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Resource and referral (R&R) is one of the more popular child-care services that companies offer their employees, and most make the arrangements on their own, without joining a consortium. According to The Conference Board, a nonprofit business and management-research and information service, around a fourth of the companies that offer some kind of child-care benefit opt for R&R. Employees like it because it allows parents to choose their own day-care facility. Companies like it because their involvement is minimal. And it is relatively inexpensive -- costs range from $4 to $15 per employee per year, with the charges based on the total number of employees in a company. While that is the method used by most R&R agencies, some charge per referral, with fees ranging from $60 to $100.

Genetics Institute Inc., a $20-million biotechnology research-and-development firm in Cambridge, Mass., began to offer R&R a year ago. "We felt that there was a pressing need internally," says human-resources manager Barbara Covel. Genetics contracted with the Child Care Resource Center, a private, nonprofit outfit in Cambridge, to provide its 350 employees with information on local day care. For about $3,000 a year, Genetics employees are given access to a hot line, which they may call anytime to get an updated child-care listing. The center also organizes seminars on the developmental needs of children and how to select child care.

"It's a minimal fee, and, from a recruiting standpoint, it certainly goes a long way," says Covel. Since parents make the final choice, both the R&R agency and Genetics are relieved of potential liability. And, like all employer-sponsored child-care assistance, the amount spent on R&R is fully deductible as a business expense or a charitable contribution.

Genetics also has a Dependent Care Assistance Plan (DCAP), a term that applies to the document employers must have on file to support tax deductions from child-care costs. Through its DCAP, Genetics offers a salary-reduction plan, which is the most popular and least expensive form of financial assistance for child care. A salary-reduction plan, sometimes referred to as a flexible spending account or a salary set-adide, allows employees to reduce their pretax income by up to $5,000 per family and to place that money in a special account from which they are reimbursed for child-care expenses. Salary-reduction plans can stand alone and be used only for child care, or they can be incorporated into broader "cafeteria" plans that allow employees to choose from a number of benefit options.

The beauty of salary reduction, in addition to the tax break for employees, is that it ends up costing companies very little. For example, since Genetics doesn't pay Social Security or federal unemployment insurance taxes on the amount of salary reduced, the cost of setting up and administering the program balances out. Susan Velleman, a principal at William M. Mercer-Meidinger-Hansen Inc., an international benefits-consulting firm, believes it's possible for companies to come out ahead after the first year. "Once it's up and running, it's not that expensive to maintain, especially for small employers," she says.

A recent study by Summa Associates revealed that around half of the 2,300 employers offering day-care assistance use salary-reduction plans. It's the simplest, most painless way for a company to show employees that child care is a priority. But in some cases, salary reduction may not be enough. "The first thing a company ought to do is figure out what their employees need," says Valleman. "If employees need child-care facilities and not just financial assistance, then that implies that you've got to do something other than just help pay for it."

Velleman also suggests that companies with any sort of reimbursement plan, such as salary reduction, think through the sort of proof of coverage they'll require from their employees. If a company requires its employees to present a receipt and the provider's name, for example, some employees may be excluded from the reimbursement plan. That's because half of the child-care providers don't report their income to the Internal Revenue Service and are therefore reluctant to give receipts for payments. Often, employers merely require employees to sign a statement verifying that the day-care service they are using meets IRS requirements.

When it comes to setting up dependent-care benefits of any kind, it's a good idea to check out the IRS regulations first to be certain you won't get any surprises down the road. There are antidiscrimination rules, for example, stating that benefits may not favor high-income employees or company owners. The IRS also stipulates the types of child care that are eligible for favorable tax treatment. If a facility cares for more than six children, for instance, it must comply with all state and federal regulations. And the tax code prohibits employees from using tax-free dollars to pay sposes or older siblings for child care. For a company's own protection, it should inform employees in writing about the IRS rules. Should questions arise later on, it can show that it has made a "good-faith effort" to educate its work force, and that it had, therefore, a "reasonable expectation" that the funds used to pay for day care were not subject to taxation.

An increasing number of companies are beginning to realize that being receptive to their employees' child-care needs can also be good for business. A survey sent by Summa Associates to companies with various forms of child-care assistance revealed that 95% felt that the benefit outweighed the cost. Eighty-five percent stated that they were able to recruit employees more effectively, 65% reported that turnover improved, 53% cited lower absenteeism, and 37% thought the quality of their products and services had increased. "The fact is that child care saves a company more money than any other employee benefit," says Sandy Burud, chairman of Summa Associates. "It's also a management tool, and that's why the number of companies providing child care has mushroomed. It's a bottom-line issue."

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Donna Fenn is the author of Upstarts! How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009), about ways Gen Y is changing the entrepreneurial landscape. @donnafenn