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Human Resources

Reduce turnover, improve diversity: Why your company needs a paid parental leave policy

Apr 25, 2018

If you're a small business with fewer than 50 employees, you don't legally have to offer a paid parental leave policy. But you should. Here's why.

Karen McCandlessAnalyst

The United States is the only country in the developed world -and one of only four in the world- that doesn’t have any kind of paid parental leave policy.

The situation doesn’t look good on a world stage.

While companies and states can implement their own policy, in 2016, only 19 percent of state government workers and 13 percent of private sector workers had access to paid family leave.

On a state level, currently California, New Jersey, Rhode Island, and New York offer some form of paid parental leave, although on reduced pay.

Federally, the US offers 12 weeks of unpaid leave under the 1993 Family Medical Leave Act, but this law only applies to full-time workers who’ve worked at least 1,250 hours in the previous year at firms with more than 50 employees.

So if you’re a small business with fewer than 50 employees, you don’t have to offer your staff (male or female) any paid (or even unpaid) parental leave. But you should. Here’s why:

Reduces employee turnover

It can cost up to 400 percent of a talented employee’s annual salary to replace them, but paid parental leave can help instill loyalty to boost retention.

In California, where the policy has been in place long enough to see results, with a majority of businesses (87 percent) had no increased costs as a result, and nine percent said that the program had generated cost savings for their businesses by reducing employee turnover and/or reducing their own benefit costs.

Marielle Smith, VP of People at GoodHire, believes that offering paid parental leave for both men and women supports employee retention.

"As a company, we want to keep valuable employees happy so they stay with the company longer- losing employees for any reason is costly to the business," she says. "Employees are at their best when they are able to focus on work- parental leave allows parents to settle in to their new family life and create a new routine, so when they return to work, they can focus more fully."

Stan Kimer, president of Total Engagement Consulting career development firms, adds: “It builds strong employee loyalty and your good employees will be easier to retain and be willing to work harder when needed.”

Boosts productivity

California already has a paid family leave policy in place, which provides six weeks of partial wage payments to employees when they need to take time off to bond with a new child or to care for a seriously ill family member.

Nearly 90 percent of employers report that the program has a positive effect or no noticeable effect on productivity, and 99 percent of report the same for employee morale.

Chelsie M. Lamie owns a small law firm in Florida. She offers six weeks of paid paternity and maternity leave for her employees, which her paralegal has already used.

Lamie says that while many other small business owners think that offering paid parental leave is bad for business, she couldn’t disagree more.

“We have been profitable from our third month in business and it’s because our team members work hard – in part because they are treated with respect and given generous benefits, like our paid paternity/maternity leave” she says. “My team is more productive and loyal which in turn means our business is more successful because of our leave policy. Paid paternity/maternity leave is good for moms, dad, baby, society and business.”

Kimer adds: “Giving new parents this time to recover from childbirth (and there are physical demands on fathers as well as mothers) and time to bond with new children will result in happier healthier employees who will do better work. “

Improves diversity

We’ve written extensively on the business benefits of diversity, and a paid parental leave policy can help ensure a more diverse workforce, while helping to reduce the gender wage gap. By implementing a parental leave policy, companies can help ensure more diversity in their company.

For example, women who take paid leave are far more likely to return to the workforce and work longer hours, on average, one to three years later, while companies that have expanded their paid leave offerings have seen the attrition of new mothers drop by as much as half.

It’s not just gender diversity that paid leave can boost. In California, the policy saw leave-taking among black mothers rise 12 percent.

“The punch line is it reduces disparities in leave-taking between low and high socioeconomic groups, and does so without damaging these women’s later labor market prospects,” Rossin-Slater, an assistant professor of economics at the University of California, Santa Barbara, told The New York Times.

In terms of the reducing the gender pay gap, a Rutgers study on the paid parental leave policy in New Jersey found that women who took leave and returned to their jobs saw their hourly wages increased about 5 percent.

Attracts higher-quality talent

People are increasingly picking companies based on their culture, and look for a job and company that fits them as a person. Paid leave can help you recruit top talent by showing that you have a culture in place that treats its employees with respect, and is committed to fostering a diverse workplace. This creation of a brand image gives prospects a more compelling reason to apply.

In fact, according to “Employers who emphasize diversity at all levels, but especially at the more public-facing C-levels and at the board level, have a greater competitive advantage for about 60 to 70 percent of job seekers.”

Aids employee development

Another unintended benefit of paid parental leave is the opportunity to develop your current employees, and give them the chance to develop new skills.

“Your best employees may welcome taking on new and additional work,” says Kimer. “They can learn new skills and prove themselves. This may be a great opportunity to uncover new skills of your current employees

Next actions: creating a paid parental leave policy

There are some actions you need to take if you want to put together a paid parental leave policy that works.

1.Ensure you have an equal policy for maternity and paternity leave

With 82 percent of people aged 18 to 29 saying that fathers should receive paid leave, you need to ensure you balance your policy out to give equal treatment to mothers and fathers.

When Rebecca Reott, director of HR at Hanapin marketing company, was considering how to craft the company’s Paid Parental Leave policy, she chose to offer equal paid time for mothers and fathers, because that’s the message they wanted to send to their company and to our community.

“We believe that fathers and mothers should equally be able to spend time bonding with their newborns,” she said. “We want to do our part in eliminating the gender stereotypes about parenting and encourage the change that this country so desperately needs. We give all parents equal permission to be away from work without affecting their status and position within the company, regardless of gender.

2. Make it part of your culture

Paid parental leave needs to be something that the whole company is fully aware of, and that is supported from the top down.

Chelsie M. Lamie’s company includes paid leave as part of her business’s culture of compassion, while a blog post from job posting site Indeed advises:

“Make sure employees-especially males-feel comfortable taking advantage of the program. Encourage managers and C-suite leaders to use parental leave when they’re eligible to set an example for their teams. Publish your policy online and share info about it in interviews, since many people might be uncomfortable inquiring about it early in the hiring process.”

3. Make sure you have the technology in place to manage it

To be able to successfully create and manage a paid leave policy (and to keep on top of state laws), you may want to invest in absence and leave management software.

If you need some help choosing, GetApp’s HR scorecard can help you shortlist software with the features you need that best fits your budget.

About the author

Karen McCandless