When Weighing the Cost of Paternity Leave, Don’t Neglect Its Benefits

When Weighing the Cost of Paternity Leave, Don’t Neglect Its Benefits

In an opinion piece published last weekend, Bloomberg columnist Anjani Trivedi made the economic case for paternity leave, arguing that organizations too often overestimate the costs and neglect the financial upsides of offering parental leave to both mothers and fathers. “The real question,” she points out, “is what the cost would be of replacing that employee,” and paid leave is usually cheaper, Professor Jody Heymann of UCLA’s Fielding School of Public Health and WORLD Policy Analysis Center, tells Trivedi. Considering that parental leave and other family benefits can have a major impact on employee retention, and that the costs of replacing an employee can rise to as much as twice their annual salary, universal parental leave policies may well save more than they cost.

The growing number of employers offering gender-neutral parental leave benefits in recent years reflects the fact that employees, whose opinions count more than ever in the tight labor markets of the US and other advanced economies today, are more sensitive to the availability of paternity leave: Our latest benefits perceptions research at CEB, now Gartner, finds that globally, an additional two weeks of paternity leave improves employee perceptions of rewards to a greater degree than the same amount of additional maternity leave.

In the US, which unlike most countries does not legally mandate paid maternity leave, employees are still more responsive to changes in leave for mothers, but even there, Millennial men who are now starting families are more interested than their fathers were in being actively involved in raising their children. However, many of these men don’t have access to paid parental leave or feel pressured by their peers, their managers, or their own financial concerns not to take advantage of this benefit even when they are entitled to it. The absence of family-friendly benefits like parental leave and flexible work arrangements already drives many working mothers out of the full-time workforce; if fathers do the same, the case for such policies becomes even stronger than it already is.

Trivedi also points to the value of gender-equal parental leave in closing the gender pay gap. When women are expected to play the role of primary parent and take time off work to care for their children, while men are not, mothers’ incomes tend to stagnate while fathers’ incomes increase. Gender imbalances in parental leave, coupled with a lack of flexibility for working parents, often put mothers in the position of putting their career progression on hold during their children’s early years, contributing significantly to the pay gap.

A point worth adding to Trivedi’s argument is that gender pay inequality is a concern for employers as well as for working women. The legal, ethical, reputational, and bottom-line concerns motivating organizations to address their gender pay gaps are not going away, so there is a strong business case for taking every available step to close those gaps today. Furthermore, our research has shown that each year an organization delays in addressing the gap, the cost of closing it increases—to the tune of as much as half a million dollars a year for a large company. (CEB Total Rewards Leadership Council members can read our full study on pay equity here).

Parental leave policies that apply to mothers but not fathers also carry other risks with implications for the bottom line. For one, regulators and courts in some countries are growing more inclined to treat such policies as discriminatory. In the US, the Equal Employment Opportunity Commission pursued at least two major lawsuits last year challenging policies that offer additional leave to mothers or “primary caregivers” (an ostensibly gender-neutral term that nonetheless usually means mothers). In the UK, meanwhile, legal questions of parental leave equality are still working themselves out in the court: Employment Appeal Tribunal issued two related rulings this year, finding that while employers are allowed to offer birth mothers additional paid leave benefits beyond what they provide to other new parents, fathers who receive less parental leave at full pay than mothers do may be victims of indirect discrimination.

Finally, at a time when the fairness of large companies’ benefits policies are subject to greater public scrutiny than ever before, employers are beginning to perceive benefits inequality as a liability for their employer and consumer brand. On the flip side, some companies are equalizing benefits for mothers and fathers (or for hourly and salary employees, or for regular employees and independent contractors) and leveraging those changes as brand assets, counting on the boost to employee, candidate, and customer perceptions to ultimately outweigh the cost of implementing them.