The Small Business Case for Paid Family and Medical Leave: Fact Sheet

Overview

At some point, nearly everyone needs time away from work to recover from a serious illness or care for a sick loved one or new child. Yet the majority of working people in the U.S. cannot take the time they need without risking their jobs or economic security.

The Family and Medical Leave Act (FMLA) is the only national law providing family and medical leave, but it has some glaring issues: 1) It only applies to businesses with 50 or more employees, excluding roughly 40% of workforce; and 2) It guarantees only unpaid leave, which millions cannot afford to take.

The Problem

Only 13 percent of the U.S. workforce has paid family leave through their employers, and less than 40 percent has personal medical leave through an employer provided temporary disability program. Workers of color, and especially women of color are less likely have access to paid leave from an employers.  There is no national insurance system in place to facilitate paid leave, and only California, New Jersey, Rhode Island, New York, Hawaii, Washington state, Massachusetts, and Washington DC, have enacted state/municipal level paid family and medical leave insurance systems.

Small businesses who do not offer paid leave may struggle to retain talented staff. A small business owner may also jeopardize the health of their business if they themselves need to take leave to recover from a personal illness, or care for a seriously ill loved one or a new child.  Paid family and medical leave laws make paid leave affordable and accessible to small business owners, leveling the playing field between small businesses and large corporations, which wield the market power to give good benefits to top managers but are squeezing everyone else with low-wage, uncertain jobs.

The small business case for the FAMILY Act and similar state PFML insurance systems

  1. Paid family and medical leave improves workforce stability, strengthening small business bottom lines.
  • Paid leave improves employee the retention and recruitment of employees, which saves small businesses money through reduced turnover costs. Replacing workers is expensive: Turnover costs are estimated to average  one-fifth of an employee’s annual salary.  And when employees don’t have access to paid leave, they are more likely to need to leave their jobs. Paid leave reduces these turnover costs and encourages valued workers to stay in the labor force and with the same employer.   
  • In California, where a state paid family leave program has been in place since 2004,  87 percent of employers report positive or neutral effects of the program on turnover, productivity, profitability and employee performance and morale; and nine percent indicated that the program had generated cost savings for their businesses by reducing employee turnover and/or reducing their own benefit costs.

 

     2. Paid leave improves employee morale and loyalty, increasing productivity.

  • According to Harvard Business Review, a majority of the most successful companies report that exemplary benefit programs strengthen employee loyalty and morale, increasing worker productivity. These factors correlate with a better bottom line.
  • Research indicates that paid leave can also improve business productivity.  A recent EY survey found that more than 80 percent of businesses that offer paid family leave report a positive impact on employee morale, and more than 70 percent report an increase in employee productivity.
  • In California, virtually all employers (99 percent) reported that the state’s program had positive or neutral effects on employee morale.
  • Likewise, several New Jersey employers noted that the state’s paid leave program helped reduce stress and improve morale among employees who took leave and their co-workers.

 

     3.  Access to paid family and medical leave levels the playing field for small businesses so they can compete with large corporations and to recruit and retain talented employees.

  • Paid leave helps level the playing field between small businesses and large corporations. With modest bottom lines, small businesses  often have trouble matching more generous paid leave benefits offered by larger employers – resulting in a hiring disadvantage. In the current labor market, that means losing talented employees to larger employers, which wield the market power to provide paid leave to top managers. When all employers abide by the same rules, the playing field is more level.
  • Paid family and medical leave insurance programs are a reasonable and affordable way for businesses to support and retain workers when serious family and medical needs arise.  They create an insurance pool that is generally funded through small employer and employee contributions. This spreads the cost of leave, reducing the burden on individual employers without creating significant new administrative burdens.    
  • When an employees or small business owner needs to take time away from work, they can draw enough income from the fund to get by until they’re back on their feet.  Employers can use the salary of their on-leave workers as they see fit; they can use it to hire a temporary replacement, invest it in their business or save it for another use.
  • Paid leave helps level the playing field between small businesses and large corporations, which have the market power to give good benefits to top managers but are squeezing everyone else with low-wage, uncertain jobs.

 

     4.  Paid family and medical leave increases women’s earnings and labor force participation

  • New mothers who take paid leave are more likely than mothers who do not take paid leave to be working nine to 12 months after giving birth,  promoting economic stability and opportunity for families, reducing recruitment and training costs for employers, and expanding the nation’s tax base.
  • In the year following a birth, new mothers who take paid leave are 54 percent more likely than mothers who do not to report wage increases and 39 percent less likely to need public assistance. Fathers who take paid leave are also less likely to need public assistance.

 

     5. Paid family and medical leave improves health outcomes for children, sick adults, and seniors, reducing health care costs.

  • New mothers are better able to initiate and continue breastfeeding, and new parents can more easily get babies to the doctor for check-ups and critical immunizations, improving newborn and child health.
  • Seriously ill children recover faster when cared for by their parents. The presence of a parent shortens a child’s hospital stay by 31 percent.  Active parental involvement in a child’s hospital care may head off future health care needs and costs, especially for children with chronic health conditions.  
  • Paid leave allows workers to care for older family members with serious health problems, a responsibility becoming more common as the population ages. Currently, 48 percent of family caregivers who take time off to meet care responsibilities lose income. Paid leave would help loved ones recover from illness, fulfill treatment plans, and avoid complications and hospital readmissions, which can help lower health care costs.

 

    6. Paid family and medical leave provides critical financial security for small business owners themselves.  

  • Small business owners themselves need paid family and medical leave.  They, too, have new babies, ailing partners or parents, and often cannot afford to take even unpaid leave.  Their cushion maybe razor thin, and a single accident or a medical emergency could jeopardize the health of a small business. With a PFML insurance program, a small business owner would have a guaranteed revenue source while out on leave, and could to take care of themselves and their family, without risking financial ruin.

 

    7. Paid Family Medical Leave goes right back into the local economy, boosting consumer demand at small businesses, as workers spend their increased earnings to cover the basics.

  • When individuals do not have access to paid leave, it impacts their spending and consumption patterns. When they take unpaid leave, workers give up income they need to pay bills, buy groceries, and support their families.
  • Workers who take unpaid or partially paid leave reported putting off spending, which means not just hardship for families, but also lost income to small businesses. Business owners cite weak sales as the biggest problem for their business and the economy.  Ensuring that workers have their consistent wages means that consumer demand doesn’t go lax with each illness or family event or emergency.

 

    8. Evaluations of existing state PFML programs demonstrate that PFML doesn't increase costs for small businesses, and is feasible to implement.

  • A survey of California employers revealed that 87 percent confirmed that the state program had not resulted in any increased costs, and 60 percent report coordinating their benefits with the state’s paid family leave insurance system – which likely results in ongoing cost savings.
  • The New Jersey Business and Industry Association found that businesses large and small, have adjusted easily to the state’s paid leave law. And nearly two thirds of small businesses (65 percent) – which might have been concerned about stretching other employees too thin or relying too heavily on employees to work more hours – reported no increased overtime pay costs because of the law.
  • In Rhode Island, a study of small- and medium sized employers conducted after the state’s program came into effect found no negative effects on employee workflow, productivity or attendance; the majority of employers surveyed said they were in favor of the new program.

 

    9. Small businesses support PFML

  • In a 2016 survey conducted by Main Street Alliance of more than 1,500 small businesses, found that strikingly, 64 percent -- including 76 percent of women and people of color-- supported passing a federal PFML bill.  However, 84 percent could not afford to offer paid leave on their own.
  • Another poll of small business owners found that seventy percent support the FAMILY Act, federal legislation that would establish a national paid family and medical leave insurance program funded by employee and employer contributions.

 

A national solution: The FAMILY Act and state PFML insurance systems

 

The Family And Medical Insurance Leave (FAMILY) Act (S. 337/H.R. 947), sponsored by Rep. Rosa DeLauro (D-CT) and Sen. Kirsten Gillibrand (D-NY), would create  an affordable, self-sustaining national family and medical leave insurance program.

The FAMILY Act would provide workers with a portion of their wages for up to 12 weeks in a year, to address their own serious health condition, including pregnancy or childbirth; to deal with the serious health condition of a parent, spouse, domestic partner or child; to care for a new child; and/or for specific military caregiving and leave purposes. Benefits would amount to 66 percent of an individual’s monthly wages, up to maximum benefit of $4,000 per month.

The FAMILY Act is funded responsibly by small employee and employer payroll contributions of two tenths of 1 percent each (two cents per $10 in wages), or less than $1.50 per week for a typical employer and employee, which is less than the cost of a cup of coffee a week.  Small-business owners and employees alike would be eligible to withdraw incomes when needs arise. Small business owners contribute and receive benefits based on their self-employment income.

The contributions would go into an insurance fund, and a new Office of Paid Family and Medical Leave would be established within the Social Security Administration (SSA) to administer the program. Contributions would cover both benefits and administrative costs.

More information on the FAMILY Act can be found here:

http://www.nationalpartnership.org/research-library/work-family/coalition/family-act-faq.pdf

 

Paid Family and Medical Leave Principles:

MSA’s survey of over 1,500 businesses found that any PFML proposal must adhere to the following principles to work for small business:

  • All individuals who work should have the ability to earn extended leave from work to care for their families or themselves, without fear of losing their job.  
  • Any PFML policy must be financed in a way that is affordable and cost effective for small business owners and their employees.
  • Any PFML policy must be comprehensive and specific in addressing serious family and medical needs.
  • An inclusive family definition should be used to cover the range of family configurations and care responsibilities that business owners and their employees face.
  • The PFML implementation process should be simple and minimize the administrative responsibilities of small business owners.

 

The FAMILY Act adheres to all of the above principles.