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

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.