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Parental Benefits: Should Your Business Offer Maternity and Paternity Leave?

by Tim AustinNovember 21, 2019 8:00 AM

As a business owner, you have to make countless decisions about the types of benefits your business offers. From health insurance plans to PTO, your benefits package impacts your employees and your bottom line. Deciding on the type of benefits you want to offer your employees, like maternity and paternity leave, can be a tricky situation.

Two new parents with their baby while on maternity and paternity leave from their employers. 

Is My Business Required to Offer Maternity and Paternity Leave?

The answer to that question depends on the size of your company and its location. Maternity and paternity leave is regulated by U.S. labor law, which includes the Family and Medical Leave Act of 1993 (FMLA). This law applies to any employee who has worked for your company for at least 12 months and has logged at least 1,250 hours in that span. Any employee who meets FMLA criteria is then able to take up to 12 weeks of unpaid leave in a 12-month period for any of the following reasons.

  • The birth of a child and time to bond with that newborn child within one year of birth
  • The placement of a child for adoption or foster care and to bond with the newly placed child within one year of placement
  • A serious health condition that makes the employee unable to perform the functions of his or her job
  • To care for the employee’s spouse, son, daughter, or parent who has a serious health condition

However, FMLA doesn’t affect every business. According to the Department of Labor, FMLA applies to “all public agencies, all public and private elementary and secondary schools, and companies with 50 or more employees” on a federal level. 

There are some states with different rules in regards to which businesses are impacted by FMLA. For example, New Jersey updated its Family Leave Act to drop its threshold to 30 employees. In addition, New Jersey offers paid family leave. These individual state laws can differ dramatically from the federal norm, so you’ll want to check your local laws to see where your company stands in terms of your parental leave obligations. If your business does not meet the employee threshold for FMLA in your state, you are not required to provide paid or unpaid leave for maternity and paternity leave.

Should I Offer Maternity and Paternity Leave Benefits Anyway?

Even if FMLA doesn’t apply to your business, you may want to consider some form of maternity and paternity leave for your employees. There are advantages and disadvantages associated with your various parental leave options, so it’s important to identify some factors that may impact your decision.

The costs of offering leave

Your parental leave policy can have different financial impacts. Not offering a leave policy is the lowest cost option, at least in terms of how it’ll impact your day-to-day operations. Conversely, paid leave means that you’re still on the hook for paying your employees while they’re out of the office. In addition, the following factors can affect your bottom line whether you offer paid or unpaid leave:

  • The impact of lost productivity while your employee is on leave
  • The cost of a temp worker to pick up the extra work
  • The cost of covering benefits while an employee is gone

All of these factors can add up, which can make the decision to offer some form of paid or unpaid parental leave a pricy policy. However, it’s important to also consider the financial impacts of not having a formal maternity or paternity policy.

No maternal or paternal leave policy can be a big reason as to why an employee leaves your company – or why a potential job candidate accepts a job somewhere else. If a talented employee plans on having a child at some point, he or she may look for other opportunities to cut down on the amount of stress after childbirth and afford them more time to bond with that child. In fact, a study by the Center for Women and Work at Rutgers found that women are “93 percent more likely to be working nine to 12 months after giving birth than those who didn't take leave.”

Not only will that departure affect your business’ productivity, replacing that employee can cost as much as half of his or her salary. If you’re in a position where you want to avoid turnover, some form of parental leave policy may be the more cost-effective solution in the long run.

Employees want paid leave

Just how attractive is an opportunity for paid leave to a typical employee? BenefitsNews shared the results of a survey that asked workers about the most desirable benefits outside of health insurance and retirement plans. Paid family leave eked out flexible/remote work options as the most coveted option, which can make it a very desirable option to help you attract and retain talented employees.

The growing desire for parental leave benefits hasn’t gone unnoticed. According to SHRM, more business have offered paid parental leave in recent years. The number of business offering paid maternity leave has nearly tripled between 2014 and 2018, rising from 12 percent to 35 percent. Paid paternity leave wasn’t far behind, increasing from 12 to 29 percent in that time.

What are Some Parental Leave Options for a Small Business?

Now that you’ve weighed a few factors that may impact your decision on whether you should or shouldn’t offer maternity and paternity leave. There are a few different options you can take based on the needs of your company.

  • No parental leave
  • Unpaid parental leave
  • Paid parental leave
  • A combination of paid and unpaid parental leave

So which is the best choice? Ultimately, the decision lies with what’s right for you and your company. You’ll need to balance the financial implications along with how your policy can impact your employees, which requires an internal perspective from someone who knows and understands the company. 

You’re the best person to judge which type of maternity and paternity leave policy works for your company, but you don’t have to make this call alone. At Group Management Services, we can help you determine which route may be best for your particular situation and put together a company policy to keep your employees informed (and protect you from potential claims). Contact GMS today to talk to one of our experts about how we can help you strengthen your business through employee benefits administration and other key HR functions.

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