How to calculate the cost of a parental leave policy for your business

Offering paid parental leave is one of the most powerful ways to attract and retain great people. But before making a change, many leadership teams ask the same thing: “What’s this going to cost us?”

The good news: you don’t need to spend hours building a fiddly spreadsheet. Whether you're designing a policy from scratch or reviewing what you already offer, this guide will help you comprehensively estimate the cost of a parental leave policy.

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In this article:

• How to estimate leave uptake across your workforce

• What to include in your cost model (beyond just paid leave)

• Why great leave policies can actually save money

• A free tool to make the maths easier

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Step 1: Estimate how many employees will take parental leave

You’ll need to estimate how many employees will take primary carer and partner leave each year.

There are two common approaches:

• Bottom-up approach: Look at past parental leave usage in your company, adjusting for changes in workforce size.

• Top-down approach: using the overall workforce size (again, factoring any planned changes) and assuming a percentage of uptake. On average, we estimate that about 3-5% of the workforce takes parental leave each year, but this can vary depending on the demographics of your employees. 

Additional Considerations:

• Partners may become primary carers: The IRD estimates that 2-3% of paid parental leave is transferred.

• Special circumstances: You may also offer support for miscarriage, stillbirth, or premature birth.

Step 2: Estimate the average earnings in your organisation

Since paid primary carer and partner leave are typically based on normal earnings, use an average salary or wages for your workforce.

Step 3: Identify the parental leave benefits you want to offer

Senior leadership often wants multiple options before making a decision. Consider costing:

• Paid primary carer leave (sometimes referred to as maternity leave)

• Paid partner leave (sometimes referred to as paternity leave)

• Voluntary employer KiwiSaver contributions

• Paying annual leave at full value

• Flexible return-to-work options, such as enable returning employees to work 80% hours but receive 100% of their pay for a period

• Family formation leave for fertility, adoption and surrogacy

• Additional leave for miscarriage, stillbirth, or premature birth

• Extra sick leave upon return to work

• Wellbeing benefits, such as meal plans, baby gifts, and Crayon’s Financial Baby Prep Program

Not sure what benefits to include? Check out The NZ Parental Leave Register to see what other employers offer.

Step 4: Stress test your estimates

Senior leadership often wants to know the range of the costs. Consider:

• Calculating the cost for higher-salaried employees

• Applying a utilisation multiplier (1.5x and 2.0x). Many companies report a baby boom after introducing new policies!

Step 5: Compare policy cost to the cost of replacing staff

One of the biggest benefits of enhanced parental leave is employee retention. Compare your policy investment to the cost of replacing employees who don’t return, which can include:

• The cost of recruitment (this may be with an external recruitment firm or the cost of loading the job onto LinkedIn, SEEK, Indeed, etc.)

• Training-related costs for the new hire

• Equipment-related costs for the new hire

Replacing an employee costs 50-200% of their salary (Gallup) —often making parental leave benefits a cost-saving investment.

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Need help crunching the numbers?

Use Crayon’s free Parental Leave Costing Tool to get the answers

• Input key figures and get instant cost estimates

• Compare three different policy options side-by-side

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Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 4 February 2025.

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Stephanie Pow

Founder & CEO of Crayon

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