Is It Profitable to Offer Paid Leave? a Case Study of the Legal Profession

Article excerpt

ABSTRACT

"Family-friendly" policies are often explored from the perspective of the employee and benefits therein in terms of reduced turnover and higher productivity. Little research examines the profitability of such policies from the firm's perspective, and specifically that of a law firm. This paper provides a case study of one law firm's practice of maternity leave and the effect of the policy on the firm's bottom line. The analysis reveals that the effect of the paid leave policy on the firm's bottom line is strongly related to the employee's classification, when he or she takes the leave over the course of his/her career, and the type of work performed. We find that the level of profitability and set of profitable circumstances is larger for those employees with clearly defined work schedules and duties. Furthermore, when paid leave is taken by an attorney, the firm loses the least when the attorney is at the lower level of the occupational hierarchy.

INTRODUCTION

The phrase "Mommy Track" recently turned 22 years old. Although not coined by Felice N. Schwartz, the term originated from her article "Management Women and the New Facts of Life", published in the Women and Management Review (Schwartz, 1989) warning firms that they were losing talented women with their inflexible working conditions. The solution she suggested was essentially a two-track system in which women who wanted to balance career and family could opt for part-time and flexible schedules, shared jobs, telecommuting and maternity leaves. Since that time, firms interested in retaining valuable employees have responded by offering what has been called "family-friendly" or "work-life" policies.

Law firms are among those that are concerned about retaining top talent, and in light of the fact that over 47 percent of law school graduates are women (American Bar Association, 2011), have adopted paid parental leave policies in order to attract and retain high performers. Currently 86.5 percent of law firms surveyed by the National Association for Law Placement (NALP) have written parental leave or family care policies and 71.3 percent have written alternative work option policies (National Association for Law Placement, 2005).

Despite the research that has been conducted in the last twenty years on the effectiveness of these policies to the firm and the worker, what is still lacking is insight on the profitability of such policies from the standpoint of the firm as well as research on which policies are effective in specific work environments and occupations. This paper contributes to the literature on industry and occupational differences by examining in which circumstances a specific type of work-life policy - paid family leave - is profitable at a for-profit law firm in which a variety of work is performed.

The paper begins with a review of the literature on work/family policies followed by an overview of federal and state legislation on parental leave. We include a summary and frequency of types of parental leave policies employed by law firms. This is followed by a theoretical treatment of the costs of labor and its importance in the subsequent profitability analysis of paid leave. We introduce an actual Midwestern law firm, "Egalitarian & Partners, LLP" (name changed) highlight the organizational structure of the firm, explain its paid parental leave policies, and provide cost of leave calculations for multiple members of the firm. We then compare the costs of offering leave to the cost of hiring new employees to determine the set of conditions in which it pays to offer these policies.

The analysis reveals that the effect of the paid leave policy on the firm's bottom line is strongly related to the employee's classification, when he or she takes the leave over the course of his/her career, and the type of work performed. We find that the level of profitability and set of profitable circumstances is larger for those employees with clearly defined work schedules and duties. …