Early Childhood Ireland recently launched a new report entitled Doing the Sums: The Real Cost of Providing Childcare with Meehan Tully & Associates Ltd. researching the viability of various childcare financial models in Ireland amongst 596 survey respondents (including 220 community based; 362 privately owned services and 14 services who did not give their status).

The aim of the research was to examine whether it is possible to operate a viable childcare service that operates within the confines of the existing funding models; supports professional development for owners, managers and staff; provides a career pathway for those working in the sector. The research addressed these considerations by scoping out the costs involved in running childcare services, of varying operational sizes.

The report findings show a real issue with sustainability in the childcare sector, with the average childcare service in Ireland, whether private or community run, urban or rural, operates on a breakeven basis. It states that, even when a surplus is generated by a childcare facility, it is often too little to meet the cost of re-investment in the business.

The main findings of the research can be summarised briefly as follows:

  • The average childcare service in Ireland, whether private or community run, urban or rural, operates on a breakeven basis. Even when a surplus is generated by a childcare facility, it is often too little to meet the cost of reinvestment, which will be required at various stages of the business, including for maintenance, building improvements and replacing equipment. For example, based on the Report’s working examples, the average community based childcare facility providing a 39-45 week service in an urban setting had an end of year reserve of only €5,826 and the average privately owned service offering a 38 week programme in a rural setting had a reserve of just €1,651.
  • Salaries and wages are, by far, the most significant costs facing a childcare service on a daily basis. The wage bill for larger childcare services can reach up to 80% of total operational costs. However, while wages represent the largest proportion of costs, the actual hourly wages being paid to staff are markedly low, with many of those working within the sector earning less than the living wage. This applies to all staff, including those with a Level 7 qualification. Furthermore, a large number of staff employed within the childcare sector are on part-time and/or 38-week contracts.
  • The difficulties faced by providers in the sustainable delivery of non-ECCE childcare services has pushed many towards the ECCE-only model. Despite the low capitation, Baby and Toddler Rooms, in general, still cannot compete with the predictability and dependability of the revenue stream produced by an ECCE Room. This has pushed many services to limit, or remove entirely, the availability of childcare services outside of the ECCE programme. The number of children enrolled on ECCE represent a very significant proportion of the overall numbers in early education and care and this is set to increase as the ECCE programme is extended over 2016-2017.
  • In terms of the viability and sustainability of services, the introduction of the ECCE programme has been a positive development within the sector, improving occupancy and giving services access to a regular and dependable revenue stream. That said, ECCE is not adequately funded to provide a decent income for the majority of providers and staff. In the words of one provider “we cannot afford to run our ECCE with the new requirements... We struggle as it is to pay wages at €9.50 per hour, qualified staff are harder to attract and to put on a second ECCE year means we need more qualified staff. The capitation needs to increase significantly and the CCS scheme needs to reduce the amount of paperwork.”
  • Impact of wage changes on ECCE capitation rates. The Report found, in the case of a privately owned service in an urban setting on the higher capitation rate, that for Room Leaders to be paid the average Educational sector salary level of €33.90 per hour, maintaining the average ECCE Room at its current level of viability, the ECCE rate would need to increase to €119.86. Or, if the aim was to raise childcare staff’s hourly rate above the Living Wage, requiring an increase of 30% for Room Leaders and 20% for Early Years Educators, maintaining existing levels of viability in an average ECCE Room, the ECCE rate would need to increase to €80.71.
  • For the majority of childcare services, full day care represents a very small portion of the overall number of children in the service. For many, each room is comprised of a mix of full day care, part-time sessional and ECCE places.
  • While a small number of childcare services manage to generate relatively high surpluses, they are the exception within the sector and tend to be based within large urban settings. Furthermore, it should also be noted that the wage rates for many of the larger urban-based childcare services are among the lowest in the childcare sector.
  • There are many differences between urban and community-based services, which lead to higher costs for those in urban settings. For example, urban-based services tend to be larger than rural-based services, requiring a larger building and the higher costs that ensue, i.e. higher rent, rates, insurance, maintenance, light and heat. These differences can lead to higher fees being charged for childcare, without necessarily increasing any surplus of income over expenditure for the childcare service. For some of the larger services that operate as franchises, there are additional costs to be borne by the service, including the cost of the franchise itself.
  • Of particular concern within privately owned childcare facilities is the tendency for many owner/managers to reduce their salaries to address financial difficulties facing their businesses. According to one provider “we are finding costs are increasing such as light, heat, rates, wages but we are unable to pass these costs on to parents and therefore the only way to continue to operate the crèche is to take less and less of a salary as the owner.” This may, on the face of it, facilitate the short term survival of the business, but it is an artificial scenario that does not reflect the true cost of running the childcare service and is certainly not sustainable as a good business model.
  • Privately owned services incur certain costs that do not apply to or are lower in community-based services. The most significant of these are commercial rates and rent, which increase significantly for larger services in urban settings. Of the respondents who reported paying rates, the report found that services in urban settings pay an average of €4,885 with the rates ranging from €100 to €24,000 and in rural settings services pay an average of €3,690 with the rates ranging from €300 to €10,000.

For further information please refer to www.earlychildhoodireland.ie or contact Amy McArdle on amcardle@earlychildhoodireland.ie.