Setting Child Care Fees
The City has historically provided funding to child care operators with service agreements to help offset their operating costs. Primarily this has been done by historically providing salary grants to operators to support their staffing costs. Offsetting the operating costs of a centre is beneficial for families as well as operators, as it allows centres to set lower child care fees, often below the cost of providing the service.
By offsetting operating costs, the General Operating Funding provides opportunities to improve compensation for child care workers in the sector and to improve affordability for families. Child care fees should be “reasonable” by reflecting the cost of providing quality child care while also recognizing the need for appropriate compensation for professional child care workers.
Child care fee – The fee for a child care service set by the operator that is charged to families. Also referred to as “public fee” in a fee memo.
Cost of care – A child care operator’s current costs by an age category to provide a space in their child care program.
Reasonable fee – A reasonable fee is one that reflects the actual cost of care.
Vacancy rate – The rate at which a centre is fully operational is indicated by the actual children enrolled compared to the planned operating capacity.
Approved cost – The amounts submitted to the City through the budget process that are considered eligible expenses under the City’s Operator Budget Guidelines.
Per Diem – A per diem is a per day amount that the City pays to an operator to fund a child in a subsidized child care space.
A reasonable fee reflects the actual cost of care for an age group. Base funding, such as the General Operating Funding, is intended to assist in lowering the fee to families by offsetting costs. A reasonable fee structure may improve access to services, is fair for families and helps promote a stable, viable child care program. However, even when fees are reasonable they may still not be affordable for families.
Ensuring reasonable child care fees is an important way to balance providing good wages to a professional workforce with fair fees for families. The key is to set fees that are not unreasonably low or unreasonably high.
Although unreasonably low child care fees may be welcomed by families, they can have negative consequences for child care centres.
Unreasonably low child care fees can:
- Contribute to low salaries, which in turn can lead to difficulties with staff recruitment and retention and may compromise quality;
- Make a child care centre vulnerable to deficit budgets which in turn make the centre financially unstable;
- Prevent a centre from accumulating surplus funds. Little to no surplus funds can leave a centre unable to deal with sudden, unforeseen expenses and reduce the ability to respond to necessary transitions and changes.
Unreasonably high child care fees can:
- Prevent families from accessing care. Child care fees can be a significant financial challenge for families.
- Place a child care centre out of reach for many families if a fee is set higher than the cost of care. This can lead to a higher vacancy rate and greater financial instability or unfairly provide access to only higher-income families.
A reasonable fee structure is fair to families and helps an operator more accurately forecast their revenue to ensure a stable, viable program.
Child care fees vary across centres due to a number of factors, including differences in:
- costs for salaries and occupancy
- the vacancy rate
- business model
- the extent of cross-subsidization
- the amount of grant funding or other revenue
- local market forces of supply and demand.
Every centre has different costs to support its operations. For example, some centres have occupancy costs while others do not. The costs that have the most significant influences on fees are the salaries and benefits paid to staff. The vacancy rate, or the rate at which spaces are not filled, can also have a significant impact on the cost of service.
Cross-subsidization occurs when fees of one service are used to offset the cost of another service. Typically, cross-subsidization occurs where the fee for older children is higher than the cost of care in order to help cover the cost of the more expensive care for younger children.
A reasonable level of cross-subsidization may be necessary, however, a fee for an age group should ideally cover the cost of its own operations. Cross-subsidization can lead to instability if, for example, the centre’s age group configuration changes.