and Sue Campbell
Last year, Bora Architects, a mid-sized firm in Portland, Oregon, realized a valued employee was facing an unpaid parental leave. While many of the firm’s 65 employees are architects who could somehow manage to stay financially afloat for twelve weeks without pay, their receptionist, a single mom and one of the lowest paid employees in the firm, could not.
As two women in leadership positions who had become some of the first women to successfully return to work after the births of their children, Principal, Amy Donohue and Chief Financial Officer, Dawn Ridenour, felt it was time to explore a paid leave option. They knew it was the right thing to do, and had a strong suspicion it was not only financially feasible, but financially beneficial as well.
Donohue and Ridenour set about crunching some numbers. Could they afford paid leave for everyone? If so, what would it look like? Could they extend it beyond a parental leave benefit to include all forms of family leave? They hoped so.
Their cost benefit analysis is instructive for any firm looking to provide improved family leave benefits. They have agreed to share the details of their analysis publically, to help other companies facing the same decision.
Let’s break it down, step by step.
Gather Historical Data
Ridenour poured back through data from the previous 5 years and looked at the number of family leave events that had occurred. The firm wanted to look at providing paid leave for all events covered by the Oregon Family Leave Act, which offers job protection, but no paid leave. They found they had an average of four such leaves per year.
With those numbers in hand, Ridenour calculated the cost of paid leave benefits for a variety of scenarios to determine what was financially feasible for the firm.
- Full salary for twelve weeks
- Full salary for six weeks
- 60% salary for twelve weeks
- 60% salary for six weeks
Ultimately, Bora decided to offer a 60% benefit because it matched a standard short term disability policy and was in line with the paid leave benefits offered in California, New Jersey, and Washington. They also adding a vesting period to reward employees who’ve been with the firm the longest.
Ridenour also got a quote for short term disability coverage, for the sake of cost comparison. Her calculations showed that offering a 60% paid leave benefit for all family leave events was only slightly more than expanding short-term disability coverage for all employees – a difference of about a thousand dollars. And a company benefit would cover more employees and events than a standard short term disability policy, which doesn’t cover paternity leave, for example.
Look for Savings Offsets
Principals of the firm had short-term disability coverage. The idea of expanding that coverage for the whole firm was a non-starter, as it wouldn’t cover all family leave events, such as paternity leave. But Ridenour realized that canceling this coverage could offset some of the cost of providing paid leave for the entire staff.
Ridenhour wanted to ensure her estimates were realistic, so the final set aside would meet demand for the leave and not cause any nasty financial surprises down the road.
While her data showed the average cost for offering six weeks of leave at 60% of salary would run about $14,000, a high year could cost as much as $21,000. She used a historical high year as the basis for her recommendation.
According to the Center for American Progress, the cost of replacing an employee can run from half to up to two times the annual salary for that position. Donohue says that while retention concerns were a secondary consideration for offering paid leave, they were definitely a factor. “We’re a project based business. We lose a huge amount of intellectual capital when someone leaves. We really invest a lot in our employees and losing someone has direct effect on the quality of our work,” says Donohue.
Not to mention that architecture, like other STEM careers, suffers from a lack of gender diversity. Offering paid family leave could be a huge differentiator for Bora when trying to recruit women to the firm and keeping them after their transition to parenthood.
Ridenour’s analysis showed that replacement costs for one employee far exceed to total cost of paid leave for all employees annually. Ridenour, again wanting to be conservative, used a figure of half the annual salary, meaning it could cost Bora $40,000 to replace just one employee, compared with a total cost of $20,000 annually to provide paid leave for all employees. The final decision was a no-brainer.
Make it a Line Item
Bora’s annual budget now reflects a $20,000 set aside for paid family leave. Two employees are currently taking advantage of the offering and another is set to begin leave early next year.
Donohue and Ridenour are working to spread the word on family leave affordability and impact to their professional peers. “This is the right thing to do, it’s affordable financially, and we figured out how to do it,” says Donohue. She hopes other firms, large and small, follow Bora’s lead.
Support a Broader Solution
Without guiding legislation at the national level, employers are creating their own parental leave solutions that works for both parents and companies. Smart businesses will become part of the broader social effort around paid leave. We recommend learning more about proposed legislation either locally, or nationally, and getting involved. For example, the FAMILY Act, currently in congress, is designed to take the financial burden of paid leave off of small business owners by creating a social insurance program that covers employee pay when they need to take family leave.