Employer-subsidized child care

[Sheila K]

Okay gang, my boss has another "cutting edge" idea to implement. At a seminar she attended, a bank HR officer stated that they had reduced their turnover from 50% to 14% and attributed a good portion of their success to contributing $25/week to employees for child care. Of course, she didn't ask for specifics, so now I get to "research" this.

Running it through our FSA means that the money is taxed, although I don't see how that can be avoided anyway. Our payroll person is concerned about creating this new "class" of employees (those utilizing day care) and how to verify that they are actually eligible for the funds.

Do you know of anyone (or your company)that subsidizes child care when it is not provided on-site? I'd love to get some insight and ideas on how to administer this and any pitfalls that you see that I might be missing.

Hoping for a rousing good discussion on this one! Thanks in advance

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Good Luck!!!

Sheila K 8^)

[Guest nb]

Don't you just love it when your boss goes to a conference!!

If I remember correctly, under sec 129, dependent care assistance programs, an employer can offer a program on site or through a 125. Through the 125, the employer may provide a match for employee contributions. I'm not aware of anyone that has done this.

If the employer did match a contribution made be an employee, I'm wondering how a payroll system would identify the employer's contribution and keep it seperate from the employee's contribution. In my mind, the employer's would be taxable income, but the reimbursement requests by the employee wouldn't identify whose contribution they were recovering.

[Joe Priselac]

Sheila,

First, let me correct your misimpression about employer funded spending accounts. Employer contributions to a Cafeteria Plan are tax exempt as long as the monies are used for qualified expenses. Dependent care expenses are qualifying expenses. Second, direct employer contributions to a Cafeteria Plan bypass payroll and all associated issues.This is a much more tax efficient way of "compensating" your employees. The only impact that employer contributions would have is to lower the amount that an employee could reduce their taxable income for dependent care expenses. I hope this helps. If you need more info, feel free to contact me.

[Guest nb]

Thank you Joe, I learn something in here every day.