Paid Sick Days and Your Small Business: Highlighting Cost Effective Management Strategies

Transcription

1 Paid Sick Days and Your Small Business: Highlighting Cost Effective Management Strategies April 2013 Small Business Majority th Street, NW, Suite 1001 Washington, DC (202)

2 Introduction Many small businesses are wary of government requirements such as proposals for mandatory paid sick days (PSD). A key concern is whether a PSD policy will add administrative burden and red tape. However, most businesses already manage a paid sick days program. Those that do not can add one without great difficulty, as they already track the elements essential for assessing sick days accrual and utilization. Paid sick days accrue based on the number of hours an employee works and the time they take off, which every business already tracks because the data is used to determine pay both for hourly and salaried workers. 1 Manipulating this data is simple. There are readily available tools to track paid sick days via several systems businesses are already using. QuickBooks, 2 the most common accounting software for small businesses, has a system for tracking paid sick days. ADP and Paychex, the two most common payroll providers, offer paid sick day management systems. Several cities and states have passed PSD laws in recent years: New York City, San Francisco, Seattle, Washington, D.C. and Connecticut. This memo demonstrates how easily a small business can manage these new regulations, and then identifies resources available for administering PSD policies in a simple and cost-effective manner consistent with the law. Overview of the Laws Laws on paid sick days are made up of a few essential elements that are important for our analysis. First, they define which businesses are impacted by any mandates. Second, they set the maximum number of sick days that can be accrued (although employers may be more generous than the law, if they wish). Third, they indicate the rate of accrual. The laws that this memo explores are substantially similar, with modest differences. San Francisco 1-9 employees, 9+ employees 5 (1-9 9 (9+ 1 hour of earned sick time for every 30 hours Seven years ago, San Francisco became the first city in the United States to approve a paid sick and leave ordinance. According to a 2009 report by the Urban Institute, after the ballot initiative was approved, there were 115,800 new employees in the private sector that were newly compensated in the event of absence or during leave. 3 The San Francisco Paid Sick Leave Ordinance (PSLO) requires an employer to offer any employee that has worked at least 56 hours in a calendar year the ability to accrue time for sick leave. The San Francisco PSLO requires that businesses with nine or more full-time-equivalent employees (FTEs) be eligible to accrue up to 72 hours of paid leave annually. For small businesses with fewer than nine FTEs, the cap is set at 40 hours. In both instances, an employee earns one hour towards their maximum cap after every 30 hours worked. 1 This memo does not directly discuss Paid Time Off policies ( PTO ) policies that provide a set number of days off for each employee and allows them to use these days either as vacation or sick days. However, PTO is tracked in the same way using the same tools as paid sick days do. 2 Quickbooks market penetration is around 90%. 3 Walter Boots, Shelley, Karin Martinson, and Anna Danziger. Employers' Perspectives on San Francisco's Paid Sick Leave Policy. Tech. no. 12. Washington, D.C.: Urban Institute, Print Small Business Majority 2 April 2013

3 Seattle 5-49 employees employees 250+ employees 5 ( ( hour for every 40 hours ( hour for every 30 hours (250+ Nearly 200,000 workers found new protection when Seattle implemented a PSD law. 4 Like San Francisco, the requirement in Seattle sets the accrual and cap limits based on the size of one s business. However, the city chose to group businesses in different pool sizes. There are three categories: 2-49 employees; employees; and 250+ employees. The Seattle law gives a longer wait period before an employee has access to accrued sick days. Although accrual of sick days begins immediately, an employer is not required to provide access to sick days until an employee has been employed for 180 days or more. This nearly doubles the wait-period of the San Francisco PSLO. Washington, D.C. Washington, D.C. has taken a different approach than both cities on the Pacific coast. D.C. set out to build upon its 1991 Family and Medical Leave Act (FMLA) while drafting the Accrued Sick and Safe Leave Act of Under the law, an employee must first be eligible under the criteria set forth by the FMLA law before they can be considered to earn paid sick and/or safe leave. Further, the employee must be employed by their company for one year and work 1000 hours during that time to be eligible. Under the law, employers are required to log both the background of employment and their employees current eligible accrual hours. The accrual caps under this policy add additional recordkeeping responsibilities, as measurements are required to be converted from hours into days 1-24 employees employees 100+ employees 5 (40 Hours) 1 hour for every 87 hours worked ( hour for every 47 hours worked ( hour for every 37 hours worked (100+ for a D.C. business owner to comply with the law. In San Francisco and Seattle, business owners are able to track a pool of hours and subtract the ones an employee was not present for. This method can be especially convenient in the event of tracking a half-day, or if an employee arrives late after caring for a sick child. 4 Seattle Times, 2/17/ Small Business Majority 3 April 2013

4 Connecticut 50+ (service employees only) 5 (40 Hours) 1 hour for every 40 hours worked Connecticut's law applies only to businesses with 50 or more employees, and allows an employee to earn one hour of paid sick leave for every 40 hours worked. 5 The accrual process only begins after six months of employment with the same employer. Connecticut s law is quite narrow in sector. It applies only to service workers as defined under the law; it includes workers that are paid on an hourly basis, who commonly work in businesses such as restaurants, child-care centers, hospitals and transportation. Because their hours are tracked closely by employers, hourly workers are the most easy to handle for the purposes of PSD accrual and utilization. The payroll data employers already have on file can easily be re-purposed for PSD tracking. New York The Earned Sick Time Act is law in NYC. The legislation includes all employees that have worked at least 80 hours during a calendar year, and every business will be required to offer 5 unpaid sick days annually. The law will begin by imposing a requirement of 5 days maximum on businesses with more than 20 employees, accruing an hour for every 30 hours. The requirement will eventually apply to businesses with more than 15 employees. 20+ employees (as of April 1, 2014) 15+ employees (as of Oct. 1, 2015) Workers in smaller businesses entitled to 5 unpaid sick days 5 (40 Hours) 1 hour for every 30 hours worked 5 An Employers Guide to Connecticut s Paid Sick Leave Act. Issue brief. Hartford: Siegel, O Connor, O Donnell & Beck, P.C, Print Small Business Majority 4 April 2013

5 Existing Software and Service Opponents of PSD policies often raise the objection that complying with such policies is difficult for small business owners. The basis for this concern is the absence, at many small businesses, of a fulltime human resources department capable of tracking paid sick days. This memo will now explore how much time small business owners actually spend managing this issue. A 2010 report published by the NFIB traditionally an opponent of PSD policies demonstrates the relative ease of administering a PSD program. A 2010 report published by the NFIB traditionally an opponent of PSD policies demonstrates the relative ease of administering a PSD program. NFIB puts the total cost associated with administering a PSD policy $400 a year. Broken down further, NFIB members reported that on average, administering such a program takes them merely 10 hours a year, and costs about $40 per hour. 6 These estimates provide a useful benchmark for the maximum administrative cost associated with a PSD program. QuickBooks is the most commonly used small business accounting software program. It offers a simple function to manage paid sick days accrual and utilization, through QuickBooks Professional and Enhanced Payroll. This program costs $400 annually, or $34 per month for all recordkeeping related to human resource needs. 7 Most owners would likely use some or all of the additional tools included in this package, such as tracking accrual and utilization of vacation days. Some of the cost for this program could therefore be ascribed to these other tools, reducing the overall administrative cost associated with PSD accounting. To the right is a screenshot of the tracking wizard provided by QuickBooks. As you can see, it accounts for all the elements of a potential plan, including accrual, caps on total days accrued, when utilization can begin and actual usage. While the Intuit QuickBooks Software Bundle makes the process manageable, it is not the simplest system. We can assume there is cost associated with learning the program and administering it. Fortunately, there are even cheaper and more hands-off tool services to help ease these burdens, offered by payroll companies like ADP and Paychex. The basic service that a small business can use directly through Paychex is referred to as the Small Biz paperless plan. Although an exact rate for this service could not be obtained, estimates range from $130 to $155 per month for a business of at least 10 employees. 8 The service includes weekly payroll and Paychex vacation tracking. The tracking covers both paid sick days and leave for employees. Similarly, ADP offers a service known as ADP Compliance with Pay Convenience, which is much greater in cost due to setup fees and additional payroll functions. Depending on the level of assistance an employer needs in setting up and using their service, however, ADP may be a better option for the 6 Chow, Michael J. The Economic Impact of H.R and Mandatory Paid Sick Leave on U.S. Small Businesses. Rep. Nashville: National Federation of Independent Business Research Foundation, Print. 7 To process payroll through this software then a $22.00 monthly fee would be applied for the service based on a business of 10 employees. 8 Conversation with Paychex representative. 2/8/ Small Business Majority 5 April 2013

6 responsiveness and directness of its representatives. Getting quotes for ADP services has been noted by some as simpler and faster than obtaining such information from Paychex. Internal Management Every business tracks the total number of hours its employees work. This is necessary to determine how much to pay those employees. These detailed records are all a business needs in order to determine how many paid sick days an employee has earned and how many he or she has used. Put differently, every company tracks precisely how many hours an employee works and when they take time off, and this alone is sufficient to assess both sick day accrual and utilization. This data may be kept in an Excel spreadsheet or in a Word document, and with this raw data, an employer can quickly and efficiently determine accrual and utilization of paid sick days. There are a number of free products available to facilitate this process. Timesheets.com is notably accurate and easy to use. This web-based free software offers four templates to track an employee s hours in and out of the office. Each template comes equipped with formulas to automatically calculate regular time-off totals and accruals. Further, these templates can all be utilized in a format compatible for processing payroll in QuickBooks or general accounting software. The greatest benefit of this freeware is that its stand-alone capabilities can produce clear results while simultaneously working well on related platforms. Conclusion Businesses already track the raw data associated with managing a PSD program. By utilizing affordable resources that can assist in compliance with new PSD requirements, employers are able to administer a formal policy in ways that are not burdensome. As a result, there is no reason to assume substantial administrative or personnel cost would be associated with implementation of a PSD policy. In addition, evidence has consistently shown that employers benefit from such requirements, as they experience increased stability, retention and loyalty of their workforce Small Business Majority 6 April 2013