Why Offering Paid Leave Is Good for Your Business

By Adam C. Uzialko
Business.com / Accounting / Last Modified: February 27, 2018
Photo credit: designer491/Shutterstock

Yes, paid leave policies represent an additional cost, but the benefits they provide pay for themselves and then some.

The United States is alone among the world's major economies in not federally requiring mandated paid leave for family time and illnesses. However, employers should think twice about foregoing paid leave just because it is not legally required. While paid leave does represent a cost, consider it more of an investment than a simple expense. The bottom line is paid leave policies are good for businesses as well as their workers. 

"One of the arguments against having a paid leave policy is that it forces businesses to move somewhere that is more 'business friendly,'" said Karen White, director of the work and family programs at the Center for Women and Work at Rutgers University. "The truth is that doesn't happen. We've found time and time again that paid leave does not break the bank."

Researchers have demonstrated that offering paid leave results in higher productivity, greater employee morale, and a net cost savings for companies in the long run. So, while budgetary-minded business owners might initially be wary of the additional expenses added to the balance sheet, the numbers show that paid leave more than covers itself in the end.

Family and medical leave

In some states, paid family leave is offered through state-backed Temporary Disability Insurance (TDI) programs, meaning employees pay into the system but, generally, employers do not. In states without a TDI program, however, the only mandated requirement is that companies extend 12 weeks of job-protected leave – without pay – to employees under the federal Family and Medical Leave Act (FMLA).

Paid sick leave, on the other hand, is generally an employer-sponsored plan not mandated or supported by the government in any way. It's important to note this distinction when discussing the types of paid leave policies and who is funding them. Each offers important benefits, though, to both companies and workers.

Greater productivity

One of the major benefits of implementing paid leave policies is improved productivity. Research conducted by the Center for American Progress in 2016 found that of 753 survey participants, 87 percent reported no cost increase associated with a paid leave program, and 89 percent reported a positive effect or no noticeable change in overall productivity.

In terms of paid sick leave, workers who would otherwise come into work sick – either because of a need to make money or fear of losing their position – are free to stay home, thereby protecting the rest of the workplace from infection. The spread of communicable disease has a devastating effect on productivity; for example, a New Jersey restaurant was forced to shut down for more than a week after a sick worker caused a mumps outbreak.

"Presenteeism is when people go to work sick and cause public health issues," White said, "and the fact is that if people were able to take the time to stay at home and take care of themselves [with pay], this would not happen as often."

The National Partnership for Women and Families estimates that presenteeism costs businesses more than $200 billion annually. Compare that with the U.S. Bureau of Labor Statistics 2009 estimate that paid sick leave costs private sector businesses about 23 cents per employee hour, and that paid sick leave policies can be crafted to work within company budgets.

On the family leave side, many employers already offer family leave, even if they are not required to do so by law. However, many small businesses do not or cannot extend paid leave to their employees. When workers have the security of knowing they won't miss out on pay due to caring for a newborn or a family member, they tend to be less stressed in the workplace and more focused on their assigned tasks, reducing mistakes and increasing overall productivity.

"A happy, more satisfied employee who is not stressed out about family care issues is much more able to focus on doing a better job," White said.

Heightened employee morale

Paid leave policies also have the impact of boosting employee morale, which leads to improved retention rates and better talent acquisition. By offering paid leave, companies are promoting a healthier work-life balance, which also contributes to the aforementioned stress reduction that translates into better day-to-day productivity.

"We're in a time where workplace policies need to keep up with the realities of workers and their families," White said. "Workers are paying attention to the kinds of benefits they're being offered when they consider new jobs."

In other words, if you want to bring on the best talent available, you need to meet their demands for good compensation and benefits like paid leave.

There are also cost benefits to keeping your existing employees happy. For one, onboarding and training a new employee is a massive cost. The Center for American Progress estimates that replacing a mid-range salaried employee costs about 20 percent of their annual pay, and that's not accounting for the additional time it will take a new worker to reach the skill level of an experienced employee.

"We did research on women in law firms, and what we found was that law firms invest an enormous amount of time and resources in hiring and training new attorneys, but if they don't provide paid family leave, when female attorneys go off on maternity leave, they are less likely to return," White said. "So off goes all those training dollars, time, and resources invested in that person."

By offering a paid leave program and boosting retention rates, companies can avoid losing workers they've already substantially invested in and who know the way the workplace operates.

The case for paid leave

Paid leave, particularly family and medical leave, offers tangible business benefits that not only improve workplace morale but can help boost profitability in the long-term. From improved employee retention to heightened productivity, business owners reap the rewards of offering their employees what they need.

As Richard Branson, founder of Virgin Records has said, putting your staff first translates into success for your customers, your shareholders, and your overall business. Paid leave isn't just a cost, it's an investment in your staff, and it pays big dividends.

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