How Paid Leave Policies Can Help Small Businesses

Paid leave includes a variety of benefits, including paid sick time, paid family leave, and a parental leave policy that allows new mothers and fathers to bond with and care for their infants without sacrificing the bulk of their weekly wage. These benefits are designed to allow employees to take a leave of absence for approved reasons, and it is increasingly common around the world for companies to offer these types of benefits.

The U.S. is alone among industrialized countries in that it does not maintain any federal paid leave policies. The federal Family and Medical Leave Act (FMLA) requires companies with 50 or more full-time employees to provide unpaid time off to certain employees, but there are no regulations for smaller businesses. And there is no federal requirement to offer compensated time off. [Want to learn more about FMLA compliance? Check out our guide on what small businesses need to know about the FMLA.]

In many cases, this means workers needing to take time off to care for themselves or their family members must do so without pay or the job protections that many paid leave regulations offer to eligible employees. This lack of leave benefits leaves many people vulnerable, particularly low-income workers. However, in recent years, a movement in local jurisdictions and state legislatures to implement a patchwork of paid leave policies has grown.

While advocates of paid leave policies ultimately have their sights set on a uniform federal policy, many have settled for slowly filling in the gaps at lower levels. But what do these policies mean for workers and small businesses? Are they going to unbearably balloon entrepreneurs' budget or make their staff more satisfied and productive, thereby reducing turnover?

What are paid leave policies?

Paid leave policies, as the name suggests, are regulations that extend job protection and paid time off to workers for certain situations, such as illness or family emergencies. There are different kinds of paid leave policies, including paid sick leave, paid family leave and paid maternity or parental leave policy.

Given the patchwork nature of their implementation in the U.S., a consequence of no set policy from Washington, D.C., the exact provisions of these laws tend to vary widely on a state-by-state – or even locality-to-locality – basis.

Here's a quick look at two of the most common types of paid leave policies.

Paid family leave

Paid family leave policies generally create a fund as an extension of a state temporary disability insurance program, which is supported by payments withdrawn as a small percentage from every employee's paycheck. These insurance funds are generally 100% funded by workers and don't require any added investment from employers or taxpayers. Rather than offering full paid days off, paid family leave insurance funds typically offer wage replacement, generally worth about two-thirds of the employee's weekly pay.

Karen White, director of policy analysis and community engagement for the Rutgers Center for Women and Work at the School of Management and Labor Relations, said that five states currently offer a temporary disability insurance program that can be expanded to support paid family leave. New Jersey's paid family leave policy requires a mere 0.1% deduction from workers' paychecks up to the first $33,700 in pay to support itself. That means the maximum deduction from each employee amounts to a lowly $33.70 annually.

"In return, workers receive wage replacement at a rate of 66.7% of weekly wages up to a maximum of $637 [per week] in 2018," White said. That amount, she said, will be paid to workers for up to six weeks under the current state law.

While the policy doesn't cost employers anything, it is often viewed as favorable, because it offers an added layer of financial security for workers on leave. Their absence, White said, was generally already permitted by most small businesses; employers simply could not afford to pay the employee during their time off.

Paid medical leave

Unlike paid family leave, paid sick time is usually an employer-supported expense required by the government. Paid sick leave laws are designed to require a basic protection for workers who fall ill or have loved ones at home that require care. In some states, the legal requirement is quite minimal, White said. Simply put, if an employee gets sick, they can take time away from work without fear of reprisal. In New Jersey, sick employees can take five consecutive days off from work, all of them paid.

"The thing about [paid sick leave] is that it is a basic standard," she said. "In New Jersey, in the municipalities that have passed the law, workers are provided with five job-protected, paid days off. Those [days] do not accumulate over time; they are for use in the year in which they are earned. It's a minimal standard at a minimal cost to employers."

However, because paid sick leave laws are implemented at the local or state level, it means they are different everywhere. New Jersey is home to 13 municipalities that have implemented a paid sick leave law, White said, and most have tried to create a uniform set of policies to ease adoption and with the ultimate goal of achieving a statewide policy.

One municipality went its own route, however. The City of New Brunswick tailored its own paid sick leave policy with slightly different provisions than the rest. This is an example that has replicated itself in other jurisdictions throughout the country.

Implementing a paid leave policy for your company

Implementation has many moving parts. "The key to crafting a well-balanced paid leave policy is to ensure that your policy aligns with the mandatory requirements. Then it's a matter of considering whether you, as an employer, want to add any additional coverage for your employees," said Dave Berndt, senior client advocate for G&A Partners. "For companies that have operations in multiple states, it can be a complicated process to comply with various versions of paid sick leave laws."

Often, when a company does business in multiple jurisdictions with paid leave requirements, they might just choose to adopt the most stringent requirements to ensure compliance across the board. Those that operate in both jurisdictions with paid leave policies, as well as those with no regulations, might enact a company policy only where it is required. Ultimately, it is a question of strategy. However, Berndt noted that while paid leave might represent a degree of new difficulty for employers, the changes should also be viewed as an opportunity.

"When states pass legislation mandating paid sick leave, this creates new regulatory burdens for employers,"  said Berndt. "However, employers should also look at these new requirements as an opportunity to support their workforce, boost morale and provide a better work-life balance."

What does the research on paid leave demonstrate?

So far, research into paid leave policies where they have been implemented supports Berndt's notion that paid leave policies also benefit employers. In New Jersey, researchers found workers subject to paid leave protections boasted higher morale and productivity, and businesses that offered paid leave experienced a significantly lower turnover rate, White said.

"In return, the benefits for businesses … far exceed the costs," White said. "The research shows that workers are more motivated, they are more productive, they have higher morale. The employers are better able to retain workers, and they reduce their turnover costs. It really is a win-win."

According to research conducted in 2012 by the Center for Women and Work at Rutgers, parents receiving paid leave were more likely to remain employed a year after their child's birth and were less likely to require public assistance in general. Researchers made the following recommendations in their conclusions:

• Expand national job-protected family leave policy to include wage replacement for a broader pool of eligible workers.
• Document potential cost-savings for employers and employees through improved and expanded data collection.
• Provide outreach and education to employers and employees about the health and income security benefits of existing paid family leave policies.
• Enlist employers in efforts to improve job retention and competitiveness in hiring through the adoption of paid family leave policies.

According to White, however, at least in New Jersey, outreach has been lacking, and many people are largely unaware of the policies in general or the full extent of the rules. There are also more direct gaps in the existing policies, she added.

Workers often expressed that wage replacement and the job-protected period were not enough to address unmet needs, and the protections only served employees of companies that maintained 50 or more employees.

To address those gaps in existing sick and family leave policies, Gov. Phil Murphy recently expanded the state's paid leave policy to double the number of consecutive weeks of leave for eligible employees to 12. The law also now applies to companies with 30 full-time employees or more, rather than the previous 50.

Popular support for paid leave policies

Support for paid leave policies is mixed. Among the general population, especially younger people and low-income families, support is high. According to a 2016 Pew Research survey, more than 60 percent of the population supported paid leave for workers caring for themselves or family members with serious health conditions as well as for parents of newborn or recently adopted children.

However, support for paid leave policies is lower among entrepreneurs. According to a 2018 survey conducted by Paychex, 48 percent of small business owners said they would support some form of legislation requiring paid family leave, while 18 percent opposed the idea outright.

"No matter how large or small the organization, most employers want to create a workplace culture that supports employees in times of need," said Martin Mucci, Paychex president and CEO. "However, for small businesses, mandatory paid leave may present challenges. Whether it's having a key member of a small team out of the office for an extended period of time or the back-end administration of such a program, mandatory paid leave will introduce new dynamics small business owners will have to navigate."

Out of all respondents to the Paychex survey, 43 percent of those who supported paid family leave policies felt the federal government should make the rules while 40 percent said businesses should be in charge of crafting the rules.

Generally, popular support is translating into an expansion of paid leave policies throughout the U.S. Employers wanting to get ahead of the game should consider drafting a paid leave policy ahead of time and tweaking it to conform with local standards as they develop.

"As for the future, we anticipate that more states will adopt similar mandatory paid sick leave laws, since these have become so popular from a political perspective," Berndt said.

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