Managing Director & Partner
A growing number of companies are moving to provide paid family leave for their US employees—and they're not all in industries you might expect. In addition to technology, financial services, and professional services firms, such organizations include food and beverage manufacturers, retail and food services companies, and even the US Department of Defense. And while paid family leave has traditionally been available only to birth mothers, companies are now making their policies much more expansive (covering all types of employees) and inclusive (covering all parents, all types of families, and a variety of personal events, such as the illness of a family member).
Why the shift? To answer this question BCG reviewed the policies of more than 250 companies and interviewed 25 HR leaders at large organizations. Our finding: employers see a solid business case for offering paid family leave, including benefits such as improved talent retention and attraction and their own ability to manage the costs of the program through thoughtful policy design.
The Changing Dynamics of Paid Family Leave
The US is one of just eight countries—and the only member of the Organisation for Economic Co-operation and Development—with no national policy mandating paid maternity leave for workers. To date, only three US states (California, New York, and Rhode Island) have implemented paid family leave programs, and five states (California, Hawaii, New Jersey, New York, and Rhode Island) guarantee workers' access to paid temporary disability leave In the rest of the country, the only related benefit is provided by the Family and Medical Leave Act, which ensures 12 weeks of job protection—but not pay—for some employees of companies with a workforce of more than 50. Meanwhile, there is widespread consensus on the benefits of the policy for workers and their families, including improved health for children and higher wages for working mothers.
Absent a federal paid family leave policy, it is primarily employers that determine whether employees have access to paid time off to care for a new child or an ill family member. The result: only 14% of the US workforce has access to employer-sponsored paid family leave. Coverage has increased just 3 percentage points, from 11% to 14%, since 2010, and coverage is concentrated among certain segments of workers. Workers in the highest income quartile are three and a half times more likely to have access to paid family leave than those in the lowest income quartile. Similarly, coverage is three times greater among full-time workers than among part-time workers. (See Exhibit 1.)
These disparities are particularly noteworthy because—while all employees stand to benefit from paid family leave policies—low-income and part-time employees are likely to gain the most.
Demand Is Increasing
Three shifts have caused an uptick in demand for paid family leave policies. First, far fewer families have a stay-at-home parent who can care for a newborn or newly adopted child or an ill family member. Second, the increasing participation of women in the workforce has contributed to changes in caregiving and particularly in parenting, with men taking a more hands-on role. Third, an increasing portion of the workforce is helping to care for aging parents—a trend that is only expected to intensify.
The bottom line: there are fewer households with a full-time caregiver, both parents are increasingly involved in caring for their children, and the burden of caregiving overall is growing.
Diverse Industries Are Responding
The movement to offer or expand paid family leave began in industries such as technology, financial services, and professional services, where competition for small pools of talent, and hence salaries, are both high. For example, according to data from the Bureau of Labor Statistics, paid family leave coverage in finance, insurance, and information, as well as in professional, scientific, and technical services, grew by more than 10 percentage points from 2010 to 2016. While coverage is still low even in these sectors—no more than 40% in 2016—the percentage of workers able to take advantage of such policies is significantly higher than in other industries. (See Exhibit 2.)
Over the past two years, however, paid family leave has begun to gain ground in sectors with lower average wages, such as manufacturing, accommodation and food services, and retail. The policies now offered by Hilton, Union Square Hospitality Group, and IKEA, among others—as well as by companies in technology, financial services, and professional services—also tend to be more equitable and generous than those that were typically offered in the past. Many provide equal time off to men and women, and most also cover their entire US workforce—that is, both hourly and salaried workers, regardless of job function.
The Business Case for Paid Family Leave
While it's not a surprise that paid family leave is good for workers, we found that these policies deliver significant business rewards as well:
The Tradeoff Between Costs and Benefits
In EY's study, companies without a paid family leave policy cited cost as their principal concern in adopting one. So what do companies that have implemented such policies say?
First, companies report that the rewards outweigh the costs, particularly compared with those of other benefits they could provide. Given the difficulty of quantifying the benefits of a paid family leave policy, few of the companies we studied relied on a pure economic calculation when making their decision. That said, empirical evidence does suggest that among companies that have implemented such policies, paid family leave has generally helped or had no effect on their bottom line. In EY's study, for example, 92% of companies with a paid family leave policy reported that it had a positive effect or no effect on profitability. At the same time, the retention benefits of paid family leave can offset its costs. Those costs vary widely by industry, but a 2012 review found that replacing an employee typically costs around 21% of his or her salary.4
Second, companies with paid family leave policies have been able to manage the costs of their programs through thoughtful design. Many of the company HR leaders we spoke with—and particularly those outside of the technology, professional services, and financial services industries—stressed that they focused on a few key requirements, such as covering their entire workforce or making the policy available to all types of families, including adoptive parents or same-sex couples. They then adjusted the number of weeks, the level of wage replacement, or the flexibility of the policy to fit their business. In this way, they designed policies that met their business context as well as their workforce needs.
Lessons from the Leaders
Deciding to offer paid family leave is only the first step. The company then has to design the program, ensure a successful implementation, and track outcomes such as usage rates, costs, and benefits. Our research suggests that there are five main imperatives in designing a paid family leave policy:
Certainly, not every organization will conclude that it makes sense to cover the costs of paid family leave, and a national policy would almost certainly be required to provide full and equal access to the benefit for all US workers. Those companies that do provide paid time off, however, stand to gain significant benefits. They will likely see employees more willing to remain with the company, reducing turnover costs and potentially increasing the diversity of leadership teams. They may be able to attract more talented workers. And they may also find that a more generous paid family leave policy helps translate the organization's values into action, enhancing internal engagement and the company's brand.
The full version of this report can be downloaded here.