How much will a parental leave policy cost your business?

Whether you’re developing a new parental leave policy or updating an existing one, senior leadership will ask: How much will it cost? Providing accurate cost estimates is vital to getting your policy across the line. But how do you calculate the investment required? Here’s a step-by-step guide.

Step 1: Estimate how many employees take parental leave each year

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 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 salaries in your organisation. 

Since paid primary carer and partner leave are typically salary-based, use an average salary for your workforce.

Step 3: Determine the benefits you wish to offer 

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

• paid primary carer leave;

• paid partner leave;

• voluntary employer KiwiSaver contributions;

• paying annual leave at full value;

• flexible return-to-work options (e.g., work 80% hours, receive 100% pay);

• family formation leave (fertility, adoption);

• additional leave for miscarriage, stillbirth, or premature birth;

• extra sick leave upon return to work; and

• wellbeing benefits (meal plans, baby gifts, Crayon’s Financial Baby Prep Program).

Step 4: Stress test your estimates

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

• calculating the cost for higher-salaried employees; and/or

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

Step 5: Factor in replacement costs

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.

Consider:

• 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; and

• equipment-related costs for the new hire. 

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

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Make costing your policy easy

No need for complex spreadsheets—Crayon’s free Parental Leave Costing Tool does the hard work for you.

• 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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