A Deep Dive Into Paid Leave: Can’t Afford It or Can’t Afford NOT to Offer It?

For many small and medium-sized businesses, offering paid parental leave just isn’t a consideration. There isn’t room in the budget for adding paid leave, even though you recognize that the younger generations of parents want to be more involved in the early stages of child development.

Today, there’s something more to consider and at stake than money. In an economy where it takes more to attract and retain the services of talented workers with long careers ahead of them, it’s time to at least consider what the research suggests. Add to that, the Center on Budget and Policy Priorities found that the United States is alone among wealthy countries in its lack of a national paid leave program.

So, can paid parental leave generate enough goodwill to help with attracting and retaining talent to offset the costs? How would an expanded parental leave program in your company impact morale, productivity, performance, and profitability? And would it create a slippery slope of paid leave needs?

What does the research say?

Though research on the benefits of offering parental leave is just beginning to accumulate, there are some compelling reasons to believe that companies benefit in several ways. For instance, Harvard Business Review research found that companies with higher participation in programs designed to support working parents have higher employee retention and job satisfaction.

The Center on Budget and Policy Priorities reports that paid leave boosts worker retention and productivity without increasing operating costs, and can even produce cost savings. In studies of California's paid leave program, about 90 percent of businesses reported either a positive or neutral effect on productivity and almost all businesses (99 percent) identified positive or neutral effects on employee morale. These workplace improvements cost businesses very little: 87 percent of businesses surveyed in California reported no increased costs and 9 percent even reported cost savings due to lower rates of employee turnover or lower spending on employee benefits. Businesses in New Jersey have reported similarly positive effects from their state’s paid leave program.

The Society for Human Resource Management research shows that more employers are offering paid parental leave—including maternity leave, paternity leave, and adoption leave. The report showed that over half of employers (55 percent) now offer paid maternity leave, 45 percent offer paid paternity leave, and 35 percent provide paid extended family care leave. Offering paid leave tends to have strategic benefits according to company respondents, including their ability to attract talent (58 percent), retention (55 percent), employee health and wellness (61 percent), and employee engagement (60 percent).

A Scientific American study provided six weeks of partial wage replacement for mothers and fathers and found that employers reported either a ‘positive effect’ or ‘no noticeable effect’ on productivity (89%), profitability and performance (91%), turnover (96%), and employee morale (99%). These findings mitigate some of the strongest concerns employers might have for instituting or expanding a paid parental leave program. The study also found that 91% of employers were unaware of any instances of abuse of the program.

Over to you

As an employer, you have unique factors to consider, including what competitors in your field and region are doing to attract and retain talent. Competition may drive you to test the effects of an expanded parental leave program. Demographic factors also play a key role; the younger your workforce is, the more attractive paid parental leave may be for the talent you are trying to attract. Implementing a gradual transition over time to an expanded paid leave program is likely to be a decision that many SMBs will be making over the next few years if the economy stays strong.