Scaling up Your Benefits: The Next Wave of Paid Parental Leave

Parental leave – and specifically, paid parental leave – may be a trending topic, but it is a relatively new phenomenon in the U.S. The Family and Medical Leave Act (FMLA), which was first signed into existence in 1993, solely offers parents job-protected, unpaid leave. To this day, the U.S. is the only OECD (Organisation for Economic Co-operation and Development) country that has not passed laws requiring paid maternity, paternity, or parental leave. 

Yet, over the past several decades, we have seen a large push to improve family-leave benefits – both at the state level and by corporations themselves. Within the tech and software sector – especially amongst larger companies – we are witnessing more-generous and often paid parental leave.

Take Netflix, which offers an outstanding full year of paid leave for both parents – and that includes adoptive parents.  

As a ScaleUp, it can be quite difficult to navigate paid parental leave. Today, HR leaders must consider several factors such as the length of their leave policy, benefit level (i.e., fully or partially paid), and eligibility. We’ve outlined five key considerations HR leaders must weigh when establishing their parental leave policy:

1. Take into account the size of your company and industry trends.

The first factors to consider when determining your leave policy are your organization’s size, as well as broader industry trends. 

How much paid leave can you afford, and what does paid leave actually cost you? What are the industry standards, and what are your competitors’ policies? This includes both competitors in the software and tech space, as well as any non-tech recruiting targets. The answers to these questions are a great basis for your parental leave policy. 

When weighing what your company can afford, it’s important to consider:

• Your future growth goals. Think about the number of employees who will be eligible for this benefit in 2-3 years, not just today’s headcount. 
• Your direct costs. Analyze the payroll cost of paying this benefit. What is an estimated average salary times X number of paid weeks? Do you have a state benefit to reduce costs? What percentage of your workforce has requested maternity/paternity leave to date? Use this information as a baseline to forecast future usage. 
• Your indirect costs. Evaluate any lost productivity due to an employee’s absence, as well as how this impacts customers, peers, and vendors. Also, identify the administrative cost for explaining and managing your parental leave policy.

Remember that this type of policy cost analysis is as much art as science.

As far as industry trends, tech and software companies that grant paid parental leave tend to offer anywhere between 6 to 12 weeks paid. 

Smaller organizations tend to skew toward the lower end of this range, or they will offer 6 weeks fully paid and reduce to partial pay (50-60%) for the remaining weeks or allow the employee to supplement the leave with paid time off. 

Larger companies, on the other hand, tend to offer policies at the higher end of the spectrum and often provide full pay for a longer duration.  

From a competitor standpoint, you might want to offer a more robust leave policy as a means of attracting and retaining top talent. If you decide to implement a policy that is lesser than your competitors’, it is important to note that it could be a potential competitive disadvantage when recruiting or retaining top talent. 

2. Determine eligibility. 

Leave policies today don’t just focus on birth mothers. 

HR leaders need to consider whether the same policy extends to:

• Fathers/spouses
• Adoptive parents
• Foster parents
• New guardians 

Depending on state law, some employers might have the option to offer higher benefits to birth mothers, tying it to the “disability” of giving birth versus the gender of the employee.

However, most tech and software organizations choose to pay both birth and adoptive mothers and fathers equally and often for the same duration of time. This avoids some of the complexities and messaging difficulties that arise when differentiating birth mothers from spouses, parents who adopt, or new guardians. 

Similarly, companies need to weigh the length of time an employee has been with their organization. You can align eligibility with federal or state eligibility laws, select an amount such as 6 months, or simply state that the child must be born, adopted, or awarded guardianship during the employment period. 

3. Weigh the administrative burden on your HR and payroll team.

When developing your parental leave policy, you must consider the implications for your HR and payroll teams.

More-complex policies that offer higher benefits to birth mothers versus father/spouse, adoptive parents, or new guardians will put more administrative burden on your team. This includes the time it takes to explain the benefit to employees along with the time to manage the pay.

Additionally, you need to consider the documentation requirements for your policy. Most organizations require a few forms: a simple leave request form and then any completed Family Medical Leave Act (FMLA) forms, company-provided short-term disability (STD) or state benefit forms as additional documentation.

Even if you outsource your FMLA/leave administration, you will need a weekly report or regular communication back to HR and payroll to address your policy payments.

4. Coordinate with federal and state paid and unpaid leave laws. 

There are several laws both on the local and federal level that will likely impact your leave policies. 

Companies that employ over 50 individuals, for example, will need to comply with federal laws, such as the FMLA. This act entitles birth mothers, fathers/spouses, adoptive parents, or new guardians of covered employers to take unpaid, job-protected leave for 12 weeks during a 12-month period. 

More recently, the federal government also enacted the Families First Coronavirus Response Act (FFCRA), which is in effect until December 31, 2020. The Act includes two regulations: the Emergency Family and Medical Leave Expansion Act (EFMLEA) and the Emergency Paid Sick Leave Act (EPSL). 

FFCRA requires certain public and private employers with fewer than 500 employees to provide employees with up to 10 weeks of partially paid leave and 2 weeks of full pay or partially paid leave, depending on the reason for the absence. One of the most notable parts of this Act is that it offers coverage for eligible employees who need to take leave to care for a child (under 18) whose school or childcare provider is closed or unavailable due to COVID-19. In most cases, this is an expansion of – not in addition to – the FMLA.

Additionally, small businesses with fewer than 50 employees may be exempt from providing this emergency leave if the leave requirements would jeopardize the viability of the business. However, if your business does qualify for this emergency leave and if childcare is currently suspended in your employee’s state, you may need to coordinate your pay and policy with this law too.

Beyond the federal laws, you will also need to ensure compliance with state paid leave laws and income programs as well. Some states (e.g., CA, NJ, NY, RI, CT, MA, WA) have laws offering job-protected family leave and most offer a state-administered paid benefit for some, or all, of the job-protected leave.  

Although more complicated to administer, employers should require employees to apply for federal or state paid leave benefits and coordinate the paid parental leave policy to supplement government benefit(s) to achieve full pay. There are significant cost savings to organizations that take this approach. Additionally, all job-protected leave should run concurrently with leave from your paid parental leave policy.

As always, be sure to consult with your legal teams to ensure compliance with federal and state laws.

5. Coordinate with your other policies and benefits (e.g., PTO, STD).

You should also consider how your leave policy works in relation to your other policies and benefits. 

If you offer unlimited paid time off (PTO, vacation sick), for example, you must specifically note it excludes leaves of absences. Without this language, your organization may be required to provide full pay to employees for absences that you did not intend when you wrote your policy. 

If instead, you allow employees to “bank” unused sick time and/or you provide a short-term disability benefit, you need to be clear in your Paid Parental Leave policy how those benefits and policies coordinate to provide pay. 

The trend toward more robust paid parental leave is not going away any time soon. ScaleUps need to better understand what factors to weigh and how to implement a parental leave policy that not only works best for their organization but also helps them remain competitive in attracting top talent. While complex to navigate, these five considerations are a great place to start when developing your policy. 

For specific questions or guidance around your company’s parental leave policy, please contact HRonCall@InsightPartners.com or leverage your partners on Insight’s GO portfolio platform.