Paid sick leave may seem like something that is purely a drain on company finances, but research from Bayes Business School reveals that not only does it boost employee productivity but also the overall profitability of the organization.

The researchers analyzed nearly 38,000 publicly-traded companies across the United States between 2004 and 2019 (ie before the pandemic).  The analysis found that firms who introduced paid sick leave saw their productivity grow by around 6-8%, with this also corresponding with a 2% rise in profit margins.

“At a time where COVID and the risk of severe illness are still dictating much of the world’s productivity, our study sheds light on the positive effects of remunerating staff who need to take time away from work,” the researchers say.

“From a health standpoint, paid sick leave ensures employees are able to work in good health and carry out their roles effectively without being impaired by illness. It also means they are less likely to spread germs and infection around the office or place of work, which in turn reduces the likelihood of viral outbreaks.”

Productivity gains

The researchers found that employees with better access to sick pay achieved higher productivity because not only were they healthier when they were at work but their morale was also boosted by the care given to them by their employer.

These benefits appeared to be most pronounced for firms with highly skilled, and therefore more expensive employees.  The authors argue that this is because such employees are more likely to favor benefits, such as sick pay, than higher take-home pay because of the tax advantages such an approach gives them.

“Indeed, in this study we find a more pronounced effect of introducing paid sick leave among workers who are less able to carry out their roles from home,” the researchers explain. “Roles of this nature most likely involve manual labor or jobs that require face-to-face interaction, requiring peak physical health to carry out effectively. It is therefore natural for productivity to improve with provisions.”

There were also health benefits observed across the workforce when paid sick leave was provided, with these benefits especially pronounced in workplaces where fewer jobs can be performed remotely and are therefore more vulnerable to viral outbreaks.

The researchers believe that their findings clearly support the provision of statutory paid sick leave as doing so boosts the performance of the workforce and the profitability of the organization.

“A healthy workforce is a happy workforce, and a workforce that feels valued and cared for is a productive workforce,” they conclude. “This very much applies to employee satisfaction as well, which has also become a much more prominent topic of conversation in the last decade.”