Paid Leave and Your Small Business

June 24, 2021

Paid leave continues to be a hot topic among policymakers on both ends of Pennsylvania Ave. It is also a key issue for America’s small businesses, and something NSBA is working hard to ensure small-business needs are heard and met throughout the process. Below, NSBA has provided a brief policy update along with NSBA’s priorities when it comes to paid leave, as well as a detailed policy background on the issue. Additionally, NSBA President Todd McCracken has boiled the issue down into a brief video – click here to watch his quick summary of where things stand.

Policy Update

A month after he laid out a roughly $2 trillion infrastructure plan aimed at helping the nation recover from the coronavirus pandemic, President Joe Biden unveiled an additional $1.8 trillion proposal, the American Families Plan, (AFP) which would invest $225 billion to guarantee 12 weeks of paid parental, family, and personal illness/safe leave within 10 years, and ensure workers get three days of bereavement leave each year.

Specifically, the AFP would create a federal family and medical leave program which would pay workers between two-thirds and 80 percent of average weekly wages—lower income workers would receive a higher proportion—with a max of $4,000 per month. The program would be funded primarily through increased taxes, specifically bumping the top federal income tax rate from 37 percent to 39.6 percent and increasing capital gains and dividend tax rates for those earning more than $1 million annually.

Currently, under the Family and Medical Leave Act (FMLA), employers with more than 50 employees must provide eligible employees with up to 12 weeks of unpaid leave and ensure a same-level return to work. The AFP does not provide clarity on whether those eligibility requirements would be different and/or extend to even smaller employers.

Other proposals would also mandate some level of paid leave. Two primary bills are the Healthy Families Act (S. 1195), which requires employers with 15 or more employees to pay workers seven sick days per year for themselves or to care for a member of their family; and the Family and Medical Insurance Leave Act (S. 248) which would provide partial paid leave under the Family and Medical Leave Act funded by employer and employee payroll taxes.

NSBA Paid Leave Priorities

As the nation begins to emerge from the pandemic and continue the hard work toward improving the economy, small business will play a pivotal role, and, unfortunately, new mandates on small businesses could be particularly problematic. The cost to the smallest employers extends far beyond the direct cost into indirect costs including extended worker absence. In a company with 100, or even 50 employees, covering for one person’s FMLA leave can be a manageable task, but in a shop with just five people, that absence can become a major hardship.

Furthermore, NSBA surveys have found that the majority of small-business members (83 percent) already offer some kind of paid sick leave, and the majority offer 11 days or more. One of the things that makes small business so special is its familial feel—business owners employ neighbors, friends and family, and there is a strong desire to treat those employees well.

Employees and employers should be able to determine for themselves the allocation of compensation between money, paid sick leave, paid vacation leave, health insurance, retirement and other employee benefits. There is no particular approach that meets the needs of all employees or employers, and any proposal to mandate leave—paid or unpaid—must take into account both the direct AND indirect costs.

Detailed Background

American Families Plan

The American Families Plan – includes a plan that would establish the nation’s first permanent federal paid leave program. Unveiled on April 28, the proposed legislation would permit workers to receive paid leave for their own health problems, parental purposes, or to care for sick family members, feathering in benefits to eventually offer a full 12 weeks of leave by 2031.

The paid leave portion of the American Families Plan would create a federally run program that would pay workers who take time off for a variety of reasons:

  • a worker’s own serious health problems;
  • to care for seriously ill family members;
  • bond with a newborn or newly adopted child;
  • reasons related to a family member’s military deployment; and
  • seeking safety from sexual assault, stalking, or domestic violence.

The proposal also calls for three days per year for paid bereavement leave as necessary.

The program would be phased in over time. The maximum of 12 weeks of paid leave benefits would not be fully available until 10 years after passage of the legislation.

The proposal would not necessarily be a dollar-for-dollar replacement for a workers’ typical salary, but instead include a sliding-scale benefit amount that would be more generous for lower-wage workers. The paid leave program would pay workers at least two-thirds of their wages while on eligible leave, but the rate of pay would increase to 80 percent for certain low-income workers. The proposal calls for a maximum benefit cap at $4,000 per month.

While not getting far into the details of how the program would be implemented, the White House indicated the president’s support for several key ideas that paid leave advocates have endorsed.

Among them: a sliding-scale benefit amount aimed at making it affordable for lower-wage workers to take paid leave, plus a broader list of situations that qualify for leave than the coverage provided under the Family and Medical Leave Act (FMLA) of 1993, which requires certain employers to grant unpaid leave and job protections. Unlike the FMLA, Biden’s proposal calls for providing paid leave for reasons related to military deployment or to seek safety from sexual assault or domestic violence.

Separately, Biden’s proposal also calls on Congress to pass the Healthy Families Act, which would require employers to let workers accrue seven paid sick days per year—a benefit that could face stiffer business-community opposition as it would be funded directly by employers.

Legislative Uncertainty

It is important to note that draft legislation has not yet even been introduced or released, so there are many details not yet known. At this time, we do not know whether there will be employer-size thresholds and hours-worked requirements as exist in the federal Family and Medical Leave Act (FMLA). Also unknown is whether the proposed statute will include the type of job protections provided under FMLA permitting workers to bring claims if they believe they have had their rights violated.

Finally, the proposal contains no mention of how its requirements would interact with existing state paid leave laws. Currently, at least nine states, the District of Columbia, and various local governments mandate some form of paid leave, creating a patchwork of compliance obligations for multistate employers. It is unclear how the American Families Plan paid leave plan would impact these obligations.

Who Would Pay for the Paid Leave?

The plan does not appear to rely on any direct contributions from businesses, instead gaining funding through federal budget appropriations raised through tax increases on wealthy individuals. White House officials have proposed $1.5 trillion in tax increases aimed primarily at wealthy Americans and investors, which could include a 100 percent increase on the capital gains tax rate for those earning over $1 million per year. The White House also believes that an announced boost in enforcement efforts by the Internal Revenue Service will raise significant funds. It appears unlikely, however, that the administration would seek to raise payroll taxes to help fund the proposal, given that the White House has pledged not to raise taxes on individuals earning less than $400,000 per year.

There are some who believe that the plan would need to raise much more in order to fully fund the promises made in the proposal. Although the White House release estimates that it would have a projected cost of $225 billion over a decade, at least one think tank – the Institute for Women’s Policy Research – believes it would take $460 billion over 10 years to match the paid leave promises contained in the release, which is more than double the amount allotted in the White House proposal.

For it to become law, the plan will need to overcome various sticking points around cost, whether and how to raise taxes to pay for it, and how to protect employers from compliance burdens. To get the plan through the Senate, Democrats will need either to convince 10 Republicans to support it or pass it under budget-reconciliation rules.

Building an Economy for Families Act

On April 27, Rep. Richard Neal (D-Mass.), Chair of the House Ways and Means Committee, proposed his own sweeping economic overhauls that would provide Americans universal paid family and medical leave, guaranteed childcare access and permanent expansions of tax credit.

The proposal, Building an Economy for Families Act, would set up 12 weeks of paid family and medical leave for every worker in the U.S., calculating benefits based on average monthly earnings.

Rep. Neal’s plan would provide up to 60 days of paid family and medical leave for all U.S. workers, replacing up to 85 percent of monthly wages for those making roughly $15,000 annually and sliding down to 5 percent wage replacement for income between around $100,000 and $250,000, with the amounts indexed for inflation. The intent is to provide around two-thirds income reimbursement for the average worker’s earnings below $1,257, according to the summary. Higher-paid workers are set at lower wage replacement rates.

It would address the interaction between state and federal paid leave requirements by letting existing state programs continue to operate if they are at least as generous as the federal program. It also would provide grants to partially reimburse state programs and voluntary employer benefits that match or exceed the federal benefits.

Operated by the Department of Treasury, benefits would take effect at the start of 2023, an apparent recognition of the difficulties of setting up a robust paid leave initiative.

Families First Coronavirus Response Act (FFCRA)

Early in the COVID-19 pandemic, Congress passed the Families First Coronavirus Response Act (FFCRA). Under the act, employers with fewer than 500 employees had to provide paid sick leave and paid family leave for certain COVID-19-related reasons through the end of 2020. The FFCRA provided refundable tax credits to eligible employers to reimburse them for the paid-leave wages.

The American Rescue Plan Act of 2021, however, did not mandate continued COVID-19-related paid leave. Rather, the act extended the FFCRA tax credits to employers that voluntarily offer such leave through Sept. 30.

Senate Committee on Health, Education, Labor & Pensions Hearing

At the May 18 hearing, the Senate Committee on Health, Education, and Labor & Pensions heard testimony on proposals for a nationwide paid-leave program. While supporters said a federal program would benefit families and workers at all income levels, opponents said a national mandate would raise significant challenges for small businesses.   

Chairwoman Patty Murray (D-Wash.), supports the Healthy Families Act, which would require employers with at least 15 employees to provide workers with seven days of paid-sick-leave accruals each year. Employees could use the leave to care for their own illness or that of a covered relative, as well as for preventive care.

NSBA has previously expressed concerns with the Health Families Act because the one-size-fits-all mandates take away the flexibility small businesses need and their employees value; the act is overly complex and has unforeseen, unintended, and hidden costs that hurt small business; and three, the paid leave mandate proposed in the act would be one more mandate that would negatively impact small business.

During the May 18 Senate committee hearing, Sen. Murray said paid leave should be “a right for all, not a privilege for some.” She added that “people are still forced to choose between a paycheck … and taking time to care for themselves or their families.” 

Ranking Member Richard Burr (R-N.C.), said he understands the need to “balance family life with the workplace” and he supports the idea of paid leave for workers. He raised concerns, however, about how to pay for the proposal. He said a “costly new mandate imposing a one-size-fits-all policy … on small businesses … could force businesses to cut jobs.”

He noted that private-sector businesses have come up with “creative ideas” for providing paid leave, such as paid-time-off purchase plans that “allow workers who want more leave to purchase additional paid time off either through employer flex credits or salary reductions with pretax dollars.” And some employers offer short-term disability insurance plans that provide employees income security when they need time off.

“There are big questions of disagreement surrounding paid leave,” Burr said. Will it be mandated? Who will pay for it? Who will be eligible to receive benefits and for what reasons?