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Second Shift

The Real Cost Of Paid Parental Leave For Business

Can paying an employee's salary and benefits plus their temporary replacement ever benefit the bottom line?

[Photo: Flickr user Ray Dumas]

In the last six months, many major tech companies have been doing what the U.S. government hasn't: embracing paid parental leave policies. From Amazon (20 weeks) and Adobe (26 weeks for new birth mothers) to ZestFinance (six months), many have extended their paid time-off benefits. Others such as Netflix are planning to give new parents up to a year off after the birth of a child, while Spotify took a page from its Swedish national policies to offer up to six months of leave with 100% pay for any new parent, birth, adopted, or surrogate.

ZestFinance's chief people officer, Sonya Merrill, says that such benefits are an integral part of the six-year-old fintech company’s push to create a diverse and inclusive workplace. So far, in addition to extending its paid parental leave, the 100-person company has increased the total number of minority employees to 25%, and has a C-suite evenly split between men and women.

But benefits cost a company both money and talent, don’t they?

Although the U.S. has no federally mandated paid family leave policy, states such as New Jersey and California have offered workers six weeks' time off with pay (at two-thirds pay and 55% of their total salary, respectively). So in California, for example, if a worker takes six weeks off at the maximum allowance (up to $1,067 per week in 2013), that costs $6,402. Of course, the state pays that worker, and according to the California Employment Development Department, workers contribute an average of $30 per year into a fund for paid leave.

Doesn’t it hurt a company when someone is out for that long? Especially if they are in a management position with a team reporting to them? Surprisingly, a study done by the Center for Economic and Policy Research found that an overwhelming majority of California business owners surveyed said it didn’t affect their company’s performance or profitability. Eighty-nine percent reported either positive or no negative effects on productivity, turnover (93%), and morale (99%).

When a company picks up the tab for paid leave, there is greater potential to ding the bottom line. Indeed, Merrill points out that the main costs associated with this extended family-leave policy include:

  • The costs of hiring a temp to cover the person while he/she is on leave or working part-time
  • A potential decrease in productivity due to the fact that other team members may need to cover for the person
  • The cost of covering full benefits for the employee while he/she is out or working part-time

"The important question really is: What's the cost of not offering these extended benefits?" asks Merrill. "When we looked at our options, we realized that by not extending our family leave program, we would run the risk of losing great talent and potentially making it difficult to attract new, family-minded, and diverse people," she explains.

Merrill admits that the cost to cover paid leave is "hefty," but nothing in comparison to losing a talented person. In addition to an untold loss of productivity between the person’s departure and the hiring and settling in of a new staff member, she says, "The several months it would take to find a replacement, along with the cost of manpower to recruit and interview heavily, outweighs the cost of providing this benefit."

Anecdotally, Google experienced a decrease in attrition when the company’s paid maternity leave extended from 12 to 18 weeks. In his book Work Rules!, Laszlo Bock, senior VP of Google’s people operations, writes:

The attrition rate for women after childbirth was twice our average attrition rate . . . After making the change in leave, the difference in attrition rates vanished. And moms told us that they were often using the extra two months to transition slowly back to work, making them more effective and happier when the leave ended. When we eventually did the math, it turned out this program cost nothing. The cost of having a mom out of the office for an extra couple of months was more than offset by the value of retaining her expertise and avoiding the cost of finding and training a new hire.

David Hassell, founder and CEO of 15Five, confesses that as an 18-person company, they can’t afford to go big on paid leave. The company does offer 16 weeks of maternity leave and six weeks' paternity leave, which Hassell (father of a two-year-old) believes is the right thing to do.

"There are obviously costs, but ones we can manage," he says. "We certainly need to ensure that their role is covered during their time away, either by another employee or a new hire or consultant, so there's essentially a double cost during that time for that role, as well as the cost of getting someone else ramped up/trained up, etc.," Hassell explains. It can ratchet up if a consultant needs to be hired, as often they bill at a higher rate for a short-term arrangement.

So far, three new dads have taken advantage of the paid time off, Hassell says, including himself. 15Five did not need to hire outside consultants for them. Hassell cites his leadership team and the fact that he didn’t take the full six weeks off helped bridge the gap. "Our CTO was another, and similarly, his team was able to take up the slack," he says. A third was an engineer, and Hassell says they were also able to work around his absence. "The reality is that these are in most cases once- or twice-in-a-lifetime events, and events we have time to prepare for," he says.

He continues, "If the company can make do with not having that person's input during the time, or the workload distributed across a wider existing team, there's no additional monetary cost."

Hassell doesn’t discount that there may be an opportunity cost around what could have been accomplished if they had been there. A burden in the form of overwork and lowered morale could also factor in. "That said, we also see substantial returns relative to other companies—these and other policies we have clearly communicate to our people that we really care about them, and as a result we have shockingly low turnover—so aren't incurring the ongoing costs of having to find and replace many of our roles," says Hassell.  

In some cases, there is opportunity for boosting morale. Among the 300 employees of Change.org (of which more than half are women), four women and seven men have already used the company’s paid time off, and nine more employees are planning to take it in the coming months. Change.org offers 18 weeks off with pay for all parents (biological or otherwise), and company spokeswoman Cecilia Xia says, "Cost has been even lower than we expected, and results have been really positive."

Although the staff using paid leave has been at management level, Xia reports, "What we’ve seen is that when someone leaves for parental leave, it gives other members of the team the chance to step up and prove themselves at a higher level. Often, this has resulted in official promotions, benefiting the individual and the company as a whole."

According to Change.org’s president Jennifer Dulski, "Once you have a good baseline in place to create a motivating work environment, then improving and equalizing your paid parental leave policy is one of the most powerful statements you can make to break down workplace gender inequality, and support working parents and their families."

What Netflix's Amazing New Unlimited Parental Leave Policy Really Means:

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