Overview: It will take generations to fully understand – if ever – the impact that the global COVID-19 pandemic has had on populations, countries, institutions, and society itself. But, what we do know is that much of the change forced by the pandemic is here to stay and there will be countless, indefinable “new normals” in many aspects of life going forward. From a public policy perspective, the last two years have not only altered the tone, tenor, and context of many of our existing core restaurant business model issues but have also created numerous new issues (with both challenges and opportunities) that will permanently reside on our policy agenda. And employee benefits are at the top of that list.
As we look at this issue space, it’s important to remember that this is not a new phenomenon. History reveals that periods of struggle have stimulated significant change in employee benefits. The Great Depression brought Social Security. World War II and the Stabilization Act brought the first employee-sponsored health insurance benefits. And, the COVID-19 pandemic will likely be the inflection point that turns the benefit of paid leave into an entitlement, and the prospect of childcare into a benefit.
Apart from the pandemic, other macro trend lines are converging to drive these conversations forward. Most notably, the science around early childhood development has advanced dramatically over the past decade or two, demonstrating the lifelong impact of early developmental years. Never before have parents – and policymakers – had such a keen appreciation for the value of pre-k instruction, support, and reinforcement. Early childhood education and care has become an increased area of focus for academics and labor advocates who have traditionally focused their energies on paid leave. And, many of those same activist networks that have earned state-level victories on paid leave – and changed the national conversation around the issue – are now turning their energies toward childcare.
Historical Backdrop: Of all the myriad of learnings that the pandemic has taught us, one of the more profound is the recognition of the important role that women play in the workforce. We all intuitively know this, but it took a global health crisis to make it tangible and real. The current data is undeniable: we can’t fully repair our economy until women can fully return to work. And, most women can’t return to the workforce if there isn’t a childcare infrastructure to support them.
This is not the first time America has been taught this lesson. A similar dynamic evolved during World War II. With men drafted into the military, women were expected to support domestic production, which meant that many families needed care for children at home. According to the Congressional Research Service, between 1943 and 1946, the federal government provided $52 million to communities to support childcare centers. Those centers supported as many as 130,000 children at 3,102 centers located in all but one state (New Mexico) and in Washington, DC. This was done through the passage of the Lanham Act in 1943. Prior to that, the U.S. government had supported childcare primarily either to promote poor children’s education or to push poor women into the labor force. The Lanham program broke ground as the first and, to date, only time in American history when parents could send their children to federally-subsidized childcare, regardless of income, and do so affordably. By late 1944, a mother could send a child of two to five years of age to childcare for 50 cents per day (about $7 today).
Though the federal program ended after the war, undoubtedly it affected the trajectory of the childcare sector. Federal money was granted to communities, which then developed policies for disbursement that supported and set standards for childcare centers, many of which are familiar to us today. The most notable example is Head Start. For better or worse, the COVID-19 pandemic has exposed the previously invisible (or forgotten) link between childcare and the economy. This link is the lifeline for women to stay employed.
More than 2.3 million women have left the labor force since Feb. 2020, accounting for 80 percent of all discouraged workers during the pandemic, reducing their labor force participation rate to 57 percent, the lowest it’s been since 1988 – almost 35 years. For an industry where women make up 54 percent of the workforce, not only is the crisis real – it’s not going away anytime soon and not until this broader issue is meaningfully addressed.
Current State of Play: The Biden Administration, Congress, and the vast majority of states are engaged in vigorous conversations discussing a wide swath of “remedies” to this childcare challenge. There is bipartisan support – albeit different approaches – for at least two primary programs focused at supporting childcare – child tax credits and paid family leave. The two programs are intended to work in concert, making funds available for ongoing childcare as well as maintaining the employer / employee relationship during extended periods of leave to care for children.
Both federal programs are in flux. The federal paid leave program connected to the pandemic has expired. And, the current federal child tax credit outlined in the American Rescue Plan will sunset at the end of the tax year; however, the benefit is just starting to kick in. On July 15, qualifying families will receive monthly payments of $300 for children under the age of six and $250 for children ages six to 17 years old. Unlike traditional tax credits which pay out at the end of the tax year, the Biden Administration has structured this child tax credit to pay out monthly for six months with a balloon payment of the remaining amount at the end of the tax year. The total amount will be $3600 per child or $3000 for older children, ages six to 17 years old.
President Biden intends to continue elevating the issue of childcare, as well as paid leave. Both are foundational to his next major legislative package, the American Families Plan, which Democrats have attempted to frame as an infrastructure package. In addition to paid family leave and extending the current childcare subsidies, the bill aims to increase pay – via employer tax credits – to childcare workers, among other provisions.
While it’s unclear what elements of the American Families Plan may advance through the U.S. Senate, but the timing of its debate is certain. The bill will be under discussion in the fall and into the winter, just as the current childcare tax credits are expiring and as midterm election season is gearing up. And, of course, state legislatures will be coming into session around that time as well. The national conversation around childcare and paid leave will almost certainly spawn state-level and local activity, as Democrats attempt to press their advantage leading into the midterm elections. (Paid leave, for instance, polls at nearly 80 percent support.) Republicans, for their part, will almost certainly attempt to turn the political conversation toward other issues and / or reframe the public dialogue around the American Families Plan.
- From the Left: Many of the left-of-center thought leaders believe that the federal government as well as states should approach the problem from the funding side of the ledger – more financial support in subsidies, block grants and expansion of existing safety nets. Recommendations include:
- Paid Family Leave – Advocates continue to push for a federal mandate, as well as expanding existing state and local programs. Recent data shows that many of the existing programs have come in significantly under budget, strengthening arguments for new programs. Many programs are funded by a tax split between the employer and the employee.
- Increased Scheduling Flexibility – This has been a long-running conversation in the labor community and we have seen numerous ordinances at the state and local level. The debate around the current scheduling legislation in Connecticut is peppered with language around women returning to the workforce, and Oregon recently enacted a standalone requirement related to work scheduling and childcare. We expect a new spate of scheduling proposals to come forward quickly.
- Employer Childcare Subsidies as a Benefit – Much like how the paid leave programs are structured in states like California and Massachusetts, advocates are calling for employers to pay into a fund that can then be used by workers for any type of caregiving that includes a child, spouse, or elderly family member. Essentially, the caregiving benefit is akin to health care.
- Leveraging the Tax Code – Advocates feel that there should be tax incentives to encourage employers to either provide on-site childcare (not feasible for the restaurant industry) or pool with other employers to jointly fund and/or establish an off-site facility for their employees (potentially feasible).
- Increase Funding for the Childcare and Development Block Grant – The CDBG is the largest source of federal funding for childcare assistance. In fiscal years 2018 and 2019, Congress included the largest-ever funding increase for the CCDBG, which provided states with resources to expand access to child care assistance and improve childcare quality. They argue that even with that, it is still underfunded.
- The Childcare for Working Families Act (S.1360) – Advocates are supporting the CCWFA which would increase access to child care for most low-and middle-income families, limiting families’ child care payments to 7 percent of their incomes on a sliding scale. Under this bill, families earning the median income in every state would not spend more than $45 per week on child care, and approximately 3 in 4 children from birth to 13 years old live in families that would be income-eligible for assistance. The bill currently has 35 co-sponsors in the Senate (no Republicans).
While the politics a year from now are uncertain, the broader trend line for this issue set is certain, they will continue to earn more support on both sides of the partisan divide. The solutions, at this point, are different but a shared recognition exists that these are critical societal challenges that policymakers need to address. In this document, we have laid out the various proposals pertinent to the business model – while endorsing none – so you can be aware of where the conversation could be headed and what that means for the company.
- From the Right: Many of the leading conservative thinkers in this space believe that both the tax code and deregulation of home-based care are critical factors in addressing the issue. Recommendations include:
- Paid Family Leave – Conservative think tanks as well as Republican members of Congress have proposed a variety of paid leave proposals. Almost universally, they address the issue through the tax code. Sen. Marco Rubio has proposed early access to retirement benefits as a potential solution.
- Family Security Act – Sen. Mitt Romney has introduced legislation to create one universal child benefit. The Family Security Act would create a new national monthly cash benefit amounting to $350/month for each young child, and $250/month for each school-aged child. Parents would be eligible to receive the cash benefit 4 months prior to their child’s due date, and it would continue to be administered on a monthly basis.
- Streamlining Regulations – As part of their initial response orders to the COVID-19 pandemic, governors in Connecticut, New York, Hawaii, Nebraska and Tennessee – a politically diverse group to say the least – enacted measures to relax childcare regulations. Conservatives are advocating that all states follow suit and review all current regulations governing childcare providers and move to reduce those not related to health and safety.
- Encouraging Home-Based Care – For most of the last thirty years, tax and regulatory policy have picked winners and losers in the space and encouraged center-based care and discouraged home-based care. There are numerous health and safety reasons as well as taxation transparency reasons as to why that occurred. In light of the current challenge, there is a growing conversion regarding incentivizing home-based care. Advocates of this approach are calling for state and local officials to take a particularly close look at the regulations governing home-based childcare providers and seek to eliminate those regulations, particularly facilities and paperwork regulations, that would needlessly discourage people from considering offering services from their home.
- Direct Parent Support Rather than Programmatic Support – The federal government currently invests approximately $15 billion in childcare programs, predominantly through Head Start and the Child Care and Development Block Grant. Advocates are encouraging policymakers to consider how these funds could be better used to empower parents, rather than to support an inefficient childcare bureaucracy. According to the Foundation for Equal Opportunity, Head Start costs more than the average cost of full-time childcare in 37 states, while providing about half the hours of care.
- Legal Reform – Advocates contend that policymakers should pursue reform to grant immunity from COVID-related lawsuits, as well as from minor accidents for providers operating in good faith. Would-be daycare providers already face a considerable barrier with the need to obtain additional liability insurance to cover any accidents or incidents. Now they also must consider their legal exposure if there was a COVID illness among those under their care. Market forces already provide a powerful incentive for daycare providers to take anti-COVID precautions, as no provider wants to be known as contributing to the spread of the virus. Advocates believe they should not fear reopening due to the possibility of lawsuits.
Corporate Considerations: There is a shared recognition across the political spectrum that childcare is an important issue worthy of policymakers attention and focus. Few elected officials are openly opposing proposals; more often than not they are putting forward counter proposals. That’s an indication that politicians do not want to be characterized as “against” paid leave or childcare. Brands should have a similar level of sophistication and care when approaching this issue set, and developing their own internal policies as well as external positions on public policy.
That said, the purpose of this issue brief is not to recommend or drive any external corporate action or make recommendations as to how a given company should approach these issues (if at all). Rather, it is to ensure that the company is fully aware of the dynamics of the issue and has all the necessary facts at its disposal so leaders are not blindsided when the issue presents itself in some form or another. Our goal is to ensure that corporate leaders are up to speed on the issue and the internal decision making process is as informed as possible. To that end, we have outlined some specific internal recommendations that companies should consider to ensure the various parts of the enterprise are aligned.
- Public Affairs – Sooner rather than later, either elected officials, journalists, opinion leaders, community stakeholders – and potentially even board members – are going to inquire as to your “position” on these issues. It would be wise to begin that process prior to that eventuality, including:
- Internal conversations should be initiated to ensure that senior executives are informed and understand the external dynamics as well as the impacts they may have on employees.
- To the extent that companies want to have a “position”, assembling the various internal constituencies to get consistency and alignment is critical.
- Government Relations – Working with all internal teams, the GR team should:
- Determine company position on the pending legislative and regulatory proposals
- Determine efficacy of support or opposition proposal by proposal
- Determine direction(s) given to trade association partners to help steer their management of the issue.
- Communications – Depending on decisions made referenced above:
- Placeholder messaging around pending legislation, activist group rhetoric, and allied third-party organizations such as trade associations should be considered and developed – again prior to it being needed.
- Additionally, store managers and other operations teams have or will certainly be hearing more about this issue from front-line workers going forward and should be armed with consistent messaging to prevent any possible disconnects with those teams.
- Operations – The Ops teams are closest to the employees in the restaurants who are hearing any concerns in this space:
- Ops are the eyes and ears in the restaurants.
- Any potential benefit mandated by Congress or the states (or unilateral corporate action) impacts them first and as such, should be prominent in the decision-making process.
- Human Resources / Employee Relations – In their role as the team most responsible for recruitment and retention, the input of the HR teams is critical:
- HR should benchmark with their competitive set and understand what similar companies are doing in this space, if anything.
- HR needs to work closely with the Communications and Public Affairs teams to make sure messaging to employees struggling with childcare is consistent and aligns fully with corporate positioning on the issue.
- Legal – Obviously the legal team has to be involved at every step:
- The legal team should vet the potential legal liability of the related proposals on Capitol Hill, especially with regard to subsidizing employee childcare as well as the “employer pooling” proposal and potential exposure it presents.
Summary: The prevailing consensus across the political spectrum is that remedying the labor shortage in the country involves addressing underlying issues preventing or discincentiving workers from returning to the workplace, and childcare is at the top of that list. That dynamic has arrived at a time when the issues of paid leave and childcare are earning broad acceptance across the American electorate and bipartisan support from lawmakers. For companies like yours, that means the issue not only isn’t going away but is going to continue to escalate in prominence.
There is not, however, consensus on what a policy framework should look like. That discussion will unfold over the coming months, and likely years, and it will likely be too big and too important for the company to simply ignore – from an external brand reputation perspective and an internal battle with your competitors for good employees. As such, we strongly recommend that companies work quickly to get their “house in order” on this issue and ensure that they have gone through a thorough and measured process that validates whatever road they choose to follow on this issue. We believe time is of the essence and encourage that process to start as soon as possible. We are happy to assist in any way we can.