Paid Sick and Safe Leave: Complex Compliance Challenges Require Customized Solutions
By Janis Moebus, MA
VP National Absence Management Practice
Aon Health Solutions
By Adam Morell, JD
Senior Consultant, National Absence Management Practice
Aon Health Solutions
Twenty-five years ago, the United States didn’t require employers to provide job protection to employees who missed work due to their own illness or that of a family member. This changed with the passage of the Family and Medical Leave Act (FMLA) in 1993. The FMLA provided many employees with peace of mind that they wouldn’t lose their job just because they took time off to bond with a newborn, care for an elderly parent, or tend to their own serious health condition.
While the FMLA requires that employers provide job protection, it does not require that employees be paid during their time off. That loss of income can be a significant blow during a medical or family leave.
In response, many U.S. states, counties, and cities have enacted paid sick, family, and medical leave laws requiring that employees receive at least partial income replacement when they are absent to care for themselves or a family member. These laws are often referred to as sick and safe leave (SSL) laws. San Francisco was the first U.S. city to pass such a law in 2006, and SSL laws have proliferated over the last five years. As of January 2019, over 35 U.S. states, counties, or cities have SSL laws on the books.
While these laws are good news for employees and their families, the provisional and administrative requirements present a myriad of challenges for employers. First, because these laws are made at the local level (versus a federal law), they can present multi-state employers with quite a hurdle to achieve full compliance.
In addition, most SSL laws cover temporary and seasonal employees, provided they work the specified minimum number of hours. This is a dramatic change for many employers that don’t normally provide time-off benefits to these workers. Finally, these laws often require employees be allowed to carry over unused time into subsequent years, which many employers’ paid time-off policies prohibit. These laws also need to coordinate with existing time-off leave and disability policies such as short-term disability (STD) maternity.
Until federal paid leave legislation is passed that preempts state and local laws, employers must comply with all the multi-jurisdictional laws affecting them.
One strategy for employers is to create a single plan that accommodates all jurisdictions in which the employer has workers. The concept is as follows: the employer looks at the worksite locations of all its employees and applies the provisions of the most employee-friendly applicable sick and safe leave law to everyone, whether or not they work in a SSL law jurisdiction. This is often called the “high-watermark” plan. A variation of this scheme is to offer a high-watermark plan in SSL jurisdictions and another plan where sick and safe leave is not a requirement.
The high-watermark plan approach has several benefits. First, because the most comprehensive SSL law controls, it helps ensure compliance throughout an employer’s total footprint. This plan also offers ease of administration. If managers and the human resources (HR) department have one policy, there is less opportunity for administrative error. Finally, because the company has only one rule to follow, the high-watermark plan is a good choice if the employer’s payroll and human resource information system (HRIS) cannot accommodate complexity.
However, this approach has some drawbacks. Employers who use a high-watermark plan will invariably allow employees to take more time away from work than is strictly required. This results in increased dollar costs for labor replacements as more employees (including part-time, seasonal, etc.) are offered leave.
Another choice is the “jurisdictional” approach, in which an employer creates a new policy for each jurisdiction where it has entitled employees and provides exactly the amount of SSL time that its work locations require. In this approach, the employer doesn’t suffer high labor replacement costs due to allowing more SSL benefits than necessary. This approach works well if an organization has little ability to offer employees time away from work beyond what is strictly required.
But the jurisdictional approach has complexities that can be overwhelming, with more than 35 laws currently on the books and the number growing each year. Thus, this approach doesn’t work well with payroll and HRIS systems that can’t handle multiple policies. In addition, it requires managers to understand the laws of all jurisdictions in which they have employees. The organization may also need to employ local law experts to ensure that policies are correctly being administered to comply with the rules of each law.
Finally, a middle-ground strategy called the “consolidated” approach clusters similar legislation from different jurisdictions into a few plans.
The consolidated approach is a compromise: not as expensive in time away from work as a high-watermark plan and administratively simpler than a jurisdictional plan. With a consolidated plan, as new legislation is enacted, an employer adds the new requirements of that jurisdiction into an existing plan. Or put another way, the wheel is not reinvented each time. Rather, an employer just adds a new spoke.
But this approach requires analytic work to develop the right configuration of plans. This is especially true if an employer has many locations with SSL laws. After all, similar legislative benefits aren’t the same as exact legislative benefits, so grouping similar jurisdictions together requires an analytical approach. Employees may receive a bit more leave than required. However, many employers see this as an acceptable trade-off, given the administrative ease compared to the jurisdictional approach.
Thus, while the consolidated approach requires work to develop the right configuration of plans, it is often cost effective and the simplest to administer over time.
Selecting the optimal compliance strategy for SSL regulations can be a complicated endeavor. You will want to consider the capability of your systems, staffing, and cultural approach to time off for self and family. As mentioned, coordination of other benefits is critical, as well as understanding cost implications, such as higher labor replacement costs. You may need to involve many stakeholders, including HR, payroll, information technology, and benefits departments.
The worst approach, of course, is to do nothing. The “do-nothing” approach often happens when an employer is uninformed or intimidated regarding paid SSL laws. Or maybe the employer is waiting for relief via a federal paid leave law. But as you can imagine, with new laws frequently being enacted (22 of them since 2016), the head-in-the-sand approach can be a costly compliance mistake. Leave oversight and governance bodies are beginning to turn their attention from developing guidance to investigating complaints, recovering back wages, and levying fines. New York City has issued over $2 million in fines to companies for noncompliance since its paid sick leave law went into effect. In addition, the city has recovered almost $6 million in back wages to employees who were illegally denied pay pursuant to the law.
In 2018, a 12,000-life manufacturing company (we’ll call them “Ball Bearings, Inc.”) was tasked with finding the most prudent way to comply with the relevant paid sick/safe leave laws in their locations. They had 31 operating companies in 18 states and were subject to 11 SSL laws. They were growing fast, mainly by acquisition. As often happens with fast-growth scenarios, they were inconsistent; a handful of operating companies were following the paid SSL ordinances in their locations — but most were not.
They ruled out the high-watermark approach as too expensive. They couldn’t afford the productivity hit of more employees missing work than necessary and didn’t want the bottom-line effect of paying replacement workers to do the job in their absence.
They rejected the jurisdictional approach because they didn’t want the administrative burden of creating 11 plans now, and additional ones later for new acquisitions in jurisdictions with SSL laws.
They chose the consolidated approach, and began by analyzing the requirements of all statutes in the 11 jurisdictions. Ball Bearings, Inc. (BBI) determined that three stood out as having idiosyncratic requirements and decided that each of these warranted an individual plan. The other eight offered comparable employee benefits, and were all slotted into one policy. Thus, in the end, they designed a program with four policies.
In its first six months, the plan delivered advantages in several realms.
First, from a staffing perspective, BBI has a better grasp of unplanned and unexcused absences. Before the project went live, the operating companies educated the employees on the new plan at their location. Because managers and employees were on the same page regarding the employees’ sick leave benefits, employees have planned more thoughtfully and provided better communication about doctor’s appointments and similar events. The company has found it much easier to deal with predicted absences than the unexpected absences that occurred under the old plan, when many employees didn’t have (or didn’t know they had) the sick time available.
In their annual employee survey, many employees expressed that the new plan was easier to understand, and they didn’t have to worry about taking time off to care for a loved one.
The wisdom of the consolidated approach was underscored a couple months after the plan went live when BBI acquired another company in a location that subjected them to a 12th SSL law. Rather than creating a new policy, BBI tucked the newly-acquired operating company into the fourth policy, which now comprises legislation in nine jurisdictions.
Administratively, the company has also benefited. HR and payroll staffs have found that administering four SSL policies is far easier than the 12 they would be doing had they not rolled out the consolidated approach.
And, let’s not forget the most obvious benefit: BBI has peace of mind that they are now compliant with SSL laws across the enterprise.
When it comes to compliance with sick and safe leave laws, choosing the right approach for your organization involves a careful and thorough analysis. You will be comparing the primary cost of labor against a host of secondary costs, such as staff knowledge (entailing hiring, retention, and training costs), HRIS and payroll system limitations, other administrative costs, and changes to other leave and disability programs such as STD. An optimal, regulated paid leave strategy that most effectively meets your organization’s goals in all these areas can also offer improved talent recruiting and retention.