Why Parental Leave Insurance is a Better Option for Your Customers
Parental leave is the third most requested benefit for US workers, but with no universal parental leave requirements, there are limited options for how businesses can provide this important benefit to their employees. In this blog, we’ll unpack the four most common parental leave options for US businesses and explain why parental leave insurance is a better alternative.
What is the Purpose of Parental Leave?
Parental leave is a benefit designed to financially assist employees who become parents, and ensure job security while they take time off work to care for a new child. If an employee becomes a parent and needs time off to bond with their baby, parental leave could cover a portion of their salary until they return to work after a certain period of time.
Because the U.S. has no national requirements for parental leave, options can vary widely by state, and often have caveats, exclusions, and limitations. For example, some options don’t cover adoptions or foster care, or exclude fathers. While the federal Family and Medical Leave Act (FMLA) applies nationwide, it only guarantees unpaid leave, which limits its usefulness to working families.
Parental leave is a significant DEI issue for retaining and acquiring employees who may become parents—especially female employees. Nearly 30% of working women quit their jobs after giving birth, and 66% of employees said that paid parental leave is an important factor to them when they are deciding whether or not to accept a job offer. In states that do require paid parental leave, the rate of mothers leaving the workforce dropped 20-50%.
Parental Leave Options Available to Parents Today
The leave options available to U.S. businesses and prospective parents can vary widely based on location, length of employment, and more.
Family and Medical Leave Act (FMLA)
The Family and Medical Leave Act of 1993 (FMLA) is a federal requirement for companies with 50 or more employees within a 75-mile radius of the company to offer their employees 12 weeks of job-protected unpaid leave due to childbirth. As a federal law, the FMLA act makes this leave available to parents in all 50 states whose employers meet the requirement, but the key word is unpaid leave.
While these federal protections ensure new parents have a job to come back to, most employees cannot afford to take 12 weeks of unpaid leave regardless. This makes taking FMLA leave a non-starter for many prospective parents.
Short-Term Disability (STD)
Short-term disability (STD) is a benefit that covers temporary medical issues that prevent an employee from working. Typically, STD covers things like non-job-related injuries, illnesses, or other medical issues that workers' compensation does not cover, and pays a portion of the employee’s salary during the claim period.
STD is often selected by companies as a potential way to address parental leave, but it has several shortcomings. First, in every state besides California, New York, Rhode Island, New Jersey, and Hawaii, STD is a voluntary benefit that employees have to pay into. That means that outside those five states, employees would have to anticipate their potential parenthood and plan for it before open enrollment. If an employee were to unexpectedly become pregnant or bring a child into their family, they would not have access to this benefit. In some cases, an employee who wants the benefit added after open enrollment can undergo a medical review to determine if they are eligible, but not all companies offer that option.
Another drawback is that STD coverage usually only applies to pregnant mothers, which leaves a significant portion of parents ineligible. Additionally, the amount of time an employee can take on leave is based on the number of days they’re worked at the company. This is a problem for newer employees who would want to take leave because it can exclude them from coverage entirely.
Some employees can benefit from applying for private STD coverage, and in some cases, they can combine their private STD coverage with what is offered by their employer. However, that is frequently a complicated application and coverage selection process. It requires employees to jump through several hoops to receive the coverage and paid benefits they need.
State-Funded Paid Leave and PTO
While the U.S. has no national paid parental leave solution, a minority of states offer programs to help fill the gap. These programs can offer considerable benefits over STD, but often fall short of providing a complete solution.
Let’s start with the benefits. Unlike STD, state-funded leave usually is more inclusive of what it means to be a parent, and often includes fathers, adoptive parents, and foster parents. In many cases, state-funded leave also allows employees to take off more time than what's offered by short-term disability. Some states even require employers to offer paid or unpaid leave to employees.
For companies whose employees are all based in states with leave programs, this can be a helpful support for offering paid parental leave. However, since only a few states currently offer state-funded parental leave, these programs will be of limited help to larger companies with employees scattered across the U.S.
While state-funded leave programs generally offer more flexibility and extensive coverage than STD and FMLA, there can be drawbacks for parents as well. States may require doctor’s notes and official medical examinations, and different states have different limits on leave, percentages of salary reimbursements, time off requirements, etc. Even for parents who live in states that provide these programs, the time off and level of reimbursement offered might not meet their needs.
When state-funded leave falls short, parents can sometimes supplement the program by banking PTO days to fill in the gaps. However, this can be problematic for some employees. Banking enough PTO days for parental leave requires serious planning ahead, which doesn’t always benefit those who might become pregnant unexpectedly. Additionally, depending on the company’s PTO accrual policies, this may only be available to employees who have been at the company long enough to bank a significant amount of PTO hours.
On the company side, state leave places a greater emphasis on internal HR or administrative teams to manage these benefits. Every state has different laws, so managing employees across multiple states and different programs can be tricky. Ensuring compliance requires very specific legal expertise, knowledge of each state’s rules and regulations, and systems in place to follow them correctly. Not every HR team has the expertise or bandwidth to handle those responsibilities, and it can be expensive to hire the necessary specialists.
Company-Funded Paid Leave
Finally, some companies who offer paid leave to employees simply pay for it themselves. This requires the business to set aside money for employees who may become parents in order to pay them while they are out of office. It could also double expenses if the company needs to hire temporary replacements for the employee on leave. That would mean that both the temporary employee’s salary and a portion of the employee on leave’s salary would be coming out of the company’s pocket.
For many SMBs this option is far too expensive to afford on a sustainable, equitable basis. It can also be extremely difficult to forecast and budget for. How many employees will take leave in a particular year, and how much money needs to be set aside?
In short, most parental leave options leave something to be desired, be it inclusivity, pay, availability, or affordability. Employers have traditionally had limited choices for how they can provide this much-needed benefit, but there’s a new option that’s picking up steam —parental leave insurance.
What is Parental Leave Insurance?
Boost’s parental leave insurance is a first-of-its-kind business insurance designed to make parental leave affordable for small and medium businesses (SMBs).
How Parental Leave Insurance works
As someone who partners with or caters to SMBs, you can offer the parental leave insurance product to your customers. By purchasing this commercial insurance product, your SMB customers can customize the level of benefit that they want to offer to their employees. This includes factors like what percentage of the employee’s salary will be covered and the length of leave the SMB will offer.
Once your customer is satisfied with their package, they buy the policy from you and pay a recurring premium based on their selected benefits and employee demographics. When a covered employee takes parental leave, your customer will file a claim through your claims process. The customer will then be reimbursed for the cost of paying their employee during the covered leave period, as spelled out in the parental leave insurance policy.
Parental Leave Insurance: Comparative Benefits
When comparing parental leave insurance to the existing options, there are many areas where elective, state, federal, and company-funded solutions fail but parental leave insurance thrives, including:
Affordably increases top talent attraction and retention
For prospective employees with highly valuable skills and experience, benefits are the real differentiator for jobs. For companies to stand out from the competition to attract and retain the best talent, they need to offer great benefits that employees actually want. Parental leave insurance enables companies to affordably offer a highly desirable benefit: reliable, comprehensive, and inclusive parental leave programs.
Eliminates large, unexpected leave expenses
Parental leave insurance provides predictability to a typically unpredictable financial dilemma. Instead of trying to estimate how many employees will need paid parental leave, forecasting their salary payments, reserving capital, and funding a paid parental leave program internally, your customers can pay a set amount in premiums and avoid surprises.
Reduces internal HR admin requirements
In comparison with STD, FMLA, and a mixture of state-funded leave and PTO, parental leave insurance is much simpler for employees to receive and understand their benefits and easier for internal teams to manage. Especially for smaller HR teams or companies who have employees across multiple states, this can be a huge time-saver and incentive to get started with parental leave insurance without the administrative burden of state or federal options.
Inclusive of all parents
The alternative options like STD often only apply to pregnant mothers. Dads, foster parents, adoptive parents, and others are frequently ineligible. But Boost’s parental leave insurance product covers all employees in the event of the birth of a child (natural or surrogacy), or the adoption or foster placement of a child into their home. Parental leave insurance provides equal benefits to parents regardless of their gender identification.
If you partner with small to medium businesses, offering parental leave insurance to your customers can help differentiate you from the competition. By providing your clients with this unique insurance product that can increase their employee retention and productivity, you can enhance your brand as a leader in your space. Establish your brand as one focused on employees’ well-being, while helping your customers do the same.
If you want to learn more about growing your customer LTV with Boost’s Parental Leave Insurance, contact us.