Sustainable Businesses Embrace Family Leave Solutions for Employees

The face of the American workforce has undergone a dramatic transformation since the early 1950s, when about one-third of American women were worked as opposed to almost 90% of the men. In 2016 57% of women were working while the percentage of men in the workplace had slipped significantly to a little under 70%. This shift has transformed the American workplace and allowed women to come forward to launch new companies, invent new products and services and become more economically self-sufficient. Life in American homes has also changed radically with the roles of both women and men changed forever. However, many problems remain unresolved: women are still under-represented among senior executives and entrepreneurs; the median female wage is just 80% of that of men, a percentage that is lower than the average among OECD countries; and, in general, American companies are still not required to provide paid family leave to parents when a child is born, a shortcoming that stands in stark contrast to the OECD average of 54 paid weeks off—in fact, the United States is the only OECD country that does not guarantee some form of paid maternity leave.

Interestingly, considering how little they agree, both major candidates for President in 2016 have expressed support for some type of paid leave for parents following the birth of a child: Clinton proposed 12 weeks of paid leave and universal preschool and Trump became the first Republican nominee to propose paid family leave (six weeks) and help for child care. While these initiatives are not extensive as some would like, and would probably face fierce opposition from a Congress in which Republication control at least one of the chambers, they do represent an important step in addressing labor market troubles that have persisted due to a continuing failure to deal with changes in family structures. It should be noted that the federal government, and many states, have required employers to allow some employees, both women and men, to take up to 12 weeks’ unpaid leave for the birth or adoption of children, or to care for a sick family member, with assurance that they would not lose their job; however, for many families it is impractical to go that long without some form of payment, even if it’s only a portion of the wages they would have otherwise received.

While economists have certainly been involved in convincing lawmakers about the merits of paid family leave, they are turning more and more to talking directly to businesses about why it makes sense for them to implement leave policies voluntarily and collaborate with both employees and local governments to come up with share solutions that make sense for all involved stakeholders and not unreasonably compromise the economic performance of the organization.  Researchers have found evidence that family-friendly policies boost labor supply through higher participation of women in the labor force, increase wage rates, improve the lives of struggling families, boost workers’ productivity, reduce absenteeism, and reduce the costs that companies would otherwise have to incur to replace workers—estimated to be between 15% to 20% of annual pay–who must leave the company altogether if no leave policy is in place. Family leave contributes to the development of sustainable human capital for companies by facilitating reentry of valued and experienced workers back into the organization, thus reducing the loss of institutional knowledge that is difficult to replicate. While workers generally return to their jobs at their old salaries, some studies have found that wages often increased quite quickly for mothers who have returned to their jobs after taking a leave. Other research suggests that more flexible work rules reduce absenteeism and increase productivity. In fact, when Google increased its paid maternity leave from 12 to 18 weeks in 2007, the rate at which new mothers left the company fell by half.

The minimum obligation of companies to their employees is to abide by applicable legal standards in key areas and activities including, when they have been implemented, laws and regulations pertaining to family and medical leaves.  However, sustainable entrepreneurship and socially responsible human resource management is based on the proposition that employers have an obligation to exceed legal standards when forging relationships with their employees and take steps to ensure that employees are treated with dignity and value and that their contributions and hard work brings both financial and non-financial rewards. Socially responsible employers assist employees who need to balance work with their obligations to take care of their children and elderly parents (e.g., by providing on-site day care, referral services for elder care and adopting flexible policies regarding working remotely and required arrival and departure times).

The issues surrounding “family leave” need to be addressed in a manner that acknowledges that the traditional principles of company performance, which focused primarily on what is best from an economic perspective for the owners of the company, are inadequate and unfair. Simply put, human capital is not a commodity and relationships between companies and their employees and families should not be not be governed by the same market forces that apply to commodities.

One of the core subjects of ISO 26000, the guidance on social responsibility for businesses issued by the International Organization for Standards, is “labor practices” and within that topic ISO 26000 calls on employers to respect human development in a number of ways including respecting the familial responsibilities of workers and providing policies and programs, such as parental leave, that can help workers achieve work-life balance. Also instructive is the obligation on employers to engage in social dialogue with respect to their labor practices including negotiations, consultations and information sharing between employers and employees (and their representatives).

Google’s paid leave policy mentioned above was not implemented because any government told it to do so, and large companies such as Google are certainly better positioned to absorb the costs of a leave program. However, smaller businesses, including startups, do need to think twice about the short-term financial impact of a leave policy and implement their policies intelligently. How can it be done? Here are some thoughts for sustainable entrepreneurs looking to develop family leave solutions for their employees and their businesses:

  • Analyze the demographics of the current team and projected hires, taking care not to make too many assumptions about age, gender or other factors that might expose the company to discrimination claims, to estimate the impact of a family leave policy over a reasonable planning period.
  • When setting the leave period, take into consideration any applicable legal requirements and “industry standards” set by larger companies engaged in similar businesses.
  • Consider establishing an “insurance program” that will help fund the anticipated costs of the leave program before the time comes for payouts to employees on leave.
  • Engage early and often with investors to make sure they understand how the policy will work, the justifications for the policy and the projected impact of the policy on all relevant measures of performance (not just economic performance).
  • Establish continuous dialogue with employees regarding the leave policies and establish mutual expectations include commitments from employees to remain engaged with the company during their leaves and continue to develop their skills while away.
  • When hiring and promoting, consider the skills that will be needed in order to fill in for employees who are on leave.
  • Establish a program for “re-boarding” employees who are returning from leaves and making sure that they are able to make an easy transition back to full-time employment, including assistance with child care etc.
  • Engage with employee representative and local government to implement social insurance policies that can ease the burden of leave programs on companies (e.g., small businesses pay into a fund that employees can draw from when they take their leaves).
  • Involve employees in decisions above the structure of the leave program, particularly when problems arise in implementing the program.
  • Make leave programs part of a broader discussion regarding other work-life balance policies such as job splitting, flex-time and support for daycare for children or elderly dependents.
  • Senior executives needs to set the proper “tone at the top” regarding their enthusiasm for, and encourage of, employees taking advantage of leave opportunities so that employees do not feel they will be penalized for taking a leave.
  • Monitor the impact of the leave policies, including reduced costs of replacing employees, and report the results regularly to relevant stakeholders.
  • Celebrate successful leave experiences to help transform organizational culture and position the company as a “family-friendly” employer in the eyes of prospective employees.

Sources: All in the family: America does little to help people’s work-life balance. Enter Heather Boushey, The Economist (September 10, 2016); Trump Unveils Plan to Expand Aid to Parents, The New York Times (September 14, 2016), A1; R. Perez-Pena, Comparing Trump’s and Clinton’s Child Care Plan, and Those in Other Countries, The New York Times (September 15, 2016), A16; K. Doerer, “How much does it cost to leave the workforce to card for a child? A lot more than you think” (June 11, 2016); S. Pathe, How Paid Parental Leave Helps You, Your Newborn and the Job Market (January 3, 2014); P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), 30-31; Handbook for Implementation of ISO 26000, 29-30.

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Dr. Alan S. Gutterman is the Founding Director of the GSE Project (“Growth-Oriented Sustainable Entrepreneurship”) (gseproject.org) and the Business Counselor Institute (businesscounselorinstitute.org). Further information about Alan is available at his LinkedIn Profile and more materials relating to the subject matter of the post can be found here.

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