Why Paid Leave is Worth the Cost
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Paid leave has become an important issue as part of efforts to close the gender pay gap. Considering that most workers who use paid leave are working mothers - and to a lesser extent, working fathers - it has become an important offering for more progressive companies to stem the tide of talent leaving the workforce after starting a family.
But are the costs ultimately worth the benefits to companies that can adopt or take advantage of state-sponsored policies?
After California introduced its paid family leave initiative in 2004, the vast majority of employers in the state found it was good for their business. According to a June 2014 Obama Administration study, more than 90 percent of 253 California employers surveyed reported either a positive or no impact on profitability, turnover and morale.
California's policies are far more progressive than those of the country as a whole. The U.S. Family and Medical Leave Act guarantees companies with 50 or more employees 12 weeks of unpaid leave for the birth of a child, medical leave or to care for an immediate family member. However, according to the White House report, this only covers about 60 percent of employees, so most states or companies derive their own policies.
While the companies in the White House report say the California policy has been good for business, experts say there are three main reasons why more states should consider offering their own extended paid leave policies.
Employee retention
For some employers, the cost of not offering paid leave is higher than the cost of offering it. "The really big cost to employers now is the cost of not offering paid leave, which means they lose employees," says Judith Warner, senior fellow at the Center for American Progress, a nonprofit research organization based in Washington, D.C. "The cost to employers of not offering paid leave is the cost of not offering paid leave, which means they lose employees," she says.
Most importantly, paid leave reduces employee turnover, which comes at a high cost to companies. According to a study by the Center for American Progress, the cost of replacing a mid-level employee is about 20 percent of his or her salary.
In addition, paid leave helps attract top talent. For companies in an arms race for talent, generous work-life balance benefits like paid family leave help set one company apart from others.
"Employers know that if they want to be able to attract these people, they need to be able to have the policies that are important to them," Warner said. Even in countries that have generous paid leave policies, many companies there still offer extra time to stay competitive in retaining and attracting the best talent.
Find out more details on employee retention... Strategies of employee retention
Employee engagement
Engagement is the idea of people going above and beyond for the company they work for, according to Andee Harris, chief engagement officer at HighGround, a Chicago-based employee engagement software company. "[Employees will] work hard because they are internally motivated, because they are committed to the mission and vision of the company," Harris said.
Paid leave impacts engagement because it makes employees feel that they are supported by the company, Harris said. This engagement is expressed through hard work, which improves the company's productivity and profitability.
In addition, while an employee is on leave, others must take over their work. Harris said this is a great opportunity for employees who take over to build their skills and careers. "It gives people the opportunity to expand their role a little bit, take on a little extra responsibility, which really ties into the idea of having a growth mindset and being able to think about the next step within the organization," Harris said.
To prevent employees from burning out or resenting the extra work, business leaders should train employees and recognize them for their good work, Harris said. Managers should also have open conversations to make sure employees aren't overwhelmed by the extra work.
Taking on this extra work also helps with succession planning. While someone is down and the other is doing the work, this is a good trial run for future promotions. This also helps management know what training is needed so the employee can take on more challenging tasks later.
"Given the talent wars that are going on in companies, it's expensive every time you have to recruit someone from the outside," Harris says. "Any time you can promote someone within your organization, it always saves money and time."
Read More... Employee Engagement
Economic implications
Not taking paid leave imposes costs on families and the overall economy. Giving birth and caring for a child is expensive; the financial burden is great for individuals who must go without pay for the first few weeks after birth. This struggle leads to increased stress, so the worker is likely to have lower engagement at work, and many mothers leave the labor market to offset the high cost of child care, said Warner of the Center for American Progress.
"Just 20 years ago, we were leading the world in terms of female labor force participation, and now we've fallen behind," Warner said. "This lack of participation by women is a real loss to our economy, a real loss to our GDP."
U.S. female labor force participation has stalled since 2000 and is now below that of other industrialized nations, according to the U.S. Department of Labor. "Paid maternity leave can have a positive impact on the wages and employment of working mothers by encouraging them to return to work and continue their careers," the article states.
California mandates six weeks of paid leave for certain workers, with 55 percent of their typical weekly earnings up to a certain limit. This legislation increased the weekly hours and pay of working mothers with young children by nearly 10 percent. The improved pay and increased labor force participation for women will lead to a boost for the U.S. economy, according to the Department of Labor.
California and a handful of other states mandate paid leave. Depending on a company's location, they may have to share in the cost of providing the leave, which is a criticism of state-mandated paid leave programs. Warner advises, however, to look at the big picture. "Keep in mind that without a state provision, employers will have to foot the bill entirely," she said.
