Paid Family Leave and Small Business: The Upside

August 21, 2019
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When states started passing paid family and medical leave laws, many employers predicted the programs would be bad for business. Small business owners were especially worried.

But paid family leave has turned out to be good for many businesses, large and small.

The Evidence

Research from states that have passed these laws, and data from small-business owners in these states, shows paid family leave has not harmed most businesses.

  • 87% of employers of all sizes said that the California Paid Family Leave law did not result in any cost increases.1
  • A survey of 259 employers of various sizes in New Jersey showed that 65% of small businesses reported no increased overtime costs.2

In fact, paid family leave may have positive effects on recruitment, retention, productivity, and performance and profitability. Offering this benefit improves an organization’s reputation as a great place to work with family-friendly benefits. Paid or unpaid time off for new parents shows an employer’s commitment to closing the gender pay gap, which family leave policies improved.3

Plus, paid family leave is in demand.

  • 69% of people say new fathers should receive paid leave.
  • 82% say new mothers should receive paid leave.4

Competing with Larger Businesses

Small-business owners know that most workers will need time off at some point to take care of a child, a parent or themselves. But these employers often don't have the resources to provide paid leave to their employees.

This situation puts them at a disadvantage when trying to compete with larger companies. It can create higher employee turnover rates or lead to losing out on talented candidates.

But with government support and new leave laws, small businesses are better positioned to compete for talent.

Research on employee compensation shows that smaller employers can use benefit packages to compete with larger companies for talent. This research also found that companies with between 10 and 19 employees are stepping up to offer paid leave. These employers are more likely than those with 20 to 249 employees to provide paid time off, including vacation and maternity leave.5

Employers with more than 50 full-time employees within 75 miles of the company’s work site must offer Family and Medical Leave Act benefits. But owners of small businesses not subject to the FMLA can tailor maternity and paternity leave programs to make them a good fit for both the company and its employees, which can help with employee recruitment and retention.

Unexpected Result: Lower Employee Turnover

A survey of 120 employers in New York showed that businesses with flexible leave policies had significantly lower turnover. And turnover can raise costs for business.

  • A review of 30 case studies on employee turnover showed the cost of replacing an employee was about 20% of that worker’s annual salary.6
  • Replacing a professional can cost as much as 150% of that person's annual salary — much more than what it costs to pay the employee during a leave of absence.7

Only 12% of U.S. companies with fewer than 100 employees are offering paid maternity leave.8 Providing this kind of benefit can help a small employer stand out when trying to attract and keep employees.

State Laws Provide Perks for Small Businesses

Besides the lack of harm and the positive outcomes, there’s more good news. When states began passing paid family leave laws, lawmakers knew small businesses had concerns. So they made sure to build perks for small employers into the legislation.


Businesses with 50 or fewer employees working in Washington state do not have to pay their portion of the premium.

Grants are available for small businesses. These funds help cover the costs of hiring temporary employees when a member of their team uses Paid Family and Medical Leave. Businesses must average 150 or fewer employees to be eligible for these grants. Businesses that average fewer than 50 employees must pay the employer portion of premiums to be eligible.

Learn more about help for small business in the Revised Code of Washington.


Small employers with fewer than 25 employees do not need to send the employer premium portion. But they must continue to collect and send premiums for employees.


Employers with fewer than 25 employees are exempt from paying their portion of the premium for Paid Family and Medical Leave.

The reporting from small employers and the research are both great news. Paid family and medical leave hasn’t caused harm for small businesses. In fact, the evidence shows positive outcomes not only for employees — but also for businesses of all sizes.

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