The United States is one of the only wealthy countries in the world that does not have mandatory paid family leave policies. Recently, President Biden announced the American Families Plan, which proposes that employers be required to provide 12 weeks of paid family and medical leave to their employees. In this analysis, AdvisorSmith examines the proposal and its impact on small businesses. We also conducted an informal survey of small business owners to understand their opinions about a paid family and medical leave program.
What is President Biden’s proposal for paid family and medical leave?
The American Families Plan proposes a national paid family and medical leave program, which will replace a portion of employee wages when employees take leave. Under the current proposal, workers can be paid between two-thirds and 80% of their normal weekly pay, with a cap of $4,000 per month while they are on leave. Although the specifics have not been clarified yet, it is likely that this leave will be funded through a tax credit given to employers by the federal government.
What percentage of small businesses offer paid family leave?
15% of employees at small businesses with under 100 employees have paid family and medical leave, according to the U.S. Bureau of Labor Statistics.
Small businesses with under 100 employees account for 5.1 million businesses, which is 97.5% of all businesses, and 43.4 million workers, which is 34.8% of the private-sector workforce.
What can paid family and medical leave be used for?
Under the American Families Plan proposal, paid family and medical leave can be used by employees for any of the following reasons:
- Bonding with a new child
- Caring for a seriously ill loved one
- Dealing with a loved one’s military deployment
- Finding safety from sexual assault, stalking, or domestic violence
- Healing from one’s own serious illness
- Dealing with the death of a loved one
How will small businesses pay for paid family and medical leave?
President Biden’s proposal for paid family and medical is currently being debated in Congress, so the full details of the final paid family and medical leave program are still unknown. Based on the proposal so far, the federal government will likely fund the benefit by giving tax credits to businesses to cover their costs for the paid family and medical leave program. It is possible that the federal government may mandate small businesses to pay for some portion of the paid family and medical leave benefit.
What will be the impact of paid family and medical leave on small businesses?
To help understand the impact of a paid family and medical leave program on small businesses, AdvisorSmith conducted an informal survey of small business owners to understand their perspectives. Adding a requirement for businesses to offer paid family and medical leave has a number of both positive and negative effects on small businesses.
Small business owners expressed the following positive sentiments about the paid family and medical leave program:
- Expressed that it is a benefit that their employees value and would find helpful.
- Paid family and medical leave improves employee morale and improves retention.
AdvisorSmith’s review of existing research on family and medical leave found that when employees have access to paid family and medical leave, they are more likely to return to the workforce after having a child, which increases a company’s retention. As recruiting new employees is a significant cost for many small businesses, offering paid family and medical leave can in some cases reduce a small business’s overall employment costs.
In our informal survey, small business owners expressed a number of concerns about a mandatory paid family and medical program. Chief among these concerns were:
- The cost of paying for a paid family and medical leave program in part or full was a primary concern for small business owners.
- Small business owners also expressed concerns about hiring and staffing plans while employees are out of leave, with a larger impact on smaller employers where every employee makes a critical contribution.
- Recordkeeping and the administrative burden of a family and medical leave program was another concern from small business owners.
A paid family and medical leave plan also introduces several new burdens on small businesses. If Congress does not fully fund the paid leave benefit but still requires employers to shoulder some of the financial costs associated with paid family and medical leave, small businesses may face costs associated with the leave.
Additionally, from an operations perspective, small businesses may face additional costs or operational difficulties finding other employees or temporary workers to cover for employees while they are out on leave. These challenges are especially acute for smaller businesses that may rely on just a few key employees, as 56% of businesses have 4 or fewer employees. Finally, mandatory paid family and medical leave creates a new recordkeeping burden for small businesses to track leave and eligibility for leave.
Natalie Sullivan, the CEO of an HVAC service company, had this comment about the potential impact of a mandatory paid leave policy on small businesses:
While Biden’s plan is well-intentioned, I think the impact on small businesses could prove to be harmful if the needle is not properly threaded with the amount of pay and the amount of time.
The price of implementing a lengthier paid time program, both for labor costs and financial planning, would force us to make cuts to our staff or slow down our growth model.
It is important to give people flexibility when something unexpected happens, and I agree with the President that paid leave should be more common nationwide, but there are unintended consequences for blanket, top down solutions (especially for small businesses).
According to a poll conducted by the Bipartisan Policy Center, about 60% of small business owners and executives support providing paid family and medical leave.
Are small businesses currently required to offer family and medical leave?
Under the existing Family and Medical Leave Act, which was passed in 1993, businesses with 50 or more employees are required to offer up to 12 weeks of unpaid family and medical leave to employees to take care of a new child, for illness, injury, or to care for an ill or injured family member. When an employee returns from leave, they are entitled to return to their same or equivalent job.
Currently, the Family and Medical Leave Act’s requirements to offer unpaid leave only apply to 5.2% of private sector businesses in the United States, or approximately 272,000 employers. These businesses account for 72.9% of private-sector employees, or 90.7 million workers.
- U.S. Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in the United States
- White House, Fact Sheet: The American Families Plan
- Bipartisan Policy Center, Survey of Small Business Views on Paid Family Leave
- U.S. Bureau of Labor Statistics, Distribution of private sector employment by firm size class
- U.S. Bureau of Labor Statistics, Distribution of private sector firms by size class