The Journal. - How Employer-Funded Child Care Can Work

Episode Date: April 11, 2024

Providing child care for employees may not seem like a savvy business choice, but some companies swear by it. WSJ’s Harriet Torry explores the different approaches – and the benefits – at businesses both large and small. Further Listening: - The Labor Shortage That's Causing More Labor Shortages  Further Reading: - What One Employer Found When It Started Providing Child Care  - More Companies Start to Offer Daycare at Work  Learn more about your ad choices. Visit megaphone.fm/adchoices

In the town of Floyd, Virginia, on a morning earlier this week, parents were dropping off their young kids at daycare. How's he doing this morning? What's this? What's this? What's this? I did it. This childcare center is called the Yellow Hen.

It's homey, with warm lighting, and kid-sized wooden tables and chairs. Do you want to try this marble track? Sure. Way boring. But the Yellow Hen isn't operated by your typical childcare providers. It's actually run by a coffee company. It's called Red by a coffee company.

It's called Red Rooster Coffee. In its building on Main Street, they roast beans and have a popular cafe. The Yellow Hen, the child care center, is a benefit, a perk Red Rooster offers its workers to boost retention and attract employees. When you were setting up the Yellow Hen, did anybody tell you that you were crazy? Oh yeah, all of my friends who run businesses said that I was crazy.

That's Hayden Paulsino-Hensley, who co-owns Red Rooster Coffee. Why did they say that? Well, because they said, you know, how are you going to focus on the main thing that you do, which is to roast great coffee? You know, like, how do you grow that part of your business when you're distracted by having to run a daycare, which is completely unrelated? But Hayden decided to try it anyway. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Thursday, April 11th.

Coming up on the show, the cost-benefit analysis of providing childcare at work. We'll see you next time. exciting games and events. Plus, find amazing hidden gems in cities full of adventures, delicious food, and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches. Get the ball rolling on your soccer getaway. Head to visittheusa.com. Our colleague Harriet Torrey covers the economy. The other day, we talked about the challenge of affordable childcare. I mean, yes, childcare, it's been difficult for parents to balance childcare and work since, you know, I guess the dawn of time. Childcare in America can be very expensive. Parents spend on average 27% of their household income on it. When you survey parents, surveys often find that the cost of child care is prohibitive.

And often couples will come to the decision that one person will not work for a few years, will stay at home to look after kids. Some couples want to do that. That's how they want to raise their children. But it isn't always necessarily because of choice. It's just sometimes it's because it might not make financial sense for one partner to be participating in the labor force in any way

because the cost of childcare is just too high. And in the last few years, the costs have been growing fast. Prices have gone up by a lot. Bank of America did a survey and found that the average price of childcare had risen by 30% since 2019, which is a humongous jump. Access to childcare is a problem that ripples out. When workers can't get it, it can have big implications for the companies they work for. You know, it's hard for businesses to find workers and to retain them. So some of them are looking to childcare and supporting workers in childcare

as a way to keep their workers and keep their workers happy. Red Rooster Coffee is one company that's offered it to its nearly 50 employees. And Hayden, the co-owner, says it's really popular. The core staff that we have here have all used it. And I believe all have a certain sort of like connection, passion, that make them feel like they are a part of Red Rooster for life. Our head roaster, director of coffee, our director of marketing, our managing partner in the cafe,

these are people whose kids have gone through Yellow Hen from infancy and who drive our business. But offering childcare to your employees isn't a common practice. And for Hayden and his co-owner, Rose McCutcheon, there wasn't a blueprint they could follow. They had to figure it out on their own. When they founded the company in 2010, they weren't planning on

offering child care. It all came together kind of accidentally. When McCutcheon, Hayden and McCutcheon are married, was pregnant with their second child. Along that time, several other people who work for us had babies or were pregnant. And we had hired my sister-in-law, my wife's sister, as a babysitter. And then other people were saying, well, can I get in on this? I've got to get to work too.

And all of a sudden, the house where she was was filling up with kids. The town of Floyd, Virginia is small, and there aren't many childcare options. So with all this interest, Hayden and McCutcheon started thinking about ways to formalize their babysitting situation. And soon, around 2018, they got connected with a local teacher.

We pitched this idea to her and she said, yeah, let's do it. And within two or three months, she had done all of the, you know, licensing and we were up and running as a licensed daycare. Today, it's quite a different scenario than it was in that informal setting. You know, we have a full-time director, and then we have several amazing part-time teachers. We have 18 kids there, infants up to four-year-olds, who spend the day there. You know, it's a very intimate, small setting with teachers who care for these children

from the time that they're six weeks old until they're five years old. At the Yellow Hen, get it? Red Rooster? Yellow Hen? Child care is very affordable. It only costs employees $2 an hour, which means that a full week of full-time care costs only $80. They landed on that amount based on a federal recommendation that child care expenses shouldn't exceed 7% of a household's income. So Red Rooster subsidizes the rest. It costs the company up to around $100,000 a year. Last year, Red Rooster's total revenue was just over $5 million.

What is it that you're paying for? We're paying for the teachers, mainly the payroll and the rent, the utilities, the school supplies, all the things that go into having the child care facility, really. having the childcare facility, really. The Yellow Hen runs pretty smoothly now, but Hayden says it took a while for the math to work out. The first year of running the daycare was actually really scary. How so?

Just periods of time with very little cash flow. Looking at the bank account and looking at our bills and saying, okay, well, which ones are we going to pay? Yeah. So we definitely had a moment. And I don't know that I would describe it necessarily all to the childcare. I mean, that was also a growth moment for us where we moved into this new building. All of a sudden we had a mortgage to pay. We had a new roasting outfit to pay for, and we were waiting for cash flow. Red Rooster made it through, and now providing child care is just part of what they do. What kind of a burden does that put on the economics of your overall company?

Well, it's not insubstantial. You know, we're not a large company, Well, it's not insubstantial. You know, we're not a large company. But we think about it in the same terms as offering to pay health insurance premiums. It's something that is a substantial amount of money, but that is part of what we do. Are there things that you're not spending money on as a business in order to fund the child care? There are just moments of times where you think, are we making the right decision? But honestly, I feel the same way when I pay for digital ads. I mean, here I'm pumping money into behemoth tech companies to try and get people to come buy my product. Is that really the way I want

to spend my money? No. I mean, I would rather spend my money on yellow hen childcare. For Hayden, it's money well spent. He estimates that of the employees who've used the yellow hen, 77% still work there. One person who'd quit Red Rooster even came back because of it. The worker had left because the commute was too long. But then... When he had children, he called me up.

And he said, hey, you know, I'm really interested in coming back to work there. And him and his wife bought a house here in Floyd, moved from Roanoke to be closer to work, and it's worked out amazingly well. And this is why Hayden says he continues to offer the program. I thought, there's some core people here that I want them to work for me forever, if they will. And if they're having issues with childcare,

I want to help them because I want them to work here and if they're having issues with child care, I want to help them because I want them to work here because they're amazing employees, they're great people, and how can I help them? Red Rooster is a small, family-run business, so offering subsidized daycare for a couple dozen workers is one thing. But can bigger companies do this too? That's next. How's that spicy enchilada? Very flavorful.

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If you're a business, spending money on daycare might not sound like a great way to maximize profits. Indeed, fewer than 6% of American companies offer childcare that's on-site or nearby. But among those businesses experimenting with it are some big-name brands. Here's our colleague Harriet again. The most well-known examples of this tend to be big companies that have these types of things at their headquarters. So for instance, Marriott, the hotel chain, they have big headquarters in Bethesda,

Maryland, and they have a facility that they build on-site for childcare. Home Depot is another one in Atlanta, they have on-site childcare, and also Patagonia, the clothing company. For some companies, they just do a cost-benefit analysis and decide that for them, it's an investment worth making. Similar to Red Rooster, Patagonia has an on-site child care facility at its headquarters in Ventura, California. It's staffed with teachers, has a garden, a mud kitchen, and space for over 100 kids. But there's lots of ways businesses can do this that don't have to be so involved. One thing that other companies do is they might offer backup care through a network of providers. If your daycare is unavailable, you can find a sitter that will come to your house

or something like that. One of the bigger companies that's trying out this model is UPS. It started offering a version of backup babysitting to some of its employees. The company began with a pilot project. It provided emergency childcare for workers at a sorting center in Northern California.

This was just an on-site facility that enabled workers to have somewhere to bring their child if their regular arrangement fell through. UPS contracts with a third-party service that sets up on-site, and it provides staff, supplies, and all the permits that are necessary to take care of kids. We spoke to a worker who, usually it was a family member that looked after her daughter, who was about eight. But, you know, when the family member was sick or unavailable, it was a real problem. It meant that she couldn't go to work.

So having this emergency backup care was just, you know, a huge, huge asset because it meant that she wouldn't have to miss a week of work when her childcare was unavailable. The program has been popular. UPS said that 80% of workers who were eligible for it used it. And UPS says it increased productivity, avoiding 120 unplanned absences over five months. And the company itself found that it had a massive impact on retention. Employee turnover among the pilot was so effective, UPS is now rolling it out at several facilities across the country.

At Patagonia, the company says that 100% of moms return to work after maternity leave. Worker retention is important for companies because turnover is very expensive. It costs a lot to hire new employees and to train them up. So longer term, it is a big benefit for the companies if they can hold on to people. And offering childcare benefits is one way that they try to do that. So I think that is a big benefit for employers, definitely. If there are these kinds of benefits, why don't you think more companies aren't doing it?

It's interesting. Some of the people working in this space that you speak to say that liability is a big issue. People are worried about having a childcare facility on their premises and the issues that that could raise in terms of insurance and so on. And I think it's just often it's red tape. The amount of red tape really varies from state to state. So I think in some states, it's more straightforward to do this than others. That's, I think, another reason why they don't offer it across the board. There's an assumption in the US that companies provide health insurance for their employees.

Do you think it's possible that this could become a similar sort of benefit that they're over time becomes an expectation that this is something that companies help pay for? I think it definitely could. If you look at, for instance, a similar benefit like fertility benefits, those were practically unheard of 15 years ago. Now many companies offer them because they realize that many workers who are in their prime working years

often coincide with the years of your life where you're going to be wanting to have children. So offering fertility benefits is like a way that companies attract and retain workers. And we've seen a huge increase in the number of companies that offer those and the types of things that they offer. So I wouldn't be surprised if it's something that companies really consider seriously as a benefit going forward. Red Rooster Coffee has been providing childcare to its workers for six years now. Would you recommend that other businesses do this? Yes, but just like health insurance benefits, I would just say you have to wait until you're

ready. I started way too early before we were profitable and before we could really operate it, you know, on the level that it needed to be operated. Do you think it's worth it? It's worth it to me. It's worth it to the people who work here. I also think that our customers appreciate it. I mean, I think that we have core customers who think, I want to buy from a company that is mission-based. That, yes, they have a great product, but I feel good about it.

And I know that that's maybe a little bit of hokum, that there's some magic fairy dust with that. But I believe in it. I think that people come back to us because, you know, the quality of the product and the quality of the mission triangulate to make them want to come back. Do you think that you'll continue running the Yellow Hen indefinitely? I mean, is it sustainable in the long run? I mean, as long as people keep having babies and they work for us, I see us continuing to run it. I mean, it's become a part of the fabric of Red Rooster today. I mean, it's who we are. And I don't see a path forward that doesn't include that. Thank you.