Small Businesses’ Fear of Risks, Costs Curbing Family Leave Benefits

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By Genevieve Douglas

When Rick Leibowitz owned bagel shops in Columbia Gorge, Ore., he gave his employees paid vacation, an unusual benefit for small businesses in the food service industry. It paid off by enticing top employees to work at his shops, he said.

“I wanted low employee turnover because there were costs to recruitment and training. I used this benefit to recruit and retain the best workers,” Leibowitz told Bloomberg Law.

But “a lot of small businesses don’t have that insight to do long-range planning and fiscal analysis to see the plus side of providing those benefits,” Leibowitz has observed in his current role as regional director for the Columbia Gorge Small Business Development Center, which provides free consulting to area businesses. “The cost of low productivity, recruitment, and training will be significantly higher than that small percentage the paid leave costs.”

This dynamic is even more apparent when it comes to paid family leave. The U.S. Bureau of Labor Statistics found that in 2017, only 15 percent of private-sector and civilian workers had access to employer-provided family leave. Yet a majority of small to medium-size employers in states with family leave mandates support those laws, researchers from Columbia, Stanford, and the University of Virginia found.

So what’s stopping employers from offering workers paid family leave? The lack of a federal mandate is one reason, Christopher Ruhm, professor of public policy and economics at the University of Virginia’s Frank Batten School of Leadership and Public Policy, told Bloomberg Law. Only California, New York, New Jersey, Washington, Rhode Island, and the District of Columbia have some form of paid family leave.

Employers that offer comprehensive paid family leave often stand out among competitors without that benefit. Here’s the Catch-22: Employers who offer these benefits may be attracting employees who plan to use it, which could put a strain on the employer financially, Ruhm said. If all employers are required to offer paid leave, then the associated costs are spread out, he said.

Fear of Compliance, Rising Costs

The complexities of paying for family leave benefits and ensuring compliance with rules and regulations also can overwhelm smaller businesses, Leibowitz said.

Small-business owners often don’t have formal training in human resources and must “learn on the fly” how challenging it is to manage employees, their needs, and compliance factors, he said. Formal leave policies can “scare” employers—they fear they’ll run afoul of the law, Leibowitz said.

Compliance requirements can equal real dollars. The average small business spends at least $10,000 per employee in regulatory compliance versus $7,700 per employee for large businesses, Leibowitz said. “And that’s just on the federal level.”

The costs “are very apparent,” while the benefits of providing things like paid family leave can be harder to calculate, said Ruhm. The cost of employee turnover can be hard to calculate relative to the clear cost of providing paid family leave, he said. “If companies were fully accounting for the benefits, they might see the worth, but they aren’t necessarily seeing that.”

Groups like the National Federation of Independent Business say formal leave policies work against small-business needs.

“Small-business owners know personally each of their employees and their families, and most offer paid time off on a case-by-case basis, providing the employee what he or she needs in a way the business can afford,” the group said in an analysis of Washington state’s paid leave mandate. Mandatory paid leave doesn’t take into account the flexibility small businesses need, it said. “Such initiatives assume one size fits all. In the small-business world, what works in one company could be detrimental for the next,” NFIB said.

Changing Tide for Big Employers

Large employers, however, are beginning to see the advantages of providing comprehensive caregiving leave, Vicki Shabo, vice president for workplace policies and strategies at the National Partnership for Women & Families, told Bloomberg Law.

Workers at large private-sector employers are more likely to have paid family leave available, according to BLS National Compensation Survey data, with 23 percent of workers at employers with 500 or more employees having the benefit (up from 17 percent in 2010). But only 9 percent of workers at employers with fewer than 100 employees have paid family leave.

Companies also continue to expand family leave programs or create new ones, Shabo said, and high-profile organizations like Levi Strauss, the Honest Company, and Patagonia support federal paid leave legislation.

Shabo said the rise of millennials in the workplace will only make the demand for paid family leave stronger.

“Millennials are looking for more family-friendly policies for women and men, and are demanding that of their employers,” she said.

There’s also an economic value that accrues to the business and economy when women can stay in the workforce. “Those benefits are important for women and men,” Shabo said.

Ruhm said employee demand will likely continue to drive adoption of paid family leave. “We are seeing increasing numbers of employers offering this, and I think that is partly because it has become such a salient issue and employees are asking for these benefits.”

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