For small businesses and startups determining what employee benefits to provide your employees requires balancing a tricky combination of regulatory compliance, allocation of limited resources and marketplace competition. However, business owners may be surprised to learn that Social Security, unemployment insurance, worker’s compensation and unpaid family or medical leave are among the very few employee benefits that are often mandatory under federal law.
Absent a specific law in your state, most employee benefits in the United States are subject to employer discretion. Among these voluntary benefits is paid maternity leave. Unless you conduct business in one of three states—California, New Jersey and Rhode Island—that require paid family leave, your business is not required to guarantee paid maternity leave.
But paid maternity leave is gaining steam as one of the important benefits to ensure that your business can remain competitive in the marketplace. A survey of startup companies ranging from seed stage to post-IPO indicated that more than half of companies as early as Series A offer paid maternity leave and 100 percent of later stage companies (Series D to post-IPO) offer paid parental leave. Below we explain why paid maternity leave is a rare benefit in the United States, but why you may need to think about offering it earlier in your business’s life cycle to attract and retain top talent and even to improve your bottom line.
No Federal Paid Maternity Leave Law
In the United States, there is no federal law that mandates paid maternity leave. As President Obama made clear in his State of the Union address, this makes the United States an outlier among developed countries. A study by the International Labor Organization, an agency of the United Nations, revealed that out of 185 countries and territories the only two exceptions to guaranteed paid maternity leave were the United States and Papua New Guinea. Among those requiring maternity leave, 85 percent provide at least 12 weeks of paid time off.
The Family and Medical Leave Act (FMLA), which was passed in 1993, entitles workers to 12 weeks of unpaid, job protected work leave for specified family and medical reasons, including “birth of a child and to care for the newborn child within one year of birth.” However, the FMLA only applies to full-time workers at companies with at least 50 employees, and therefore only applies to 60 percent of the workforce. For most workers whom the FMLA covers, its reach is further limited by the inability of workers to afford taking unpaid leave.
As a result, the ability to take maternity leave depends almost entirely on whether an employer has chosen to provide paid parental leave as a benefit. Unfortunately, the Bureau of Labor Statistics reports that only 13 percent of workers have access to paid leave. Without access to paid maternity leave, business fail to retain female employees after pregnancy and portray an unsupportive company culture.
Ironically, by not offering maternity leave benefits, companies may increase their overall costs. A report by KPMG found that global businesses spend roughly $47 billion every year recruiting and training replacement for mothers who exit the workforce after giving birth, when guaranteeing 16 paid weeks would only cost $28 billion per year.
State Adoption of Paid Maternity Leave
Recognizing the absence of federal law and employer initiative, a few states have adopted parental leave. To date California, New Jersey and most recently Rhode Island are the only three states to offer paid family leave. In New York, there are currently two competing proposals in the Assembly and Senate that would require all employers to offer full time employees 6 to 12 weeks of salaried family leave.
In the three states that offer paid family leave, which includes paid leave to new parents, the program is financed through employee payroll deductions and administered through a state’s disability insurance program. To cover the cost of the program, the annual employee deduction is on average around $30 per employee. Business owners in these states overwhelmingly report that paid leave has either helped or had no effect on their profitability. On the other hand, paid leave has been shown to increase the probability that mothers return to work, work more hours and earn higher wages. This not only helps to decrease the wage gap between women and men, but also provides economic benefits to the state. A study in New Jersey found that women who took paid maternity leave were 40 percent less likely to receive public aid or food stamps in the year following childbirth. It is these benefits that have lead President Obama to support a $2 billion incentive fund to help states adopt family leave programs.
While your business’s employee benefits package can help you attract and retain talent, employee benefit packages are not one size fits all. It’s important important to consider your business’s size and resources, as well as what’s important to your employees, when developing your benefit package. Whether you are in one of the few states that requires paid family leave or you are reconsidering your company’s benefits, a lawyer can help you structure your package to comply with regulations and avoid costly litigation.
Priori Legal will help you find a high-quality employment lawyer to navigate the applicable state and federal laws and help you draft a package that will keep you competitive and compliant.
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