Implications of maternity leave extension on micro enterprises
A study investigating the implications of the extension in maternity leave as proposed in the Estrela Report (European Parliament, 2010) on Maltese micro enterprises has shown the proposals would negatively affect the majority of them.
The employers who responded to the study said the proposals would, in turn, affect the competitiveness of the enterprise and could encourage employers to prefer employing men to women.
Micro and small enterprises (MSEs) account for a very large proportion of employment in the Maltese private sector.
The proposal states that the minimum maternity leave in the European Union should be extended from the current 14 weeks to 20 weeks – six weeks must be taken directly after childbirth. Employees on maternity leave must be paid their full salary which must be equivalent to 100 per cent of their last monthly salary or their average monthly pay.
Almost every country provides maternity leave for a limited period before and after childbirth while allowing women to return to their workplace afterwards. However, job-protected maternity leave mandates vary considerably, in terms of duration and financing.
The main benefit of extending paid maternity leave is that more women, specifically mothers, could be attracted to join the labour force. As a result of increased leave, mothers can benefit from a longer period of breastfeeding and from better parental bonding.
The employer could also benefit because as a result of extended leave the female employee would not have to terminate her employment and the employer would retain an experienced member of staff.
However, as a result of extended maternity leave, the employer will face additional costs, principally because of the need to pay for the leave, engage substitute workers to replace the female employee on leave, advertise the position, and train the new worker. In some instances the employer would have to use overtime work. Moreover, employers lose the services for the duration of the leave and the services of an experienced employee. If the cost of extended leave is borne by the employer, this may affect the firm’s competitiveness and may actually lead to job losses.
Thirty firms answered questions in a survey. The respondents were randomly selected from a list provided by Malta Enterprise.
The list contained micro enterprises in Malta and only those employing at least one female employee under the age of 35 were selected. The sample contained micro enterprises that operated in manufacturing, wholesale and retail, and hotels and restaurants. These three sectors of the economy account for about 40 per cent of private sector jobs and they have a high dependence on micro enterprises as well as on female employees.
The employers, mostly female entrepreneurs, were asked to quantify the costs of five effects related to an increase of six weeks of maternity leave: the cost of paying the employee on leave, the cost of hiring a replacement, the cost of using overtime work, the cost of advertising the vacant position, and the imputed cost of lost production associated with losing the services of a trained and experienced worker. These costs are averaged out per enterprise.
Maternity leave is paid at a rate equal to the normal wage per week. Not every enterprise that was surveyed employed full-time workers: nine of the 30 employers surveyed stated they preferred to employ females part-time. Had they to pay maternity leave to their female employees, they would at least incur a lower cost than if they had to pay a full-time wage.
On average, the micro enterprises surveyed paid their employees €150 per week. If the proposal of an additional six weeks’ maternity leave were to be implemented, each employer, on average, would have to fork out an extra €900 as maternity payments for one female employee away.
If the employers decide to hire a substitute for the duration of the maternity leave, then there is an additional cost involved. The employer will be paying the full pay to the mother on leave and the wage of the temporary worker. The respondents were asked whether they would hire a substitute if one of their female employees were on maternity leave.
Twenty-three of the 30 respondents said they would employ a substitute during the period of maternity leave. However, seven employers said they would only employ substitutes on a part-time basis. Owners of restaurants asserted that they would only employ a substitute temporary worker during the summer.
Interestingly enough, one employer claimed that she would pay the substitute a higher weekly wage than the employee to try to keep the substitute for the duration of the maternity leave. Averaging out the cost of hiring a replacement over the 30 enterprises, on the basis of the information given by the respondents, it appears that, on average, the cost to the employer would be €80 per week. On the basis of this estimate, if the maternity leave extension proposal had to materialise, the additional cost of hiring a substitute would be €480 per enterprise.
Moreover, only five micro enterprises opted to offer overtime work to the rest of the employees, instead of employing a replacement worker. Basing on the respondents who stated that they opted to pay overtime rates, it appears that the estimated additional cost would amount to about €80 per week. Averaging this out over the 30 enterprises, the cost would be €13 per enterprise, so the cost of the additional six weeks would amount to €78 on average.
Of the 23 micro enterprises that opted to hire a substitute, 13 enterprises advertised the vacant post. Eight respondents stated that they would use the option of in-house advertising, by attaching a notice in their establishment as they regarded advertising as an unaffordable expense to their business. The 13 enterprises that opted to advertise the vacant post, gave various estimates of the advertising cost, and it is therefore not easy to calculate the cost of advertising the vacant post, given the variations in the responses.
Using a plausible cost of €50 per advert for 13 enterprises, and spreading this over 30 enterprises, the estimated average expenditure on advertising per enterprise is €22.
Twenty-one respondents stated that when they choose to hire a temporary worker they provide training to these substitute employees. Thus there could be an additional cost associated with maternity leave – that relating to training of the substitute worker. Most respondents found it difficult to provide estimates of the cost of training. Nevertheless, most of the employers stated that the waste of time involved in the provision of training, can be regarded as the cost.
From the information provided by seven respondents it appeared that the cost of training averaged €75 per week. Either averaging this over 30 enterprises or spreading this out over 30 enterprises, the estimated average expenditure per enterprise on training is €52.5 per week or €315 over six weeks.
Twenty-four employers said they experienced a loss in production during maternity leave, as substitute workers tended to be less productive than employees with experience.
Nearly all of the employers argued that the loss in production is one of the most negative effects of maternity leave. Only six respondents indicated their production would not be affected when an employee was on maternity leave. These companies were mainly from the retail sector. The respondents found it difficult to quantify the cost of the loss in production per week. Out of those 24 enterprises which stated that they suffer a loss in production, only five enterprises estimated its cost, which averaged about €50 a week. Spreading this over 30 firms for six weeks, the average cost per enterprise would be €240.
Taking all these costs into consideration, it would appear that the total cost per enterprise would amount to just over €2,035 per enterprise. Furthermore, 22 respondents regard this proposal as a factor that would work against the interest of female employees. The main argument advanced by respondents – and it must be stressed that this is the employers’ view – was that it is highly possible that more employers will be willing to employ men rather than women because of the costs associated with maternity leave.
The remaining eight respondents did not consider this proposal as a factor working against females as they considered female employees as more productive than their male counterparts.
As maternity leave is entirely financed by the firm except for the 14th week, the employers were asked if they thought the government should shoulder some or all of the financial burden associated with six extra weeks of leave.
As expected, the respondents agreed that the government should pay for the extra leave if this were to be imposed by law or else offer other assistance such as tax credit or reductions from social security payments. An alternative option employers suggested was granting the additional six weeks as unpaid leave.
The author graduated B.Com (Hons) in economics from the University of Malta in 2011. She is employed at the Central Bank of Malta. This article does not necessary reflect the views of the Central Bank of Malta.