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Many benefits associated with providing daycare assistance

Adding daycare to cafeteria plan not difficult, attorney says

When it comes to having children in today’s culture of working families, the question of daycare inevitably follows. But through the invention of the cafeteria plan and with some businesses offering in-house daycare, much of the guesswork can sometimes be removed.

Greg Pirkle of Phelps Dunbar, LLP in Tupelo said employers can provide pre-tax dollars up to $5,000 for dependent care assistance. This lowers the tax liability for the employee and lets them pay for childcare with pre-tax dollars. It also allows the employer to save on employment taxes.

“If the employer currently has a cafeteria plan, it’s a simple addition to the election form,” Pirkle explained. “The primary thing we advise our clients is to have dependent care assistance with the cafeteria plan because of the ease it presents in adding it to the plan and the overall savings that it gives you.”

With a cafeteria plan for employees, employers give employees the option to take a benefit or cash. In a typical cafeteria plan, employees are offered some kind of health care, dental or dependent care options. Employees have the right to direct some of their salary to pay those things before taxes. Once elections have been made, employees continue with that for the year, although there are certain times they can change their elections before the enrollment period.

“It does benefit the employee, but it’s primarily a benefit to the employer because it saves the employer from paying employment taxes,” Pirkle said.

It also gives the employer a drawing card for them in the workforce because they offer these benefits for their employees, Pirkle said.

John Nail, CPA and shareholder at Nail McKinney Professional Association in Tupelo, agrees.

“There is some benefit to the employer in that neither the employee nor the employer pay payroll taxes on that,” Nail said. “Other than that I think all the benefits are intangible — employee retention, morale, etc.”

However, Nail said he does not see many businesses offering cafeteria plans because the plans are formal legal documents and there are some costs associated with having them.

Mississippi Baptist Health Systems (MBHS) is one company that does offer the benefit. MBHS offers a payroll- deducted, pre-tax benefit for employees’ daycare through their cafeteria plan, and it is something Lisa Kirkpatrick, budget director for MBHS and mother of two-and-a-half-year-old fraternal twins, has taken advantage of.

“What they do here is go ahead and pull it out of your check pre-tax and then just send it to the daycare so you don’t have to worry about filling out paperwork and waiting two to three weeks to get your money back,” Kirkpatrick said. “You don’t have to worry about whether or not you’ve paid them, and they’ve already taken it out of your check so you don’t spend money and then worry about scraping money together to pay the daycare.”

And MBHS goes one step further by offering an on-site daycare. Christian Love Preschool at MBHS cares for children ages six weeks to five years old, and in the summer months they provide care for school-age children. The daycare has been at MBHS for 10 years and about 90% of the facility’s 85 children are children of MBHS employees.

Close-by daycare gives

employees piece of mind

Kirkpatrick, whose twins attend MBHS’ daycare, said she likes the fact that she is so close to her children.

“I know a lot of people quit work once they have children and a lot quit because of daycare facilities,” Kirkpatrick said. “I think having one close by gives you piece of mind. I think it’s a good recruitment tool and a good retention tool for mothers and fathers. Right now the market is competitive for good employees and you can only pay them so much.”

And, Kirkpatrick added, many times people will switch jobs more for benefits than for salary.

Cindy Merritt, owner and director of Christian Love Preschool at MBHS, said many parents tell her about how at ease they feel leaving their children there.

“They (MBHS employees) can be here within minutes instead of within 30 minutes or so,” Merritt said.

And, she added, nursing moms are able to come in and nurse their children as their schedules allow throughout the day.

“Job performance is better because they don’t have to leave their child if something was to happen,” Merritt said.

Lextron takes a different road

At one time, the administration at Lextron Corporation had considered building a daycare for their employees, but Juanita Doty, executive assistant to the president and human resources manager, found that a daycare was not one of the top priorities for employees.

“After the plans were together and we did a survey of all the employees who needed daycare assistance, we didn’t find as many as we thought would need daycare,” Doty said.

Now, instead of putting capital into building a daycare, Lextron is looking at providing assistance to employees who need childcare. Doty has contacted several daycare providers and said that some sort of benefits package, which would include daycare as well as other benefits, would soon be available to employees.

“What we thought was a top priority issue for them really was not,” Doty said. “When the majority don’t need it, you have to look at other options. We’re happy we took the time to survey and ask.”

Contact MBJ staff writer Elizabeth Kirkland at ekirkland@msbusiness.com or (601) 364-1042.


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