Paid Sick Leave: Costs Rise for Small Businesses
Policy + Politics

Paid Sick Leave: Costs Rise for Small Businesses


Blaine Dempke worries that the next few months could be rocky for him and his Seattle business – but not because he has fewer orders for the boat winches his company designs and builds. He’s worried about a new citywide law that takes effect in September requiring businesses with five or more workers to provide a minimum of five days paid sick leave.   

Dempke, who has owned and operated Markey Machinery Co. for more than 30 years, says the five-day requirement in itself won’t cause him much hardship, since he already offers his 48 employees at least one week paid time off for any reason, including illness, if they’re office staff, or two to four weeks if they’re union represented. The problem is that the new law has unleashed a challenge from the local machinist unions, which he must work with to negotiate the terms of the new law. They’re demanding five extra paid days off on top of what he already provides, or an increased wage in lieu of that — a proposition Dempke says could cost him $60,000 per year, since most of his employees are unionized

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"These are all like straws on a camel’s back. You get to the point where you just can’t afford to do any more financially and be a viable business,” Dempke told The Fiscal Times. “It’s stressful.” 

Dempke’s conundrum is similar to problems at other small businesses, as state and city governments jockey to pass new laws requiring employers to provide workers with a minimum amount of paid sick leave to prevent low-wage earners from going to work ill out of financial necessity.   

Last summer, Connecticut became the first state to require paid sick leave, exempting businesses with 50 workers or less. San Francisco and Washington, D.C., however, have laws requiring businesses with 50 or fewer employees to offer paid sick time, and soon Seattle will, too. Proponents in both New York City and Philadelphia are nudging similar policies along as well. In Massachusetts, a bill is working its way through the legislature that requires employers to allow all workers — full-time, part-time or contract — to accrue seven paid sick days annually, regardless of a firm’s size. “It’s time to think about benefits that allow working families to be stable and secure,” said Massachusetts State Senator Pat Jehlen, a sponsor of the legislation, in a statement.

Public Health vs. Private Business Costs
Supporters insist that enacting legally required paid sick time is important to public health and business ethics.  According to data from the Society of Human Resource Management, 32 percent of small firms with 50 or fewer workers offered paid sick leave in 2011, versus 38 percent in 2009. Meanwhile, about 55 percent of U.S. workers still go to work when they’re ill, according to research from the University of Chicago National Opinion Research Center. 

Proponents say paid sick leave mandates spur cost savings for small companies and the federal government in the long term, stemming the spread of illness, boosting worker productivity, and resulting in lower employee turnover.  Providing all U.S. workers with paid sick days could save public health insurance programs $1.1 billion a year in emergency room costs, and save businesses about $160 billion per year in lost productivity from workers who are sick on the job, according to an analysis from the Institute for Women’s Policy Research. 

“Providing at least a basic level of this benefit really does pay for itself,” partly by making workers more inclined to stay at a company, said Marilyn Watkins, Policy Director of the Economic Opportunity Institute in Washington State. Although employee sick days can be a problem for businesses, “it spirals into much larger drag on your bottom line when five of your employees are out with the flu because that one worker couldn’t afford to stay home,” she said. 

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But the recent legislative push has incensed some small businesses and small business advocates, who say mandates like these could be financially damaging enough in the short term to force them to reduce workers’ hours and cut other benefits, – or, in extreme scenarios, to make them rethink whether they should hire or retain workers. The National Federation of Independent Businesses estimated that, if enacted, the Massachusetts bill could cost small business owners $8.4 billion in lost productivity, leading them to slash about 16,000 jobs by 2016. The Washington Policy Center, a conservative think tank, pegged the Seattle law’s costs at between $30 million and $90 million a year for local businesses and consumers.  

“There’s a reality check here that advocates of this policy are not factoring in, and cost complications associated with it — especially for a small business that doesn’t have unlimited cash flow,” said Marc Freedman, Executive Director of Labor Law Policy at the U.S. Chamber of Commerce. “To the extent that you impose this on a small business in ways they are not financially prepared to provide, you force them to make decisions that sometimes end up backfiring on the worker.”   

Large businesses tend to be better equipped to absorb the work responsibilities of those who are out sick. “But when you’re a small business with less than 10 employees, and you take one person out of the equation for a day, it’s a lot harder to make up that person’s responsibilities,” Freedman said.

For many Massachusetts small businesses, the pending bill “could be a very real breaking point,” said David Wilson, a Boston employment lawyer. Some of his business clients have cut vacation pay and even retracted earlier paid sick leave policies in the wake of the recession to make ends meet and keep workforces intact, he says. Though some are trying to reinstitute those benefits, not all of them are financially able to do that. “The idea that employers are being unhelpful or spiteful with paid sick leave is not the case,” Wilson said. “Sometimes, they may have the cash to offer more days than they currently do, and do follow through with that, but in many of these instances it’s just completely unaffordable.” 

Perception, rather than fact, may explain why some businesses are so reluctant to offer paid sick time, noted Harry Holzer, a labor economist at the Urban Institute. “Even if the costs are modest, if employers perceive them as burdensome they might hesitate to hire or invest,” Holzer said. 

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Despite the upfront expense, not all privately owned businesses are adverse to adding paid sick benefits. Seattle ice cream shop owner Molly Moon Neitzel says she decided last April to give her 60 employees, including part-time workers, nine paid sick days after she and a local group of food service owners agreed it was an investment worth making. “It’s gross to go to a food establishment, especially, and know that the workers there – if they’re sick and can’t afford a whole day off – are just going to go and be sick on your food,” Moon Neitzel said. 

Adding paid sick time has eaten into her margins by almost 1 percent, but she expects to recoup that over time, both with healthier employees who stay longer and with increased patronage. “My employees are my next-door neighbors’ customers, and my next-door neighbors’ employees are my customers,” she said. “It’s good business, and it’s good for the community.” 

In Queens, New York, a coalition of small businesses even took to the streets this week on behalf of a city council bill requiring them to offer five days of paid sick leave. Why? Because “healthy employees are productive employees who will work with me to grow my business,” said Lenin Juca, owner of Oxium Copy and Print in Jackson Heights, Queens.