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How Paid Leave Policies Can Help Small Businesses

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opolja / Getty Images

Paid leave encapsulates several benefits, giving employees the option to take a leave of absence from work for approved reasons. But what do these policies mean for workers and small businesses? Are they affordable, or do they unbearably balloon entrepreneurs' budgets? Do they contribute to staff wellbeing and productivity?

Paid leave policies, as the name suggests, are regulations that extend job protection and paid time off to workers for certain situations, such as illness and family emergencies. There are different kinds of paid leave policies, including paid sick leave, family leave, and maternity or parental leave. The exact provisions of these laws tend to vary widely by state or even locality.

Here's a quick look at two of the most common types of paid leave policies.

Paid family leave policies generally create a fund as an extension of a state temporary disability insurance program, which is supported by a small percentage withdrawn from every employee's paycheck. These insurance funds are generally 100% funded by workers and don't require any added investment from employers or taxpayers. Rather than offering full paid days off, paid family leave insurance funds typically offer wage replacement, generally worth about two-thirds of the employee's weekly pay.

Karen White, former director of policy analysis and community engagement for the Rutgers Center for Women and Work, said that five states currently offer a temporary disability insurance program that can be expanded to support paid family leave. New Jersey's paid family leave policy requires a mere 0.1% deduction from workers' paychecks up to the first $33,700 in pay to support itself. That means the maximum deduction from each employee amounts to just $33.70 annually.

"In return, workers receive wage replacement at a rate of 66.7% of weekly wages up to a maximum of $637 per week in 2018," White said. That amount, she said, will be paid to workers for up to six weeks under the current state law.

The policy doesn't cost employers anything and is often viewed as favorable benefit, because it offers another layer of financial security for workers on leave. Their absence, White said, was already permitted by most small businesses; employers simply could not afford to pay the employee during their time off.

Unlike paid family leave, paid sick time is usually an employer-supported expense, and some state and local governments require businesses to offer it. Paid sick leave laws are designed to provide basic protection to workers who fall ill or have loved ones at home who require care. In some states, the legal requirement is quite minimal, White said. Simply put, it just means that if an employee gets sick, they can take time away from work without fear of reprisal.

"The thing about [paid sick leave] is that it is a basic standard," White said. "In New Jersey, in the municipalities that have passed the law, workers are provided with five job-protected, paid days off. Those [days] do not accumulate over time; they are for use in the year in which they are earned. It's a minimal standard at a minimal cost to employers."

However, because paid sick leave laws are implemented at the local or state level, they are different everywhere. New Jersey is home to 13 municipalities that have implemented a paid sick leave law, White said, and most have tried to create a uniform set of policies to ease adoption, with the ultimate goal of achieving a statewide policy.

One municipality took its own route, however. The city of New Brunswick tailored its own paid sick leave policy with slightly different provisions from the rest of New Jersey. This is an example that has replicated itself in other jurisdictions throughout the country.

The U.S. is alone among industrialized countries in that it does not maintain any federal paid leave healthcare policies. The federal Family Medical Leave Act (FMLA) requires companies with 50 or more full-time employees to provide unpaid time off to certain employees, but there are no regulations for smaller businesses. And there is no federal requirement to offer compensated time off. 

In many cases, this means workers who need to take time off to care for themselves or their family members must do so without pay or the job protections that many paid leave regulations offer to eligible employees. This leaves many people vulnerable, particularly low-income workers.

In recent years, a movement in local jurisdictions and state legislatures to implement paid leave policies has grown. While advocates of paid leave policies ultimately have their sights set on a uniform federal policy, many have settled for slowly filling in the gaps at lower levels. [Want to learn more about FMLA compliance? Check out our guide on what small businesses need to know about the FMLA.]

Implementation has many moving parts. "The key to crafting a well-balanced paid leave policy is to ensure that your policy aligns with the mandatory requirements," said Dave Berndt, senior client advocate for G&A Partners. "Then it's a matter of considering whether you, as an employer, want to add any additional coverage for your employees. For companies that have operations in multiple states, it can be a complicated process to comply with various versions of paid sick leave laws."

Often, when a company does business in multiple jurisdictions with paid leave requirements, it might just choose to adopt the most stringent requirements to ensure compliance across the board. Those that operate in both jurisdictions with paid leave policies, as well as those with no regulations, might enact a company policy only where it is required.

Ultimately, it is a question of strategy. However, Berndt noted that while paid leave might represent a degree of new difficulty for employers, they should also view the changes as a positive opportunity.

"When states pass legislation mandating paid sick leave, this creates new regulatory burdens for employers," he said. "However, employers should also look at these new requirements as an opportunity to support their workforce, boost morale and provide a better work-life balance."

So far, research into paid leave policies where they have been implemented supports Berndt's notion that the policies also benefit employers. In New Jersey, researchers found workers subject to paid leave protections had higher morale and productivity, and businesses that offer paid leave experienced significantly lower turnover, White said.

"In return, the benefits for businesses … far exceed the costs," she said. "The research shows that workers are more motivated, they are more productive, they have higher morale. The employers are better able to retain workers, and they reduce their turnover costs. It really is a win-win."

According to research conducted in 2012 by the Center for Women and Work at Rutgers, new parents who received paid leave were more likely to remain employed a year after their child's birth and less likely to require public assistance in general.

According to White, however, at least in New Jersey, outreach has been lacking, and many people are largely unaware of the policies in general or the full extent of the rules. There are also more direct gaps in the existing policies, she added.

To address those gaps in sick and family leave policies, Gov. Phil Murphy recently expanded the state's paid leave policy to double the number of consecutive weeks of leave for eligible employees to 12. The law also now applies to companies with 30 full-time employees or more, rather than the previous 50.

Support for paid leave policies is mixed. Among the general population, especially younger people and low-income families, support is high. According to a 2016 Pew Research Center survey, 67% of the population supported paid leave for workers caring for themselves or family members with serious health conditions as well as for parents of newborn or recently adopted children.

However, support for paid leave policies is lower among entrepreneurs. According to a 2018 survey by Paychex, 48% of small business owners said they would support some form of legislation requiring paid family leave, while 18% opposed the idea outright.

"No matter how large or small the organization, most employers want to create a workplace culture that supports employees in times of need," said Martin Mucci, Paychex president and CEO. "However, for small businesses, mandatory paid leave may present challenges. Whether it's having a key member of a small team out of the office for an extended period of time or the back-end administration of such a program, mandatory paid leave will introduce new dynamics small business owners will have to navigate."

Out of all respondents to the Paychex survey, 43% of those who supported paid family leave policies felt the federal government should make the rules, while 40% said businesses should be in charge of crafting the rules.

Generally, popular support is translating into an expansion of paid leave policies throughout the U.S. Employers wanting to get ahead of the game should consider drafting a paid leave policy before it's mandatory and tweaking it to conform with local standards as they develop.

"As for the future, we anticipate that more states will adopt similar mandatory paid sick leave laws, since these have become so popular from a political perspective," Berndt said.

Due to the public health emergency caused by the outbreak of the novel coronavirus, the Wage and Hour Division of the Department of Labor has expanded FMLA and enacted a new leave law, the Families First Coronavirus Response Act (FFCRA), which requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. The act stipulates that employees of a covered employer are eligible for these protections:

  • Two weeks (up to 80 hours) of paid sick leave at their regular rate of pay while the employee is unable to work because they are quarantined and/or experiencing COVID-19 symptoms

  • Two weeks (up to 80 hours) of paid sick leave at two-thirds of their regular rate of pay if they are unable to work because they are caring for an individual subject to quarantine, or for an individual under the age of 18 whose school or child care provider is closed or unavailable because of COVID-19

  • Up to 10 additional weeks of paid expanded family and medical leave at two-thirds of the employee's regular rate of pay if they are unable to work because they have to care for a child whose school or day care provider is closed due to COVID-19

FFCRA covers certain public employers and private employers with fewer than 500 employees. Small businesses with fewer than 50 employees may qualify for exemption from the requirement to provide emergency FMLA leave due to school closings or unavailability of child care if it would cause undue hardship to the business or its owner.

Adam Uzialko contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.

Kiely Kuligowski

Kiely is a staff writer based in New York City. She worked as a marketing copywriter after graduating with her bachelor’s in English from Miami University (OH) and is now embracing her hipster side as a new resident of Brooklyn. You can reach her on Twitter or by email.