April 2026

Benefit leverage

One way to think about employee benefits is through what I'd call "benefit leverage": how much value an employee receives for each $1 the employer spends. This is not to ignore the holistic impact of benefits; employees feeling valued and supported matter in a way that goes beyond any number in a spreadsheet. But there's also a straightforward question of "bang for the buck." Which benefits deliver more value to employees per dollar than the same dollars paid as ordinary wages?

Employer-sponsored health insurance and 401(k) matches are common examples. In both cases, favorable tax treatment means the employee often gets substantially more value per employer dollar than they would from additional wages alone. "Buying wholesale," more technically, reducing the risk of adverse selection, also means that employers typically get better rates than individual buyers, particularly for health care.

Child care benefits now belong in this category.

The qualitative case is easy, since child care instability creates stress, absenteeism, and turnover. The quantitative case is also increasingly compelling. Some of the headline figures (like BCG's eye-catching claimed 405% ROI on childcare in a recent report) may be outliers rather than typical, but the underlying point is sound. Child care makes sense at the level of basic economics.

And with recent developments, the benefit leverage of child care can be unusually high. A well-structured child care benefit may deliver substantially more employee value per employer dollar than cash pay, while also improving retention and day-to-day reliability.

Chart comparing benefit leverage across different employee benefit types

That doesn't make it easy to do. There are substantial obstacles to overcome, across plan design, regulatory compliance, administration, communication, and employee uptake. I've been spending a lot of time on these problems recently, with a particular interest in how smaller and mid-sized employers can manage them.

If you work in benefits, advise employers on benefits or tax, or are an SMB owner who has thought about this, I'd love to compare notes.