Parental Leave: Navigating Income Gaps and Benefits 

by | Apr 18, 2024 | Finance

Parental leave is a treasured time for new parents. Defined as the period of time off work granted to new parents following the birth or adoption of a child, parental leave supports the holistic well-being of both parent and child. Beyond the precious moments shared and memories created during this time, parental leave benefits are more than emotional. It fosters early parent-child attachment, contributes to infant development, and promotes parental mental health.  

However, amidst the joy and anticipation of welcoming a new family member, families must make plans to address the financial considerations. One important financial aspect is the drop or loss of income while taking time off work to recover from childbirth or bond with the new child. Paid parental leave in the United States is not universal and thus requires individual research based on what benefits you can access from your employer, insurance policies, and state. In this blog, we’ll share tips to help you plan for potential income gaps during parental leave so you can be prepared in advance! 

National Parental Leave Legislation

First, it’s helpful to understand parental leave rights and legislation that applies across the United States, since family leave is not universal. The Bureau of Labor Statistics reported that as of March 2023, “27 percent of civilian workers had access to paid family leave and 90 percent had access to unpaid family leave” – an increase from under 15% of civilian workers having access to paid family leave a decade ago in 2014. 

Chart showing the percent of workers with access to paid family leave benefits from 2014 to 2023. In 2014 it was about 15% depending on whether someone was a civilian worker, private industry worker, or a state and local government worker. By 2023 that percentage increased to about 27%. All years state and local government workers had the highest rates of paid family leave.
Source: U.S. Bureau of Labor Statistics

Nationwide, the Family and Medical Leave Act enshrines the right for most workers to take up to 12 weeks off work for certain family and medical seasons, including but not limited to having a new child. This law protects your job and access to your group employer healthcare coverage, but it’s unpaid time off. However, FMLA does not cover everyone – as the BLS reported above, still 10% of civilian workers do not have access to unpaid family leave. The Department of Labor website shares that “employees are eligible for leave if they have worked for their employer at least 12 months, at least 1,250 hours over the past 12 months, and work at a location where the company employs 50 or more employees within 75 miles.” 

Another important law, passed just last year, is the Pregnant Workers Fairness Act, which is focused on ensuring pregnant workers get reasonable accommodations to work during pregnancy. This law covers “private and public sector employers with at least 15 employees, Congress, Federal agencies, employment agencies, and labor organizations.” While this law is not directly related to paid family leave, it does mean that employers cannot force a pregnant worker to use their accrued leave time (like sick time, or vacation time), “if another reasonable accommodation can be provided that would let the employee keep working.” For pregnant workers who will be using their vacation time to recover from childbirth, this can help ensure they can use their vacation time for that rather than using it up if they could still reasonably perform their jobs with an accommodation, like additional or more flexible break time or shifting schedules. This is particularly relevant for workers not covered under FMLA who are relying on using their accrued vacation time to be able to take time off for birth and recovery, or for workers using vacation time to supplement their parental leave policy. 

Image of a mom and dad smiling and looking at one another while the mother holds the baby, with a plus sign health icon overlaid, representing parental leave.

Employer Parental Leave Policies 

Many companies offer parental leave as a valued benefit, understanding that supporting employees during significant life events contributes to a more loyal workforce and better employee retention. However, employer policies surrounding parental leave are not uniform, so it’s important to understand what it might look like in practice and then get specific information from your employer. 

Some employers offer fully paid parental leave for a set amount of time as a standalone benefit, ensuring that both birthing and non-birthing parents have the opportunity to bond with their new additions without the stress of work obligations. Some may offer partial wage replacement. Alternatively, some companies offer no parental leave policy. In that case, employees have to figure it out on their own, leveraging their state policies (if they exist) or perhaps short-term disability insurance. 

These policies can be nuanced, making them more challenging to navigate. Therefore, it’s of utmost importance to engage with your employer’s human resources department. HR professionals can provide detailed information tailored to your specific situation, and it’s their job to ensure you understand your rights and options fully. 

If you’re researching employment opportunities and do not yet have a child on the way, make it a point to ask about the organization’s parental leave policies and benefits as it is a part of the overall compensation package. If you’re presented with multiple job offers, you may find it valuable to select one with a stronger parental leave benefit if expanding your family is on your horizon.  

Finding an Employer with a Parental Leave Policy 

If you’re hoping to find a new job with a suitable parental leave policy, there are some things you can look out for. As we covered before, FMLA only applies to companies of a certain employee count, so a good start is to look for employment opportunities that are covered by FMLA. Then, if the type of work you do could be covered by a labor union, finding a union job or joining a labor union could improve your access to paid family medical leave. A Vanderbilt University study found that mothers who have union representation in their work are 17% more likely to take paid maternity leave than mothers in similar nonunion jobs.  

Second, the industry makes an impact. A 2022 study of over 800 women in private sector jobs in the San Francisco Bay Area found that women who worked in white-collar jobs were more likely to take 12 weeks of paid parental leave compared to blue collar workers, and blue-collar workers reported an average of 1.5 fewer full-pay-equivalent weeks of leave. Survey respondents who worked in education, health services, leisure and hospitality were all between 17% and 19.2% less likely to receive 100% of their pay compared to women who worked in professional and financial services.

Finally, you can always look up employers with stated parental leave policies. This list from Fairygodboss compiles companies in order of longer leave to shorter. If a substantial parental leave policy is a priority for your next job, this can be a good way to target your job search. 

State Parental Leave Policies

In the United States, parental leave policies and benefits vary widely from state to state, creating a patchwork of regulations that can make it unclear to know what applies to you. While some states have implemented more robust paid parental leave programs, others rely on federal mandates or offer limited protections. 

Some states have taken proactive steps to support working parents by implementing paid family medical leave programs. Fourteen states and the District of Columbia have PFML laws. 
In California, Colorado, Connecticut, Delaware, New Jersey, New York, Oregon, Rhode Island, Washington state and Washington D.C., the policies are currently in effect. In Vermont, the policy will take effect on July 1, 2024. In four states (Maryland, Delaware, Minnesota, and Maine) the policies are scheduled to take effect in 2026. New Hampshire has voluntary paid family leave insurance policies that cover some but not all workers. 

Each has its own benefits including the percentage of wages replaced, maximum weekly benefit, and length of benefit. Investopedia has a helpful state-by-state breakdown for the specifics.

However, it’s important to note that these policies often come with specific eligibility requirements and duration limits. Some states still exclude businesses of a certain employee count. Additionally, some states have enacted laws requiring companies with employee numbers below the threshold for FMLA coverage to provide some form of unpaid parental leave, making it so employees at smaller businesses still have the opportunity to take time off to care for their families. 

Interestingly, some states extend parental leave benefits to individuals who work within their borders, regardless of whether they reside in that state. For example, the state of New York covers certain New York employees under the PFML policy. So, if you work in New York but live over the border in Pennsylvania (which does not have a state PFML policy) and commute in, you may be eligible. By offering leave benefits based on work location rather than residency, these states aim to provide support to the employees who contribute to their local economies. If you work in a different state from where you live, research the policies for the state in which you work! 

Overall, while the landscape of parental leave policies in the United States is not uniform, efforts at both the state and federal levels are gradually expanding access to leave benefits for working parents across the country. 

Image of two parents holding a baby on their lap, while the dad reads a book with a green cover to the child, and a pie chart icon with a dollar sign and percentage included to represent financially navigating parental leave

Navigating Income Gaps

With strategic planning, navigating income gaps while going on parental leave to care for a new baby can ease your financial burdens and allow you to focus on what matters most: bonding with your little one. Most people who do have access to paid leave will not have 100% wage replacement, so it’s helpful to calculate the expected income gap for your household and have a plan for how you’ll meet your expenses.  

One valuable resource to consider is leveraging short-term disability policies, which can provide partial income replacement during maternity or paternity leave. Additionally, hospital indemnity insurance can offer financial assistance to cover some of the medical expenses associated with childbirth, helping to alleviate some of the financial strain.  

When weighing the decision to take parental leave, it’s important to compare the cost of childcare with the potential income gap. For some families, it may be more cost-effective (or your preference) to take a leave at reduced wages than to continue working and pay for childcare expenses. This can be an important consideration for two key reasons. First, a birthing parent might be eligible for both a state paid family leave program and an employer based short-term disability insurance policy; if so, they may be able to take these leaves consecutively to extend the amount of time away from work. Second, the non-birthing parent may be eligible for paid family leave but would not need it for medical reasons. Some families who have two parents go on family leave choose to have both take leave simultaneously while some choose to stagger it out and take leave consecutively.  

To further mitigate income gaps, future parents can explore options to frontload savings or build passive income streams. Setting aside funds in advance can help cushion the financial impact of a temporary drop in income. You could save in a high yield savings account, such as by setting up a Jar in Milli to build a cash reserve for the time you’re on parental leave. You could calculate how much of an income gap you’ll have for the time you’re on leave and set a savings goals.

Another strategy? Build passive income sources such as rental properties or investments to have cashflow during parental leave and beyond. This one may take some advance planning but can be well worth it! 


In wrapping up, parental leave is a cherished time for new parents to bond with their little ones and adapt to the wonders of parenthood. Before your new family member arrives, it’s important to be proactive to ensure your family’s financial stability during this period. Do research to understand your state laws, insurance benefits, and employer policies regarding parental leave, so you can confidently plan for any potential income gaps. Then, you can immerse yourself in the joys of new parenthood! 

If you’re looking for a mobile bank to help make saving for the life events on your horizon easier, check out Milli. Our helpful savings features and automations combined with our highly competitive Annual Percentage Yield all allow you to have more money for the things that matter most in your life. Download Milli from the App Store or Google Play and sign up today! 

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