Many offices are echoing with emptiness as workers around the country continue to adapt to our work-from-home (WFH) reality. While COVID-19 thrust WFH upon many resistant organizations, it is likely to become an increasingly common way of working. However, a major influence on the effectiveness of WFH is the remote learning (RL) environment for the 40% of our labor force that is made up of working parents.
While I am pleased to WFH on a regular basis as a self-employed consultant, I am acutely aware of the impact of remote learning on working parents as a single parent of two young daughters. Robin just turned 5 and Samantha turns 7 next month, and they are currently participating in remote learning for Pre/Transitional Kindergarten and 1st Grade. My ex-wife and I have enrolled our girls in a childcare program that will support their RL while allowing us to maintain full time work commitments. This is not an easy decision, as the incremental cost is significant, and the risk of virus transmission is real – even when taking precautions. To be clear, we were planning to pay for an after-school program anyway, but the cost tripled (!!!) for full-day support with reduced caregiver / child ratios, versus a few hours at the end of each day.
I am obviously not the only person ruminating on the effect that WFH and RL may have on the broader world of work. My HR executive peer networks have been buzzing with discussions about how to support and engage employees in this new environment. Among other well-intended gestures, employers have been delivering house plants, hosting online yoga classes, and expanding mental health benefits for their workers. But how impactful are those initiatives? Where can the greatest productivity and employee engagement gains be found?
Let’s explore the world of working parents. The U.S. Bureau of Labor Statistics website confirmed that a large portion of our workforce is navigating this environment – many with young children:
So, how impactful is WFH and RL on worker productivity? In a recent member study, family benefits platform, Cleo, reported a few alarming data points:
>50% of working parents are without outside childcare assistance
52% of working parents feel that their productivity is 75% or less than their productivity prior to COVID-19
1 in 4 working parents feel their productivity is at less than 50% of their prior baseline
20% said that either they or their partner are considering leaving the workforce entirely to care for their children
Given the prevalence of workers’ need for childcare coverage and the dramatic (albeit anecdotal) impact on productivity, how does childcare support fit into employer benefit programs? The Sequoia 2018-2019 Employee Experience Benchmarking Report provides a detailed analysis of benefit practices across almost 700 U.S.-based companies. Within this population of survey respondents, following is the prevalence of various types of benefit programs:
93% of companies offer a 401(k)-retirement plan and 36% offer a matching employer contribution
54% offer supplemental paid parental leave
48% offer gym membership reimbursements or subsidies
39% allow pets at work
36% offer a commuter stipend
30% offer some type of fertility benefits
28% offer paid time off for employees to volunteer
11% offer sabbatical leave
Only 4% offer childcare credits or allowances
Frankly, the lack of childcare benefits is shocking – both compared to the prevalence of some rather niche programs, but particularly when considering the cost incurred by employees and the impact on workers’ ability to attend to their work. Yes, many organizations offer a dependent care flexible spending account (FSA) which is a pretax benefit account used to pay for eligible “work-related” dependent care services like childcare. According to the IRS, the maximum amount that can be contributed for 2020 is $5,000, in a “use it or lose it” arrangement. Most employers sponsor the administration of these FSA programs through providers such as WageWorks, but rarely contribute directly to funding employee accounts.
It is true that some organizations have partnered with concierge services to help their workers find a day care, nanny shares, or tutors. Some of the better-known providers in this space include Cleo, Care.com, and Urban Sitter. While streamlining the search for childcare is helpful, the cost of securing support is incredibly onerous.
According to a 2019 report, the national average annual price of childcare is around $9,100 - $9,600 per year, varying by type of care and state-to-state. To put this in context, the price of childcare for two children exceeds homeowner mortgage payments in 40 states and exceeds median rent payments in every state in the country. The Economic Policy Institute reports that the average annual cost of infant care in California is $16,945 and childcare for a 4-year-old costs $11,475.
Yes, I am suggesting that more employers consider subsidizing childcare for their workers.
But where can the money come from to do that? We can find some easy dollars in the free food programs that many employers offer. Assuming an average cost of $15 per employee per meal, companies are spending about $315 per worker per month just giving away free lunches. When considering savings on snacks, high-end coffee service, and beverages (kombucha on tap, anyone?), those numbers rapidly increase. Employers could also shift resources from other perks and programs that might be under-utilized in our WFH environment, i.e. $50+/month fitness subsidies.
The much larger savings is related to a reduction in commercial office space. Assuming an average space allocation of 150 square feet per worker and the national average marketed commercial rent for Q2 2020 of $36.02/sqft/year, employers are paying more than $5,000 per year per employee just in base rent. When accounting for operating expenses such as taxes, insurance, maintenance, cleaning, and utilities, the fully loaded cost of office space can easily double to $10,000 per year per employee. The costs can more than double again when considering high cost areas such as the San Francisco Bay Area and New York City.
In other words, for every in-office space reduced, an employer saves a sum roughly equivalent to the cost of childcare for a single child.
A little-known section of the IRS Code can stretch employer dollars much further. Created in the wake of the events of September 11th, IRS Section 139 allows employers to make tax-free payments to employees to reimburse them for expenses due to disaster – in this case, COVID-19 has been formally declared a federal disaster. Let’s state that one more time for clarity: employers can make fully deductible payments to employees without paying payroll (FICA) taxes and without employees being subject to income taxes on the sums received. The expenses much be incurred “as a result of” the disaster, which could reasonably include childcare or tutoring due to school closings, work from home expenses (such as setting up a home office), or help for employees facing difficulty paying rents or mortgages as a result of lower hours or furloughs.
IRS Section 139 allows employers to make tax-free payments to employees to reimburse them for expenses due to disaster.
There are no specific requirements for substantiation of these expenses, or any limits on the amount or frequency of payments. An employer can administer these payments itself in-house or can outsource administration to a third-party administrator, such as the same TPA that handles the employer’s existing health or dependent care FSA. In some cases, a TPA may even have template documents that can help an employer set up a program.
Eventually the federal disaster benefits will end. In the meantime, savvy organizations will identify opportunities to maximize benefits to their employees and to their reputation as an employer. Childcare is a common and a major expense that can be directly addressed by this tax loophole. My hope is that we make the most of this disaster by expanding employer-sponsored support for working parents, which lasts beyond the immediate effects of the pandemic.
If you would like to connect with me, please go to www.seriesBconsulting.com or contact me directly at Andrew.bartlow@seriesBconsulting.com.
If you would like to learn more about the topics discussed in this article, please read:
What Students Are Doing Is Remote Learning, Not Online Learning. There’s a Difference., Edsurge
Meet Cleo Care Powered by UrbanSitter: Childcare That Gets Us Back to Work, Cleo blog
Why Child Care is So Ridiculously Expensive, The Atlantic
2019 Cost of Child Care Survey Report, Care.com
COVID-19 Child Care Survey, Care.com
Employers Have an Opportunity to Provide Tax-Free Reimbursements and Payments to Employees, Cooley
Emergency Relief Funds Throw Employees a Lifeline During Pandemic, SHRM
Employers Can Make Tax-Free Disaster Relief Payments to Employees, Worldwide ERC
Section 139 Tax Favored Qualified Disaster Relief Payments for COVID-19 Related Expenses, OneDigital
Thinking Outside the Box to Help Employees During COVID: Section 139 Tax-Free Reimbursements, Groom Law Group
Best wishes and stay safe,
Andrew
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