How Paid Family Leave Could Affect Your Small Business

Now that New York State has mandated 12 weeks of paid family leave, other states may follow suit. How might that affect your company?
April 07, 2016

Recently the New York State Legislature mandated paid family leave for most employees, making New York the fifth state in the nation to adopt such a program. The program gives new parents and those with ailing family members paid time off to care for them.

What makes the New York State mandated leave so significant is the fact that it includes employees working for small businesses and offers workers up to 12 weeks of paid time off. This is double the time provided by California, which was the first state to adopt government-funded paid leave in 2004.

U.S. an Outlier When it Comes to Paid Leave

As our national attention continues to shift toward work-life balance issues such as family leave, it becomes readily apparent just how behind the times Americans actually are. While the U.S. does guarantee up to 12 weeks of job protected leave through the Family and Medical Leave Act, according to Pew Research, America is the only industrialized nation that doesn’t require employers to pay employees on parental leave.

Now that two of the nation’s most populated states have adopted paid family leave policies, it’s likely that more states will continue to follow suit. It may eventually become a federal mandate, says Ted Mayeda, co-owner of M & M Nursery and Fairy Garden Expert. “Though paid family leave may be inevitable, it does bring definite pros and cons for small-business owners.”

With the unemployment rate dropping and good employees [being] hard to find, businesses that offer this type of benefit show that they are investing in employees...

—Henry Hutcheson, president, Family Business USA 

Benefits of Paid Family Leave

The perks of mandated paid family leave for small businesses obviously benefit the employees, but they also make their way back to the employers. One area is improved employee morale. Those employees who are able to take paid time off during a baby’s first months or when a severely ill family member needs them are far more likely to remain content and return to their jobs with renewed enthusiasm when the leave ends.

Paid family time also extends to fathers, which benefits the entire family, adds Linda Scott, owner of eFrog Press. “I have seen the benefits of family paid leave in person," Scott says. "When I worked at a state university, both parents were entitled to paid leave. Fathers I knew really seemed to enjoy having the extra bonding time to spend with their infants.”

In addition to sending a positive message to those employees who use paid family leave, such benefits also communicate to other employees that the company is concerned about their overall well-being. This investment in human capital by small-business owners is likely to increase employee morale overall.

Drawbacks of Paid Family Leave

Providing paid family leave to employees is not without its drawbacks for small businesses, notes Henry Hutcheson, president of Family Business USA and author of Dirty Little Secrets of Family Business. "Family leave policies, while certainly beneficial for new parents and individuals with sick family members, can place a burden on smaller businesses. The drawbacks are two-fold: smaller businesses, because they are small, are financially impacted more than larger corporations. At the same time, as the policies are at a state level, such policies could become added to the list of reasons why some companies may relocate to other states."

Family leave policies are particularly burdensome if the leave must be paid for by the business owner. For those owners in states with publicly funded paid maternity leave laws—including California, Hawaii, Rhode Island, New Jersey and New York—the economic impact isn’t as major, though it’s still necessary to pay for the training and salaries of fill-in workers.

If your business is in any other state, you are obligated by law to offer all employees 12 weeks of protected family leave, meaning their jobs are secure until they return. You’re currently not required to provide any paid leave to those employees who take time off, although some companies choose to do so in order to keep valuable employees happy. This can in turn have a long-lasting, positive impact on job performance.

"Incurring additional financial obligations is very hard for small businesses, however, investing in good employees is a good long-term investment," says Hutcheson. "With the unemployment rate dropping and good employees [being] hard to find, businesses that offer this type of benefit show that they are investing in employees and that attracts and retains high-quality employees."

Given the many good reasons to provide paid family leave to employees, it makes sense for small-business owners to do their best to offer at least some compensated time off. For instance, voluntarily paying for one or two weeks of pay will show employees that you care about their well-being.

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Photo: iStock