Passing a law promising paid family leave could save companies big in turnover costs.
Working families have much to celebrate this Mother’s Day as city councils and state legislatures across the country take up President Obama’s challenge to provide parents with paid time off so “they can afford to be there when their families need them most.” California, New Jersey and Rhode Island now provide paid maternity and paid family leave so parents can bond with a newborn or adopted child. Nineteen cities plus Connecticut, Massachusetts and California now allow workers to earn a few days of paid sick leave. Still, much remains to be done.
Employers understand that paid leave helps their companies with recruitment and retention, improves productivity, and reduces costly turnover. Indeed, employer-provided paid leaves are quite common for workers in the top quarter of the earnings distribution; 84% have paid sick days and 91% have paid vacation. Fewer than a quarter, however, get paid family leave, though most managers and professionals can cobble together at least some paid-time off for the birth or adoption of a child.
Among workers in the bottom quarter of the earnings distribution, though, 70% do not have even one paid sick days, barely half (49%) get paid vacation, and just 5% get paid family leave. Across the earnings distribution, 43 million private sector workers are without any paid sick days. These are the workers the President noted who “can’t even get a paid day off to give birth to their child.”
The Family and Medical Insurance Leave (FAMILY) Act would go a long way toward remedying this inequity. With only a small contribution from employers and employees, the FAMILY Act would create a national insurance program to provide partial wage replacement for workers for up to 12 weeks due to for pregnancy, child birth or their own serious health problem; to care for a new child; to cope with the serious health problem of a family member; or for specific military caregiving. Because the costs are spread out over the entire workforce, the program would require only a small contribution from employers and employees.
The FAMILY Act would be a boon for businesses as well, including those that employ low-wage workers. In our study of California’s paid family leave program, Professor Ruth Milkman and I found that paid family leave reduced turnover of workers in lower paid jobs. And, as we found in that study, worker turnover in those jobs is far more costly than most employers realize. There are problems with the way in which many employers calculate turnover costs. In one particularly memorable case, the top corporate human resource manager of a national retail chain with high turnover reported very low costs to replace sales staff that quit. It turned out, however, that the HR manager had failed to include a major expense: the salaries paid to the company’s staff of college-educated recruiters employed to replace workers that quit. We also found that employers often fail to account for the time it takes newly hired workers to get up-to-speed. Workers are paid full salary, but may be functioning at less than top performance while they learn the ropes.
That experience inspired us – with colleagues at the Center for Law and Social Policy – to create a turnover calculator that employers and HR managers can use to calculate their own turnover costs. The CEPR-CLASP turnover calculator makes it possible to vary wages, weekly hours, and recruiting and hiring costs to calculate the cost of turnover for different categories of workers. Employers can use the actual wages paid and hours worked by their employees as well as time spent screening, selecting and interviewing job candidates, checking references and doing background checks; time spent in orientation; and the time it takes for workers to become proficient in their jobs.
To illustrate the cost of turnover, we used $13.22 an hour for hourly paid employees and $47.46 an hour for salaried employees. Plugging these wages into the turnover calculator and making reasonable estimates for the time spent hiring an hourly-paid worker yields a turnover cost for this worker of $4,299. Costs multiply rapidly if turnover of lower-paid workers is high – rising to $42,991 if 10 workers quit during the course of a year. The turnover cost if a salaried (exempt) employee quits in this example is $26,624.
A federal paid family and medical leave program that guarantees paid maternity leave and paid time to bond with a newborn or adopted child would be a great Mother’s Day present to America’s working families – and a gift to employers as well.
Eileen Appelbaum is a senior economist at the Center for Economic and Policy Research and a visiting professor at the University of Leicester in the United Kingdom.