The Potential Costs of Paid Family and Medical Leave
Many companies considering PFML cite the cost as their #1 concern. However, as highlighted in Why Paid Family Leave is Good Business, companies with these benefits find the program expenses are manageable and the program's value exceeds its cost, especially relative to other employee benefits that could be provided.
Primary Components of PFML Cost
I. LABOR REPLACEMENT
- Who will be eligible for PFML?
- What will the utilization rate be?
- Which jobs would require temporary coverage, and what is their average annual pay?
- How much do temps cost?
II. LOST PRODUCTIVITY
- Do you expect any workforce productivity loss while salaried employees are on leave?
- While hourly workers are on leave?
Estimating Your Company's PFML Cost
Arrive at a rough estimation of your PFML costs based on your proposed policy structure and workforce details.
1. Define the parameters of your PFML policy
- Will you offer parental leave? For what duration?
- Will you offer caregiver leave? For what duration?
- Will you offer medical leave? For what duration?
- If offering parental leave, will it be given to all new parents (mothers & fathers, birth/adoptive/foster parents)? Will paid maternity leave run in parallel with or after short-term disability, if applicable?
- What will be the rate of pay replacement (e.g., 100%)?
- Will you cover all employee types (e.g., salaried and hourly)?
2. Determine how many employees will be eligible for the benefits
- How many U.S. employees work at your company?
- Will you distinguish between employee groups (e.g., primary vs. secondary caregivers, salaried vs. hourly employees)? If so, how many employees fall into each relevant cohort?
- Will you attach a tenure requirement to your policy (e.g., eligible for PFML after one year with the company)? If so, how many employees will be eligible?
3. Estimate the rate of policy utilization by eligible employees
- For parental leave: how many employees do you expect to become parents in a year?
- Leverage available company data on workforce births per year (note: organizations have complete data on maternity more frequently than paternity)
- If this data is incomplete or unavailable, estimate birth rates based on average workforce age if possible (reference the latest CDC births report)
- For caregiver and medical leave: how often do you expect employees to request caregiver or medical leave?
- Leverage any existing company data on caregiver or medical leave needs in your workforce, if available
- Reference any data gathered via surveys or focus groups, if applicable
4. Calculate expected replacement costs
- Which jobs will require temp replacement during periods of leave, and which can be covered by the existing workforce during leave?
- Note: Company experience suggests hourly workers often require temp replacement. Salaried workers can typically be covered by peers – however, certain roles such as executive assistants may require a temp replacement
- What are average employee salaries, by relevant cohort? (those requiring temp replacement, and those not requiring a temporary hire)
- What will a temporary worker cost compared with the employee on leave (consider training/hiring costs, temp staffing firm fees, any benefits, etc.)?
- For work coverage by existing employees, what (if any) overtime expenses do you expect to incur?
5. Consider the cost of any lost productivity
- With an employee on leave, it is possible that you will incur productivity losses if their work is done less efficiently or at a later date?
- Based on your industry/company-specific operating model, do you expect any productivity loss from policy utilization?
- Keep in mind that there are many ways to pre-empt/minimize productivity losses, such as facilitating a leave transition meeting where future roles and responsibilities are clearly delineated.
Sample Labor Cost Estimation Calculator
For a preliminary estimate of your annual PFML labor replacement costs, download the spreadsheet calculator at right. You will be prompted to enter your proposed policy parameters and workforce characteristics.