How (And Why) to Offer Adoption Benefits to Your Employees
An Employer’s Guide to Adoption Benefits and Parental Leave
Whether an employee has approached you about adoption benefits, or you’re looking for ways to create a more adoption-friendly workplace (while gaining a leg up against competitors), you may be unsure of how to go about implementing benefits for adoptive parents. More and more families are growing through “non-traditional” means, like adoption or surrogacy. Having a plan to support those families will benefit you and your employees, but it’s also an important, concrete celebration of adoption in our society.
What is Adoption Leave and How Does it Differ from Standard Parental Leave?
The Family Medical Leave Act (FMLA) requires all public agencies and all private companies with 50 or more employees to provide 12 weeks of unpaid parental leave. That leave does include parents who adopt a child. However, unpaid parental leave begins upon the legal finalization of the adoption, and doesn’t cover the time away that new adoptive parents must spend traveling or receiving placement of their child. Finalization often takes place several months after a child is placed with an adoptive family, which means the important period of bonding with a newly adopted child will occur before the adoption is legally finalized and before adoptive parents are even eligible for FMLA leave.
For that reason, an adoption-friendly employer must provide paid leave for periods of absence related to the adoption, like necessary trips during the process and bonding time immediately after placement. This would be equivalent to the time biological parents would generally spend recovering from childbirth and bonding with their newborn.
Parental leave is one of the most important benefits employers can provide to adoptive parents. While in many respects, the parental leave policy for adoptive parents would look very similar to that provided to biological parents, there are a few exceptions to consider.
- Financial reimbursement for some or all adoption costs
- Paid leave during necessary trips to complete an adoption, as well as post-placement parental leave
- Phased leave before and after placement to help parents and children readjust to a work schedule
- Additional unpaid leave on top of the 12 weeks required by the Family Medical Leave Act (FMLA), commonly between a week and a year
Many companies cover more or less — it’ll be up to you to decide what’s appropriate for your policy. Leave is also only one of many adoption benefits employers can offer. We’ll outline more of those options later.
Why Should You Offer Adoption Benefits?
At its most simplistic motivation, employers who provide adoption benefits to their employees do so because they care about those families. They care about children who need to be adopted. They see the provision of adoption benefits as “the right thing to do.” However, implementing adoption-friendly policies in your workplace also benefits your company, as well as your employees.
These are just a few of the reasons why employers choose to establish adoption-friendly benefits, and why you might want to do the same. This change will:
- Improve loyalty and retention for your existing employees
- Attract new employees
- Prove that you’re a family-friendly, inclusivity-minded company
- Publicly promote your equal support for biological and adoptive parents
- Allow employees the necessary amount of time to bond with new children
- Make adoption a more affordable and accessible path for everyone
- Encourage other companies to follow suit in an effort to compete with your benefits package
- It is a relatively low-cost benefit to offer, as only about 0.1 percent of employees are estimated to use adoption benefits when they are made available (according to Adoption Nation by Adam Pertman)
Companies who fail to acknowledge the additional time and finances that go into an adoption will alienate current and future employees. Families created through adoption and by biology are, and should be, viewed as equal in many respects (including the love within that family), but adoptive families must be granted the additional help that biological families don’t require.
Additionally, more and more companies are creating adoption-friendly policies and other work-life policies. Those who don’t will lose out to competitors with better benefit packages.
What Other Companies Provide Benefits for “Non-Traditional” Families?
According to Aon Hewitt’s survey of 1,000 U.S. companies, only 12% offered a financial adoption benefit in 1990. But by 2015, that number rose to 56%. There is a serious and growing demand for adoption benefits in the workplace as more families continue to be created through non-biological methods.
Industry standards are always changing, and for your company to stay relevant and to keep up with competitors, you’ll need to offer competitive benefits packages. As more businesses follow suit, pressure to include these benefits will increase.
When developing your own adoption benefit policies, it can be helpful to look to the corporations who have done it well, as an example and point of comparison. The Dave Thomas Foundation for Adoption does an annual survey of workplaces across the United States, and they release a list of 100 Best Adoption-Friendly Workplaces.
Some of the largest companies and most recognizable names made that list in 2019, including:
- American Express
- Capital One
- S&P Global Inc.
- Hasbro, Inc.
- The Vanguard Group
- Marriott International, Inc
- And many more
However, small and mid-sized companies are also including adoption-friendly policies in their family benefits packages at a rapidly increasing rate and are often recognized on that list.
How Can You Implement Adoption Benefits in Your Workplace?
As we previously noted, there are going to be a number of decisions you’ll need to make about what you want to cover when creating your own adoption benefit policies. At the same time, there will be a few federal guidelines you’ll want to reference and adhere to. We’ll help you break it all down.
Any employer implementing adoption benefits should start by creating an adoption assistance program. This is the written plan established by an employer for the benefit of its employees. These are voluntary and not legally required for employers. When creating your own workplace’s adoption assistance program, you’ll need to ask yourself:
- Will only the employees who finalize the adoption be eligible for the program, or does it also apply to families who experience unsuccessful adoption efforts?
- How much financial assistance and/or paid leave will you offer?
- Which employees will be eligible?
The Dave Thomas Foundation for Adoption has a helpful sample policy you can use and adapt for your purposes, including a sample news release to inform everyone in and outside of your workplace that you’ll be providing adoption benefits, as well as what those benefits include.
Here are some aspects of the average adoption benefits policy, examined in greater depth:
1. Financial Assistance and Reimbursements
Most adoption assistance programs help with the “reasonable and necessary expenses directly related to the adoption of a child.” You may choose to reimburse your employee for the full amount of some or all of these expenses, cover a percentage of the totals, cap reimbursement amounts at a reasonable figure or some combination of these.
Reasonable and necessary expenses are typically considered to include:
- Agency costs
- Application fees
- Home study costs
- Attorney fees
- Court costs
- Medical expenses for the child that are not covered by insurance
- The medical expenses of the birth mother
- Expenses incurred for adoption-related transportation and lodging
- Immigration, naturalization and immunization fees
- And potentially, any utilized post-adoption services or adoption counseling
Again, you may choose which types of expenses you cover and in what amounts.
Adoption reimbursement paid by employers usually ranges from $7,500 to unlimited (average is $9,300) per adoption. You may choose to offer a higher reimbursement for employees for “special needs adoptions,” which take a greater long-term financial toll on the adoptive parents.
While some companies only allow employees to apply for reimbursement once the child has been placed in their home, it usually takes at least six months after placement for an adoption to be legally finalized. Most adoption expenses are incurred prior to the last step of finalization, so post-placement reimbursement is not very helpful to the employee.
Because of the time-intensive nature of adoption, it’s recommended that you offer stages of reimbursement before the child is actually placed with the parents. This helps offset the large up-front, out-of-pocket costs that adoptive parents generally face.
The Dave Thomas Foundation for Adoption offers this helpful example:
A $5,000 total reimbursement package might be offered as:
- Up to $1,000 reimbursement once the adoption application is completed and filed with an agency.
- Up to $1,000 reimbursement when the home study stage is completed.
- Up to $3,000 reimbursement once the child is placed in the home.
IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, states that adoption reimbursements by the employer are not subject to federal income tax. They are, however, subject to Social Security, Medicare and federal unemployment taxation.
As an employer, you can fully deduct the qualified adoption expenses you cover in your adoption assistance program as reasonable and necessary business expenses. There is no special tax incentive for an employer regarding adoption assistance programs.
Adoption-related taxes are often complex. Here’s how to help you employees navigate these adoption-related taxes:
- The financial adoption assistance amount that you provide should be reported in box 12 of the employee’s W-2 using code “T” to identify the correct amount withheld
- Employees should refer to the current IRS Topic 607, Adoption Credit and Adoption Assistance Programs, regarding income exclusions and tax credits for qualified adoption expenses
- Adoption assistance programs allow employees to exclude from taxable income expenses paid or reimbursed by their employers on their behalf for qualifying adoption expenses
- The employee may utilize the adoption tax credit and the income exclusion, but the maximum cap can’t be exceeded
- The employee is permitted to use both the adoption credit and income exclusion for their adoption, but it can’t be used for the same expenses within the adoption
- The employee can use the adoption tax credit for any expenses you don’t reimburse
- Recommend to your employee that they consult a personal tax advisor, or refer them to a tax advisor within your company to help with adoption-related taxes
3. Parental leave policies for adoptive parents
Here are some questions to ask yourself when determining leave policies for adoptive parents:
- What is the procedure for requesting leaves of absence? Adoption opportunities often occur with little to no warning, so employers and supervisors should try to take this into consideration.
- Will you stick with the FMLA policy of any eligible employee receiving up to 12 weeks of unpaid leave each year for the placement of a child via adoption or foster care, or will you offer additional unpaid leave time (ranging from one week to one year) beyond the FMLA requirement?
- Will you follow an existing maternity leave policy to establish a paid leave for adoption placement?
- How much paid (or partially paid) leave will your employee receive? For reference, most employers give two to 26 weeks (average is 7 weeks), which can be used pre- or post-adoption and is applied to leave under FMLA.
- What happens to the employee’s benefits while they’re on leave? The FMLA requires benefits to be maintained for the required 12-week leave period. Most companies require employees who plan to be out longer than the required 12-week leave period to make arrangements with Human Resources for continuation of benefits.
- The FMLA mandates that an employee’s position must be retained during their minimum of 12-week leave, but in your policy, how much additional leave can an employee take and still maintain their job, if any?
- Does the adoptive parent have to return to work full-time immediately, or will you allow employees who take extended leave the option to return on a part-time or phased-in basis?
Remember that during Family Medical Leave, employees will continue to receive regular benefits related to the date of hire. What you choose to cover beyond that is up to you.
4. Eligibility for these policies
Some eligibility requirements will be mandated by state or federal law, while other eligibility requirements for your employees will be up to you. Your eligibility requirements for adoption benefits may be the same (or very similar to) your eligibility for maternity/family benefits.
Here are the eligibility requirements that must be adhered to, and those that have some flexibility:
- Most companies consider full- and part-time employees to be eligible for adoption benefits
- An employee’s access to adoption benefits may become effective immediately upon hire, or may be effective after one year of employment
- In order for your employee to be eligible to receive reimbursements, you’ll need to decide what procedure they should follow in applying for benefits, as well as what expenses they should document
- An eligible child is considered to be anyone under the age of 18 or 21 (depending on the state law), or who is physically or mentally incapable of self-care
- Most types of adoptions are usually covered by an employer, but many choose to exclude stepparent adoptions (adoption of a spouse’s child) because those adoptions don’t require leaves of absence and are far less expensive than other types of adoption
- However, a same-sex parent who is competing a second-parent adoption to become a legal and equal co-parent is considered eligible, because this is an additional step required in some states in order for same-sex couples to adopt a child
- Most companies also choose to cover kinship adoptions or relative adoptions, because the adopting parent generally needs additional time to help their new child adjust to the change in permanent caretaker
- You’ll need to decide whether or not an employee is retroactively eligible to receive full, partial or zero adoption benefits if they adopted last year or are currently in the process of adopting
5. Create an adoption-friendly atmosphere
We recommend educating yourself on the different types of adoption and the processes that your employee may go through. Familiarize yourself with the needs of birth parents, adoptive parents and adoptees so that you can appropriately provide for those needs.
For example, you may have a prospective birth mother on staff who is planning to place her child for adoption. Even though she won’t be parenting her child, she’ll still need time to physically and emotionally recover after the birth, so you should consider her eligible for maternity benefits under the FMLA.
Also consider these company-wide measures:
- Include adoption in your employee assistance program
- Maintain a list of adoption networks or support groups to provide to employees
- Educate employees about adoption with workshops, reading materials, or speakers
- Understand that adoptive parents may need a flexible work schedule to address pre- and post-adoption requirements and challenges, and encourage all supervisors to be mindful of those needs
- Celebrate when employees adopt, just as you would when employees give birth
Workplaces throughout the world are finally beginning to address the need for more inclusive benefits packages, including policies for those who will create a family through adoption. We applaud all employers who are taking steps to implement these adoption-friendly benefits and policies within their own workplace.
Information available through these links is the sole property of the companies and organizations listed therein. America Adoptions, Inc. provides this information as a courtesy and is in no way responsible for its content or accuracy.