How to Weigh the Value of Paid Parental Leave

Calculating the potential costs is an important starting point

By Joanne Sammer Apr 19, 2016
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Employers are continuing to offer expanded paid parental leave to employees, with an eye on recruiting and retaining Millennial workers. On April 11, Atlanta-based Coca-Cola announced that, beginning January 2017, it will offer U.S. employees who are new parents—including mothers, fathers, adoptive parents and those providing foster care—six weeks of paid leave. These benefits complement the six to eight weeks of paid leave the company currently provides to birth mothers through short-term disability.

“Fostering an inclusive workplace means valuing all parents—no matter their gender or sexual orientation,” Ceree Eberly, Coca-Cola’s chief people officer, said on the company’s website. “We think the most successful way to structure benefits to help working families is to make them gender-neutral and encourage both moms and dads to play an active role in their family lives.” It’s important for all new parents to take time off, Eberly stated, “so that when they return to work, they’re refreshed, less stressed and at their best—focused, engaged and productive.”

The policy was championed by Coca-Cola Millennial Voices, a group of young employees consulted by the company. The average age of college-educated, first-time parents is 30, which is also the median age of Coke’s Millennial employees. Millennials will account for more than half of the global Coca-Cola system workforce by 2020, the company said.

Gaining Ground

According to the Society for Human Resource Management (SHRM), 21 percent of large U.S. corporations offered paid maternity leave in 2015, up from 12 percent in 2014. Major employers that recently expanded their paid parental leave programs include financial firms Wells Fargo, Bank of America, Credit Suisse and J.P. Morgan Chase, and tech leaders such as Facebook, Amazon, Microsoft, Etsy, Adobe Systems and Netflix, along with businesses such as Hilton Worldwide.

On the political front, more state and local governments are mandating paid leave programs. San Francisco became the first U.S. city to require six weeks of fully paid leave for new parents starting next year, and New York state enacted a law requiring 12 weeks of partially paid time off beginning in 2018.

Employers by and large don’t welcome regulations and inflexible mandates. Still, the trend toward offering paid parental leave shows that companies are looking for ways to stand out in the competition for talent.

“Paid parental leave is a nontraditional benefit but it is one of the easiest ways a company can differentiate itself and become a preferred employer,” said Claire Bissot, managing director at CBIZ HR Services in Roanoke, Va.

Calculating the Costs

Calculating the potential costs of paid parental leave is an important starting point in deciding whether to offer this type of program.

Some experts argue that the cost of paid parental leave is actually negligible for employers that have a large population of salaried employees. The thinking goes that the cost of paying salaried employees is already accounted for in payroll; therefore, the cost remains the same whether a salaried employee is on the job or on paid leave.

But “that misses the indirect costs of absence,” said Rich Fuerstenberg, senior partner with Mercer in Princeton, N.J. “Lost productivity for salaried workers should be accounted for, while the cost for hourly employees can be accounted for through overtime and compensation for replacement workers.”

The length and frequency of parental leaves taken by employees in the past can provide a good baseline for projecting the cost of a paid leave program. Employers can also review best practices to identify the key elements of any paid leave program and use that framework to estimate costs.

Employers concerned about program costs can “start small by providing paid leave for a portion of the total leave available and then allowing unpaid leave thereafter,” said Bissot. “This can also help build the work habits and cultural shift acceptance for such a program.” Of course, any costs should be weighed against the potential gains in attracting and retaining key talent and the benefits to the organization’s reputation as an employer.

Managing Workloads

How to shift responsibilities when an employee takes paid parental leave is another important consideration. The good news is that an employer usually has several months of notice before the leave starts. “The bad news is that most employers don’t take advantage of that time to prepare the employee’s manager for the leave by providing training and tools to manage the business implications,” said Patricia Purdy, vice president of global employer benefits solutions with Pacific Resources Benefits Advisors LLC in Chicago. “Similarly, managers need help in integrating an employee back into the department at the end of a leave.”

Blue Corona, a 40-employee Internet marketing firm based in Gaithersburg, Md., offers employees with at least a year of service up to six weeks of paid leave following the birth or adoption of a child and four weeks of unpaid leave. The company also allows employees to use this leave to care for a spouse, child or parent with a serious health condition.

“We thought about the costs—paying someone’s salary even though they’re not working, the cost of asking people staying to take on a bigger load and the cost of hiring ahead to leave some slack in the system,” said Ben Landers, the company’s president and CEO. “But we concluded that it was worth it. Our team is small and very tight-knit, and my impression is that they were more than happy to do extra work to support the first teammate who took leave for the birth of a child.”

Working Out the Details

There are myriad details to work out when developing a paid parental leave program, including eligibility and the best way to integrate paid leave with other available leave and paid-time-off programs. “The design also needs to align with related company paid-time-off programs, such as short-term disability,” said Fuerstenberg. “If the short-term disability program provides less than 100 percent replacement, should you top off maternity claims to a 100 percent benefit? If you don’t, what income replacement would you provide for the nonbirth parent?”

Employers should also work closely with legal counsel to make sure a paid parental leave program does not violate employment and discrimination laws.

And they should be prepared for some negative reaction to new paid parental leave programs. Workers without children or whose children are grown may feel that their needs are not being considered, especially if the paid leave program does not extend paid leave to those who are caring for sick family members.

“There can also be negative reactions if the paid leave is not applied equally throughout the organization,” said Purdy. “Some of the companies who have recently announced paid parental leave have only offered it to segments of the population, such as exempt employees or to employees in certain parts of the business.”

Finally, employers must make sure that employees feel comfortable taking paid parental leave and understand that doing so will not harm their careers or standing in the organization. “Many employees, especially male employees, fear that actually taking the available leave will have a negative impact on their compensation, job assignments and so on,” said Fuerstenberg. One way to change this perception is to have senior leaders take paid parental leave when eligible and to make sure employees are aware when leaders do so.

Joanne Sammer is a New Jersey-based business and financial writer.

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