The ROI of On-Site Child Care

The ROI of On-Site Child Care

Child care is a major concern for working families in the US, many of whom struggle to afford it. Employers who want to help ease this burden for the parents on their payroll might like the idea of on-site child care facilities in theory but worry that they’re too expensive to introduce. However, at Fast Company, Patagonia CEO Rose Marcario runs the numbers and argues that her company’s child care benefit is almost entirely paying for itself. Here’s how:

The federal government recognizes the value of on-site child care to both working parents and the economy, and grants a qualified child-care program a yearly tax credit of $150,000. In addition, the government allows a company to deduct 35% of its unrecovered costs from its corporate tax bite. To date, costs after revenues (tuition fees) for running Patagonia’s child development center are approximately $1 million. With a yearly tax deduction of $150,000 and a second deduction of 35% of costs (35% of $1 million = $350,000), that’s a total of $500,000 in costs recouped, or 50%.

Turnover costs (of losing an employee and training a replacement) include lost productivity while the position is vacant, plus recruitment, relocation, and training time. This can range from 35% of annual salary for a non-managerial employee, to 125% of salary for a manager, to a couple of years’ pay for a director or vice president. In the United States, 20%–35% of working mothers who give birth never return to their previous job.

At Patagonia, for the past five years, we’ve seen 100% of moms return to work after maternity leave. Moreover, the availability of on-site child care remains important for allowing mothers to breastfeed infants on demand. For the past five years, our turnover rate for parents who have children in the program has run 25% less than for our general employee population.

Factoring in the savings from improved retention and employee engagement, Marcario concludes, “we estimate that we recover 91 percent of our calculable costs annually.” Other major employers’ on-site child care programs, she adds, have actually shown a positive return—and that’s not even considering the intangible benefits. All in all, the case for on-site child care looks very strong.

On the other hand, Patagonia and Marcario’s other examples are all large enterprises, and there’s room to wonder whether this cost-benefit analysis holds true for smaller employers. Just as small businesses are worried about keeping up with the bigger fish in raising wages for low-skill employees, could child care be another area in which “corporate inequality” comes to bear on what employers of different sizes can offer?

For the results of a recent survey on how much working parents spend on child care in the US, head here.