Regulation

New York City's Sick Leave Mandate May Make Small Businesses Ill

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Sick
Www.CourtneyCarmody.com/ / Foter / CC BY

New York City Mayor Bill de Blasio, continuing his crusade to make the Big Apple a kinder and gentler place to live (as enforced by penalties prescribed by law), has pushed through an amendment to the city's still-new Earned Sick Time Act. The amended rule goes into affect April 1, and requires small businesses of five or more employees—down from 15—to provide paid sick leave to workers.

Supporters of the measure trumpet it as a victory not just for workers, but for businesses that will enjoy improved morale at a low, low cost. Even so, at least one of the city councilman who voted for the sick leave mandate already has second thoughts about the impact on small firms.

A nice summary of the law's measure comes courtesy of Think HR:

  • The Act now covers employers with five or more employees (rather than 15).
  • The definition of "family member" has been expanded to include sibling, grandchild, and grandparent. "Grandchild" means the child of an employee's child, "Grandparent" means a parent of an employee's parent, and "Sibling" means an employee's brother or sister, including half-siblings, step-siblings, and siblings related through adoption.
  • The exemption for employers in the manufacturing industry has been eliminated.
  • Employers must maintain sick time compliance records for three years (rather than two).
  • Employees have two years to file a complaint (rather than 270 days).

All of this benefit to ailing employees! And at little or no cost to businesses for whom even a single paid sick person can represent as much as one-fifth of the work force. At least, so we're told by one pro-regulation research outfit and the journalists citing it.

According to the Center for Economic and Policy Research (CEPR), after Connecticut passed a sick leave mandate, everything was swell.

The law had minimal effects on businesses. A large majority of employers reported that the law did not affect business operations and that they had no or only small increases in costs. Businesses most frequently covered absent workers by assigning the work to other employees, a solution which has little effect on costs. Just 10 percent of employers reported that the law caused their costs to increase by 3 percent or more. Since the implementation of the paid sick days law, Connecticut employers saw decreases in the spread of illnesses and increases in morale…

The Associated Press reported this to mean "many small businesses say they don't find complying with the laws a burden. Many already gave employees paid sick time before the laws were passed. And having paid sick time makes employees happy."

But the Connecticut measure applies to businesses with 50 or more employees, while the New York City measure sweeps up those with as few as five. And CEPR doesn't give us context for a 3 percent boost in costs—that may or may not be a lot, depending on a firm's profit margin. And that 3 percent is likely to rise for a smaller outfit for which a sick employee is a higher percentage of the total work force.

By contrast, a study by Ernst and Young on behalf of the Partnership for New York City found significant costs associated with sick leave mandates.

Implementation of the Paid Sick Time Act would raise costs, on average, to 48 cents per employee per hour. Large businesses would see an increase to 57 cents per employee per hour and small businesses 24 cents per employee per hour.

This does not include the costs of benefits such as health insurance, employment taxes or indirect costs that may be incurred as a result of providing paid sick leave to employees. Nor does the estimate include the administrative costs of compliance with the bill. These costs could not be captured in the scope of the survey, but anecdotal evidence suggests they are significant.

Although the payroll cost increase may seem small to advocates, it is roughly equivalent to the .34% payroll tax (the "Mobility Tax") that New York State imposed on all employers in 2009 to help fund the MTA capital program. Small business, government and nonprofit employers have widely described this tax as very burdensome and its rescission was one of the biggest issues in the last session of the State legislature and in the upcoming elections.

The Ernst and Young study has been criticized for overstating costs, but its estimates don't seem out of line with CEPR's—and it provides some context for the numbers it produces.

Ultimately, paid sick leave is a nice thing to have, if you're an ailing employee or one with a sick family member. But very little in life, including the helpful and desirable things, comes without a price tag attached. The price of mandating popular policies like paid sick leave for employees may well be that some businesses close or cut back, and some workers end up not on leave, but unemployed.