The Hidden Costs of Cutting Employee Benefits

You may have seen the headlines: organizations are cutting back on maternity and paternity leave. In the midst of record inflation and a looming recession, organizations of all sizes are slashing employee benefits, with parental leave taking the brunt of employers’ fiscal anxiety.

According to SHRM’s annual Employee Benefits Survey, employers ranked leave benefits as “very” or “extremely” important, yet parental leave “returned to pre-pandemic levels of prevalence.”

Cutting employee benefits hurts working parents

What makes this news so disappointing is the fact that more organizations began offering maternity and paternity leave during the pandemic, recognizing for the first time that working parents need more resources and help than we’ve traditionally considered. The pandemic brought to light numerous challenges working parents face, and eager to hold onto employees, organizations added and expanded parental leave benefits to attract and retain talent.

Now that the pandemic has receded, so, too, have those benefits. Here’s how these gains have been taken away from working parents. The number of organizations offering paid:

• Maternity leave dropped to 35% (from 53% in 2020) 
• Paternity leave dropped to 27% (from 44%)
• Adoption leave dropped to 28% (from 36%)
• Foster child leave dropped to 22% (from 28%). 

As SHRM reports, “These declines seem to indicate that the increases in paid parental leave prevalence during the early stages of the COVID-19 pandemic could be attributed to the direct needs created by the pandemic. Now that many businesses have returned to a more typical way of operating, employers seem to be dialing back on expanded parental leave opportunities.”

Cutting benefits doesn’t cut costs—it costs even more

Organizations might think that reducing benefits is a sensible solution to fiscal challenges—but that’s incorrect. In fact, slashing employee benefits is a sure way to jeopardize your workforce and increase expenses throughout your organization.

How? Employee turnover. When workers no longer receive the benefits they need, they go elsewhere. 

These benefits are necessary for parents to work

After all, we’re talking about essential benefits. And when it comes to working parents, leave isn’t the only essential benefit—working parents also need child care benefits to find, secure, and save on care.

These are benefits that allow working parents to spend essential time with their children and ensure that they can go to work while their children are in trusted care. Parental leave nourishes families with precious time for bonding, physical healing, and rest—enabling parents to return to work with their cups full. 

And child care? It’s a non-negotiable aspect of working parents’ lives, and they need all the help they can get. According to Kinside’s proprietary data, 81% of working parents depend on child care outside the home. That means that employees rely on child care arrangements that are often expensive and difficult to come by—just to go to work. So whether or not employers realize it, benefits like parental leave and child-care-related benefits are necessary and worthwhile business expenses with proven ROI.

Here’s what happens when employees don’t have the benefits they need.

Employee turnover costs more than you think

The cost for one employee

Let’s say the average salary for your employees is $65,000 a year. We know that the cost to replace that person if they leave due to child care issues is roughly 6-9 months of their salary. To be conservative, we’ll estimate about six-months’-worth of salary in turnover costs. It would cost $32,500 just to replace that one employee. 

The cost across your organization

Let’s say you have 500 employees. We know that working parents comprise roughly 30% of your workforce. That means about 150 of your employees are impacted by whether or not they have essential benefits like parental leave and child care benefits. And as a result, these are the people on your team who are at risk of leaving your company, or even leaving the workforce altogether. 

According to Kinside’s data, approximately 25% of working parents said they had already left a job, turned down a promotion, or left the workforce because of child care. So of your 150 employees who are working parents, 37.5 of them could leave your company annually. To keep it simple, let’s round down to 30 employees. That means you’re risking turnover for 30 employees every single year because of the lack of child care. 

With the average salary of $65,000 and corresponding turnover costs, that equates to $972,000 that you lose annually for simply not investing in your employees’ needs. Nearly a million dollars of preventable losses every year.

Investing in employees isn’t a cost center—it’s a savings opportunity

The good news is that organizations don’t have to lose talent over benefits. There are lots of ways employers can support employees with essential benefits that meet working parents’ needs.

Parental leave benefits

Employers who don’t offer maternity and paternity leave are falling behind as cultural tides shift and parental leave shares more of the conversational spotlight. If your organization doesn’t offer paid leave for new parents, you can be sure that job-seekers are noticing—and that your working parents are noticing who does offer paid leave.

Child care benefits

Working parents struggle to find, secure, and afford the child care they need to work. Employers have huge opportunities to stand out with benefits such as dependent care flexible spending accounts (DCFSA). By offering a DCFSA and even contributing to employees’ DCFSA accounts, organizations can future-proof themselves against turnover costs and lost productivity by helping working parents with a non-negotiable part of life.

Forward-thinking organizations can also help parents pay for child care with a stipend to offset the cost. Some employers even offer tuition discounts through child care benefits solutions such as Kinside, a child care marketplace that helps employees find care and partners with providers to offer exclusive discounts on the cost of care.

The bottom line?

We may be discussing trends before, during, and immediately after the pandemic, but organizations should learn quickly that cutting employee benefits will only hurt working parents and jeopardize your workforce. Wise employers will realize that giving working parents the benefits they need doesn't simply support families—it's also for your bottom line.

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