Why It Pays To Have A Paid-Leave Strategy

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OVERVIEW

Rising health care costs have been on the minds of executives in recent years. However, many executives – especially in the United States – have been overlooking some increasingly important elements of a company’s cost and benefits equation: paid leave and its evil twin, absenteeism.

“The rest of the world is ahead of the United States when it comes to paid time off for employees to care for their families,” says Julie Norville, Senior Vice President and National Absence Management Practice Leader at Aon.

Without an effective paid, family-leave program, employees will resort to taking unscheduled and unpaid time off. This day-of absence could mean higher costs to cover for lost productivity and bigger headaches for managers. According to the Bureau of Labor Statistics, lost time costs U.S. employers 9.4 percent of payroll, while health care costs 8.6 percent.

Despite the costs of absenteeism, many companies aren’t taking a comprehensive approach to managing various types of paid extended leave – including those types that affect other areas of the balance sheet, such as workers’ compensation and disability-related costs. Having a broader understanding of the entire costs related to absence could help reduce overall costs, improve talent retention, and give the employer brand a reputation for being family friendly.

“Leave policies such as parental or caregiver leave shouldn’t be viewed in silos as they intersect with other programs like the U.S. labor law, the Family Medical Leave Act, sick leave and short-term disability.” says Norville. “Employers should address time-off programs holistically and across the full spectrum.”


In Depth

Managing paid leave is about more than just tracking employees’ days off work. Rather, comprehensive paid leave works to prevent and address absences, help employees return safely to work, and allow businesses to manage the financial as well as operational aspects of employees’ time away. As such, paid leave has a direct impact on all aspects of the business, including overall workforce costs, productivity, and even employee engagement. Therefore, creating competitive, affordable leave programs benefits both the organization and the talent supporting the organization.

The Mutual Benefits of Comprehensive Paid-Leave Management

Companies can capture an array of benefits by taking an enterprise-wide approach to managing paid leave. Norville asserts, “Those in charge of benefits know how much they’re paying for disability. The risk management team knows how much they’re paying for workers’ compensation claims. But the organization lacks a comprehensive view of what time away from work – regardless of the reason – is costing the organization in total.” Gaining this view promises a few key benefits.

But the organization lacks a comprehensive view of what time away from work – regardless of the reason – is costing the organization in total.”
– Julie Norville, Senior Vice President and National Absence Management Practice Leader at Aon
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Avoiding business disruption

Certain industries in the United States, such as manufacturing and health care, have found their operations adversely affected by unexpected absenteeism. “Since such skilled, scheduled work environments depend on a basic number of employees to keep the business running,” Norville explains, “these businesses have to pay to have someone replace the person who is out. One hospital reported that paying nurses overtime for filling in for absent coworkers cost the hospital $2.3 million per two-week pay period. Implementing a system that manages employee assignments more accurately as well as policies that support workers can reduce the costs of such business disruption.”

Attracting and retaining employees across generations

As workforce demographics shift, the mix of generations working in U.S. companies is also putting pressure on companies to consider implementing a paid-leave policy.

“Baby boomers have also entered ‘the sandwich generation,’ since they’re having to care for both their parents and children. These familial responsibilities require time off.” And, according to Norville, “these employees are asking their employers for it.”

Younger generations are even more outspoken. “Millennials are the emerging voice around paid leave,” says Norville. “They represent more than 60 percent of the workforce today, and they do not believe that work is the center of their world. They feel that work has to be balanced with time off and time to care for their children.” Together with the voices of the baby boomers, both generations – for different reasons – are forcing organizations to rethink their approaches to time off.

“Millennials are the emerging voice around paid leave.”
– Julie Norville, Senior Vice President and National Absence Management Practice Leader at Aon
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A 2016 Aon Workforce Mindset Study found that 61 percent of respondents across generations see better-than-average benefits as a key factor in deciding whether to work for a particular employer. “Due to the pressure to attract talent, the high tech and financial services sectors in the United States currently have the most generous benefits,” Norville explains. Meanwhile, other sectors, such as health care, are falling behind in adding important leave benefits that attract talent.

Companies that have increased their paid-leave benefits have experienced improved employee retention. For example, Google’s attrition rates sunk when it extended its paid maternity leave from 12 weeks to 18 weeks. And executives found that the cost of changing the policy was covered: fewer employees left, which meant that the company was saved the expense of finding and training replacements.

Enhancing brand and reputation

Paid-leave management can be considered an investment in brand and reputation, says Norville. Companies that properly manage absence with comprehensive benefits packages are likely to receive a better reception. For example, listening to employee feedback about its existing leave policy, Amazon launched two programs to support new parents. The Leave Share program allows employees to share up to six weeks of parental leave with their partners, and the Ramp Back program eases employees back into the workplace with a reduced schedule over an eight-week period. The move has landed Amazon in many complimentary headlines, thus reflecting positively on the brand.

Reaping tax advantages

Many countries, especially in Europe, offer tax advantages to parents taking time off work for family care. And now in the United States, the recent U.S. Tax Cuts and Jobs Act is providing businesses another reason to think through their benefits offerings: Eligible companies that offer employees paid family and medical leave can now qualify for a significant tax refund.

The U.S. tax reform law, enacted in December 2017, applies to organizations that have already instituted or are adding paid family leave. While the law does not require companies to offer leave, as this is covered by the Family and Medical Leave Act (FMLA), it does incentivize those that have programs in place. The law offers up to a 25 percent tax credit to employers who offer paid leave of up to 12 weeks per year. This matches the unpaid FMLA allotment and similarly matches the definition of family leave under FMLA.

Rethinking Paid Leave from the Top Down

While absence management used to fall exclusively on the HR and risk-management functions, increased publicity and a growing understanding of the entire spectrum of time-off needs and associated costs is causing the c-suite to progressively become more involved.

Once a company understands the issue and the risks of inaction, it can begin working to create a culture of proactive strategy. The most proactive and ambitious companies are working to develop global leave policies. Compliance is complicated and impedes many organizations with global locations from instituting such policies. According to the National Conference of State Legislatures, as of January 2018, just four states – California, New Jersey, New York and Rhode Island – provide paid family leave. Washington, DC, and Washington state have passed legislation on benefits that will begin in 2020. This number is expected to continue to rise. Still, “It’s really hard to create one, global paid family leave that you can get in any country,” notes Norville. This step may be the next and biggest hurdle for companies on the journey to create a comprehensive time-off and leave strategy globally.

The Future of Paid Leave

With incentives in the new tax law, and the regulated sick- and family-leave initiatives in a growing number of states, it’s possible the United States could soon be on the path to matching paid leave around the globe. In the meantime, it continues to fall to employers to monitor best practices, assess their absence risks and costs, and build a strategic plan that supports the organization’s goals as well as employee needs.