How Should a Small Business Handle Parental Leave?


Although the U.S. is a highly developed country, the US government’s work/family policies have not changed since 1993, when the Family and Medical Leave Act (FMLA) passed. We are the only developed country without any required paid parental leave. (FMLA entitles employees 12 weeks of unpaid leave with an equivalent position available on return.)

Even so, most large companies provide six weeks of paid leave, usually covered by a short-term disability insurance plan. Such insurance only works economically for companies with an employee base so large that many people might be out at the same time. FMLA applies to companies with over 50 employees, so smaller enterprises, which comprise over 50% of US businesses, need to create their own policy.

I run one such company — a growing, 11-person investment management firm — and this is a challenge I’ve been grappling with: how can we offer fair parental leave or flexible work policies to retain talented employees while also covering our costs and making sure our workflow remains on track?

The research on this is inconclusive, and mostly focused on country-wide statistics or on large firms. Scandinavian policies provide evidence that generous parental leave and work schedule flexibility translates into greater participation of women in the labor force. While there is mixed evidence of this resulting in more female executives at top levels than the 14% in the US, the data does indicate that mothers do continue to work, at least part-time, in Norway, Sweden and Denmark. The debate rages about whether these policies discourage subsequent full-time employment or actually set women up to re-engage full time and move into higher level positions.

Our company’s goals include retaining talent, preserving our investment in those people we have trained, and keeping those who work well with clients and colleagues. We also desire a diverse workforce, which we believe is preferable in making investment decisions, serving our customers, and building an enjoyable and well-rounded corporate culture. In a small firm, the retention of any one emerging key player can be more meaningful than for a large corporation. However, these goals come with costs.

When I had four children, all under age four, my company gave me an eight month leave, after which I came back full time, eventually managing a $10 billion mutual fund. When Nancy, a managing partner of a major law firm, had her second child, she worked three and then four days per week for years, until she was comfortable returning full time. George, the CEO of a small investment company, offers mothers re-entering after a leave a reduced schedule. Three quarters of them eventually came back full time. This and many other examples suggest that employer flexibility does lead to women returning and advancing at the same company.

The question is whether a small business should articulate a policy, or whether our best approach is to offer each person a customized plan. Spelling out all benefits in writing could be a useful recruiting tool, but could require delivery of equally generous plans to people of varying value to us. For that reason, we have chosen to explain that we offer a mix of set and customized work/family benefits. We see this as fair to our employees and to ourselves, as a small enterprise.

In eight years, no woman at our firm has yet had a baby, although three men have become fathers. We have not had any explicit paternity leave, but I now feel that we should offer a fixed amount of time off for fathers, probably two weeks. Women physically bear the burden of having children, so although expensive, a six week paid leave is probably the appropriate level to be competitive.

Greater complexity arrives after the initial leave, when the primary caregiver, either the mother or father, needs a longer leave or a more flexible or reduced schedule. Big corporations contain redundancies, which allow colleagues to cover for each other over a period of months. Without that luxury, small companies must hire long-term temp replacements for administrative, research, investment, trading, or other positions. Other costs include management time and effort and the risks of errors or a poor cultural fit.

Since we and other firms offer an annual allowance for continuing education, we might offer the same amount for child care over a specific duration. The greater the expected value or contribution of that person to the organization, the more attractive the package. The government should consider a credit for firms offering these benefits despite the lack of legal requirement.

Recently, a young woman in our office documented a cash withdrawal from an account in a thorough manner. There was a snafu at the custodian’s end that could have cost us many tens of thousands of dollars and might have been disputed, if our colleague hadn’t been so thorough. That expertise is very valuable, which we should keep in mind as we craft a policy for anyone needing leave or flexibility in the future. Particularly at a small company, the costs of being inclusive and pursuing an egalitarian ideal are more immediately tangible than the benefits. It’s up to the management to carefully weigh these expenses against intangibles that pay off handsomely in the long run.