Paid Sick Leave Mandate Passes Senate Committee

In its June 13 newsletter, the California Chamber of Commerce reported that legislation requiring all employers, large and small, to provide all employees in California with paid sick leave passed the Senate Labor and Industrial Relations Committee this week. AB 1522 (Gonzalez; D-San Diego), a California Chamber of Commerce-opposed "job killer" bill, will increase the already-high costs of doing business in the state. The bill threatens employers with statutory penalties as well as litigation for alleged violations.

AB 1522 requires that all employers provide any employee who has worked in California for seven days with paid sick leave, at an accrual rate of one hour for every 30 hours worked. Any unused sick leave accrued in the preceding year could be carried over to the next year, which is a significant change in existing law.

While many employers voluntarily offer sick leave for full-time employees, expanding this to a mandate on all employees to temporary, seasonal, and part-time employees will create a huge burden on employers. 

On July 1, employers in California already will be facing a significant cost increase due to the $1 increase in minimum wage that will take effect. This $1 increase is in addition to the other cumulative costs employers are already facing, including increased taxes under Proposition 30, increased workers’ compensation rates, loss of federal unemployment insurance credit, increased energy costs, and increased costs associated with the implementation of the Affordable Care Act.

California employers cannot absorb all of these costs and be forced to provide paid sick leave as well, without cutting other costs, such as labor. Accordingly, AB 1522 will have an impact on jobs as well as future growth.

Two studies of similar paid sick leave laws enacted in other areas have shown that businesses hire fewer people, lay off employees and provide fewer raises in order to comply with these financially burdensome laws. 

A published Employment Policies Institute study on the effects of Connecticut’s paid sick leave law that went into effect in 2012, showed that of the 156 businesses responding to the survey, 31 had reduced other employee benefits to balance the cost of the paid sick leave; 12 had reduced employee hours; six had reduced employee wages; 19 companies had raised their prices; six companies had laid off employees; and 16 companies stated that they would limit their expansion in the state. Thirty-eight of the businesses surveyed also indicated that they would hire fewer employees as a direct result of the new law, while others stated they planned to offer fewer raises. 

Similar results were reported in the February 2011 Institute for Women's Policy Research on the effect of the paid sick leave program in San Francisco. Specifically, 15.2% of the employees surveyed were laid off or had their hours reduced after the program was implemented; 14.1% of the employees surveyed received fewer bonuses or had their benefits reduced; and 21.7% of the employees had increased work demands. Of the industries surveyed, businesses with 24 employees or fewer were the most negatively affected by the paid sick leave program. 

Moreover, the report notes that "low-wage workers were more likely than higher-wage workers to report that their employers took action to reduce costs in implementing" paid sick leave in San Francisco. 

Rather than implement new mandates such as AB 1522, California should incentivize employers to offer these additional benefits by reducing costs in other areas.

One area in which California can reduce costs on employers so that they have the capacity to offer paid sick leave is daily overtime. California is only one of three states that mandate both daily and weekly overtime, creating a huge cost to employers. If this cost were reduced by conforming to federal law and only mandating weekly overtime, employers would more likely have the ability to offer paid sick leave as well as provide a more flexible schedule for working families. 

Another option to partially offset the burden on employers to provide paid sick leave is to provide small employers with 50 or fewer employees with a tax credit for the amount expended each year on paid sick leave up to a maximum of 125% of minimum wage, thereby targeting lower-wage employees.

Just recently, the State Controller released a statement indicating that California’s revenue for February 2014 was approximately $1 billion higher than the Governor projected. A portion of this unexpected revenue could be utilized for a tax credit for those small employers who provide and pay an employee for sick leave, as proposed under AB 1522.

The CalChamber is urging members to ask their Senate representatives to oppose AB 1522. An easy-to-edit sample letter is available at www.calchambervotes.com.