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CXO Magazine

Yes, paid leave laws can actually save companies money

Studies show that requiring companies to hold jobs for employees on paid leave boosts morale, increases retention, and cuts down on the high cost of hiring replacements.

In January, New York will become the fourth state to require that employers offer paid, job-protected family leave so workers can care for newborns or look after sick relatives.

It’ll be a logistical challenge for organizations both small and large. Many opponents say requiring paid leave is too burdensome, especially for small firms. But even with 35 employees, Pam Gueldner couldn’t be more thrilled.

Yes, she may have trouble filling shifts at Mandible Café, the coffee shop and bakery she co-owns inside Cornell University’s Mann Library, but the new law means her employees will be more likely to return since there’ll be a job waiting, she says. “We’ve had several people who have been pregnant who didn’t return to work after the baby was born,” says Gueldner. “If they can come back, that’s a huge advantage for us, because it’s difficult to get somebody [new] up to speed.”

Employee training has a significant price tag for any organization — regardless of size. It can cost companies 16 percent of a low-wage worker’s salary to find and train a replacement, according to the Center for American Progress. That number can grow to as much as 200 percent for highly skilled professionals.

The benefits of paid leave don’t stop at worker retention, according to proponents. Recent data from other states — so far California, New Jersey, and Rhode Island mandate some form of paid family leave for workers — show the vast majority of companies have reported positive effects on morale, productivity, and labor turnover.

Here’s what the data show:

  • Women stay in the workforce longer. In California, new mothers were 18 percent more likely to be employed a year after giving birth than they were prior to the program’s implementation.

    • Costs for workers are negligible. The New Jersey and California programs are funded entirely by employee payroll deductions. In New Jersey, this costs each worker a maximum of $29 per year. In California, each worker contributes up to $30 annually, according to 2016 research from California’s Employment Development Department.

    • Employers don’t feel burdened. In a 2011 survey from the Center of Economic and Policy Research, 99 percent of California businesses reported a positive or neutral effect of the state’s paid leave program on morale. The majority reported similar effects on productivity (86 percent), profitability (91percent), and turnover (93 percent).
  • Small businesses are generally bullish on paid leave. According to Small Business Majority’s March survey of businesses with 100 or fewer workers, 70 percent were in favor of a federal insurance program, funded by both employee and employer contributions. “If you really go out and talk to the small employers, they say, ‘Of course give them the time off because I need them back and I need to retain the skilled workforce,’” says Erik Rettig, the policy advocacy group’s director of outreach. Paid leave is by far the most popular of the more left-leaning policies among smaller business owners, he says. “They lean heavily Republican, but they support this.”
  • It keeps workers working. This is especially true for new mothers, who were more likely to be employed a year after giving birth than they were prior to the program’s implementation in California. They also worked 7.1 weeks and 2.8 hours per week more on average during the second year of a child’s life than they did before the program went into effect. At the same time, increased leave times are associated with better infant health indicators, including higher birthweights, lower infant mortality, and more success with breastfeeding. For employers, those findings translate into a happier, healthier talent pool.

• It’s not all that disruptive. “There are several reasons workers will need an extended leave, but I’d say that sort of thing happens maybe 10 percent of the time,” Gueldner at Mandible Café says. And she’s spot on. According to a 2016 Massachusetts state budget analysis of paid family leave laws in other states, about 10 percent of eligible employees made use of paid family leave benefits in 2014.

When New York’s law takes effect, it will be the broadest law so far. It allows for up to eight weeks of partially paid time off for full- and part-time workers who have been at their jobs at least six months, as well as those who work for companies with fewer than 50 employees. Other proposals venture further into uncharted territory. In Washington, D.C., a proposed paid leave requirement would be funded entirely by employer (not employee) taxes; Washington state and Montana are figuring out how to implement their programs without an existing disability insurance program — which states with laws in place already had.

Those are big question marks, and ones that have left even some supporters worried about how more cities and states can establish paid leave without being too burdensome on businesses, many of which are already dealing with increasing pressures of laws to raise minimum wages in several cities and states, as well as higher commercial rents.

“I strongly believe that paid family leave … provides important benefits,” Harry Holzer, a Georgetown professor, wrote in January for a Brookings series on paid family leave. “But it is important to strike the right balance between these benefits and the costs imposed on other workers, employers, and perhaps the governments in question.”

In the absence of paid leave requirements in most parts of the country, some employers do offer company-funded programs. But those are rare. Only 14 percent of private sector workers had access to paid family leave in 2016, and low-wage and hourly workers are about four times less likely than their higher-income counterparts.

Managed by Q, a startup that coordinates office services such as cleaning and IT administration, is one of the few companies that extends paid leave benefits to low-wage workers. The firm employs about 1,000 people across five cities and 150 in its Manhattan headquarters. Last year, it began offering paid leave for tenured employees. So far, it has covered 12 pregnancies.

The program isn’t cheap, but it’s worth it for the company. “We’ve found it more expensive to replace,” says Ariella Steinhorn, head of public affairs for Managed by Q. “These people are representations of our brand, and clients have come to depend on Managed by Q because of these individuals. A lot of our growth can be attributed to that.”

For Tianna Green-Munroe, Managed by Q’s office coordinator, the 12 weeks of paid time off she took after giving birth were essential. It wasn’t just a chance to care for her newborn son, it gave her time to coordinate childcare before returning to work. “You get to bond, but also strategize for the future of your child,” she says. “That helped a lot.”

CXO Magazine is a new publication founded at Northeastern University to chart the ideas, events, and people shaping the future of work. Learn more.




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Schuyler Velasco

Schuyler Velasco

Schuyler Velasco is a senior writer for CXO Magazine, a new publication from Northeastern University covering the future of work.

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