Dependent Care FSA vs. On-Site Child Care: Which Should You Offer?

Both are ways to help employees with child care, but they sit at opposite ends of the effort-and-commitment spectrum. Most companies should start with a Dependent Care FSA regardless of long-term ambitions — the question is really when (or whether) on-site care becomes worth adding on top.

Dependent Care FSA: low commitment, broad reach

A DCFSA is a payroll and plan-document exercise. It costs you little beyond TPA administration fees, offset by the 7.65% employer FICA savings on contributions. It benefits any employee with qualifying care needs, regardless of where they live relative to your office, and doesn't require you to run (or contract out) an actual facility.

On-site child care: high commitment, high impact

On-site (or near-site) child care is a facilities and operations undertaking — licensing, staffing, liability insurance, physical space — usually run through a specialized child care operator rather than in-house. It's a much bigger lever for recruiting and retention in tight labor markets, but only reaches employees who work near the facility and can realistically use it, and the upfront and ongoing cost is substantially higher than a DCFSA.

They're not mutually exclusive

Many employers offer a DCFSA to everyone as the baseline benefit, and layer on-site or near-site care only at specific locations where the employee population and real estate make it viable — typically larger campuses or facilities with a young, in-office workforce.

A practical way to decide

• If you haven't offered any dependent care benefit yet, start with a DCFSA — it's the lower-risk, faster-to-implement option covered in how to set up a Dependent Care FSA.
• Consider on-site care only once you have clear evidence (employee surveys, exit interview data, competitive benchmarking) that child care access is a specific, significant driver of attrition or hiring difficulty at a given location.
• Model the cost of each separately — a DCFSA's cost scales with actual utilization; on-site care's cost is largely fixed regardless of how many employees use it.