Seattle Paid Sick Leave: Increasing Costs, Lowering Options for Small Businesses

For many years there has been a national movement to mandate that private businesses provide paid sick days to their employees. This mandate was introduced into the Washington state legislature early last decade and went nowhere. Now, proponents are taking aim at cities in order to get legislation passed. Washington, D.C., San Francisco, Milwaukee and the state of Connecticut are the only jurisdictions that have a paid sick day ordinance in place, though several other cities have seen similar legislation introduced.

The concern with mandated sick days does not reside in the sick day benefit itself as much as with the manner in which it is implemented. The Seattle City Council introduced Council Bill 117216 last week and is expected to hold hearings on it relatively soon. Unfortunately, the proposal is even more far-reaching than the other iterations elsewhere.

A new WPC analysis of the ordinance pegs the costs of implementing the ordinance anywhere between $30 million and $90 million, and that is just the direct costs; indirect and compliance costs could be much higher.

Some of the key findings:

• There is no economic impact statement or cost/benefit analysis; lawmakers are not serious about the cost of compliance, only the benefit.
• This ordinance would impact businesses outside the city of Seattle whose employees work inside city limits at least 80 hours per year.
• Businesses inside the city whose employees work outside of city limits would be included in the FTE calculation, which determines how many paid sick days an employee is entitled to.
• Collectively-bargained work forces would be subjected to this new entitlement unless the agreement specifically waives this benefit (and few, if any, do).
• There are no exemptions for small businesses. Businesses with a single employee would be affected.

Even though government data suggest that the cost of providing paid sick days is highest in government, white-collar or big business industries, the fact is the majority of workers employed in those fields already receive paid sick days.

Small businesses, however, are less likely to be able to provide paid sick days, as are businesses in the service and accommodation (hotels) sectors. Each business and industry is different and sometimes these businesses choose not to provide this benefit because other benefits are already provided, sometimes it is because the business’ bottom line cannot support the cost of the benefit, or sometimes a business may have their own, tailor-made workaround for ill workers (flex time, telecommuting, etc.). The bottom line is the new ordinance would cut out most of the options currently available for a mandate that seeks to treat most industries and businesses the same.
(As a side note, service-based businesses, in addition to paying the recent workers’ compensation increase, unemployment insurance increase, and all other relevant taxes and regulatory costs, are now paying 20% more in B&O tax thanks to the state legislature in 2010.)

Unfortunately, there are no incentive-based mechanisms in the proposal. For instance, why not provide a tax deduction if you offer your employees paid sick days? How about finding other voluntary measures that will make the employers who take the extra step of providing this added benefit stand out, rather than impose a mandate?

By mandating paid sick days, the City Council could end up causing other benefits that are not mandated to be curtailed. I would argue that health insurance is a higher priority than paid sick days, but what if a business drops or reduces health insurance to cover this new cost? How would society or the employee be better off? Likewise, young workers aiming for an entry minimum wage job may see a tougher time finding one because of the inability for an employer to offset labor costs with lower wages, thus further constraining the supply of entry-level jobs.

A healthy and productive workforce is certainly a noble public policy goal and one that should be shared by the public and private sector alike. But we should be focused on rewarding individuals and businesses who take it upon themselves to save for a rainy day, go above and beyond and stand with their employees to work through a period of illness, or provide sick days, paid or otherwise.

This proposal leans heavily upon the stick, without providing the carrot.

Read our full analysis here.