees and the company. "It’s one thing to provide child care, but when you start peeling away the onion on the issue, you see that it’s only part of the equation," consultant Judith Presser says. "Even if you’re giving me access to an on-site center, if I end up having to work 12-hour days, I’m just going to be driving home every night with my kid asleep in the backseat." Instead, increasingly, companies are utilizing child-care programs to mitigate one of the most painful and destructive ills of the 21st-century economy: parents’ decreasing contact with their kids and increasing alienation from family life.

    At SAS, parents who use the on-site child-care centers can visit their children during the day or join them for lunch in the company cafeteria. "When the kids have Easter-egg hunts at the lake, parents can watch them from their office windows," Fuqua says. "You see people on campus walking with their kids all the time. It’s got to make a really enormous difference in morale, and people’s performance."

Workforce Management, April 2004, pp. 34-40 -- Subscribe Now!

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