By Joyce Beebe, Ph.D.
Fellow in Public Finance
As of mid-August, there have been more than 500,000 coronavirus cases in Texas, causing over 10,000 deaths. With students returning to school, businesses reopening, and the flu season approaching, what are the safety nets for Texas workers if they get sick? This post reviews current developments and major controversies regarding paid sick leave policies from federal and state perspectives, and highlights several key issues to inform the current debate.
Federal Rules
Before March 2020, no federal law required employers to offer paid sick leave for the short-term health needs of workers. The situation temporarily changed when the Families First Coronavirus Response Act (FFCRA), the federal government’s second Covid-19 relief package, was signed into law on March 18, 2020. FFCRA requires certain employers to provide their employees up to two weeks of paid sick leave at two-thirds to full pay due to Covid-19 related illness of the employee or family member. This provisions remains in effect until December 31, 2020, meaning that workers who did not have paid sick leave through their employers before the pandemic will lose coverage after this date.
Who Does Not Have Coverage?
The discussion is therefore most relevant to the group that does not have access to paid sick leave through their employers: low-income, small business employees in the private sector. Based on 2019 federal statistics, 73% of private industry workers nationwide have access to paid sick leave through their employers, whereas 91% of state and local government workers have paid sick leave benefits. However, the coverage is not evenly distributed: 93% of private sector workers at the top 10% of the wage distribution have access to paid sick leave, but only 30% workers at the lowest 10% of wage distribution have coverage.
In addition, workers across the wage distribution spectrum are more likely to have paid sick leave benefits if they work for large companies: close to 90% of workers employed by companies with over 500 employees have coverage, but only 64% employees who work for businesses with fewer than 50 workers have paid sick leave benefits.
Public sector workers have better coverage compared with their private sector counterparts: 67% of workers in the lowest wage decile and 85% of employees at the smallest state and local government agencies (fewer than 50 employees) have access to paid sick leave benefits. The coverage for public sector workers at the top wage decile (94%) or who are employed by large establishments (93%) is comparable to that for private industries.
Why No Coverage?
The reasons for opposing a mandatory national or state paid sick leave policy come down to two major issues: cost and abuse. These concerns are especially prominent for small businesses with thin margins and limited alternatives to cover the shifts of absent workers.
Department of Labor data show the average cost of providing paid sick leave benefits was $0.42 per hour per employee in 2019, which does not seem to be a large amount. However, because low-income workers are more likely to be without coverage, there is a concentration of minimum wage workers in this group. In Texas, where the minimum wage is $7.25 per hour, the economic effect of requiring employers to pay for sick leave is similar to increasing labor costs by 6% ($0.42/$7.25 = 6%) for each hour of paid sick leave earned.
Opponents of mandatory policies also point out that, economically, workers’ wages should be commensurate with their productivity. If a policy artificially raises workers’ pay without a matching increase in productivity, employers will respond by cutting jobs, reducing workers’ hours, or switching to AI-enabled solutions to ease the impact of increased costs. Overall, such measures may help workers in the short-term but will eventually hurt the group the policy intends to help.
Another major opposition is potential abuse. For instance, employees may falsely claim they are sick or give notice immediately before their shifts, leaving employers with no time to find alternative help. Others are concerned that once paid sick leave becomes a requirement, workers will continue to ask for more –more sick days, more mandates, or perhaps paid family leave that covers long-term health needs.
State and Local Movements
Due to the lack of federal movements, most paid sick leave discussions have been at the state and local government levels. To date, about 15 states and Washington D.C. and roughly the same number of cities and counties have passed paid sick leave laws. Employees generally earn paid sick leave for a certain number of hours worked, and the hours they can accrue each year is subject to a cap. For instance, California’s paid sick leave, benefitting almost 7 million workers who previously had no coverage, allows employees to accrue one hour of sick leave for every 30 hours worked; employees can accrue up to 48 hours per year.
Three Texas cities — Austin, San Antonio and Dallas — have passed a paid sick leave ordinance within the last two years, but none is effective due to legal challenges. The rules generally allow employees to accrue one hour of paid sick time for every 30 hours worked, up to 48 hours (for smaller employers) or 64 hours per year (for employers with over 15 employees). In November 2018, the Third Court of Appeals ruled that the state’s minimum wage law preempts local governments from regulating employee compensation; hence, Austin’s ordinance violates the Texas Constitution. In early June, the Texas Supreme Court declined to hear the case, the Court of Appeals decision therefore stands. This decision, made as the Covid-19 outbreak escalated, prompts debate as to whether Texas legislators should resume discussion of the paid sick leave issue at their next session.
Although paid sick leave policies generate momentum at the state and local government levels, it is a fairly new development. Many jurisdictions passed paid sick leave laws only within the last several years. On the one hand, this shows the policy has gained increasing awareness and support; however, due to the recentness of these policies, economic data regarding the costs and benefits are still accumulating.
Some research shows promising outlooks. A study analyzing the costs and benefits of Austin’s paid sick leave ordinance estimates 211,000 employees will gain access to this benefit at the cost of $34.3 million for employers. The policy is expected to yield $38.8 million in benefits per year to employers through savings from reduced turnover. There is an additional $3.8 million benefit to the community in terms of reduced spending on health care expenses.
Similarly, a study commissioned by the city of San Antonio concludes that 345,000 workers will gain access to paid sick leave benefits as a result of the city’s ordinance. It will cost small businesses (of less than 20 workers) $16 million per year to provide this benefit, but they will recover $11 million in direct benefits from increased productivity and enhanced stability of the workforce. In addition, the broader community will get another $33 million benefit per year due to reduced use of the health care system, such as fewer emergency room visits and lower medical expenses.
Aside from the positive results, additional studies referenced by the city of San Antonio generally find limited evidence of abuse. Workers tend to view paid sick leave as insurance rather than an entitlement, and they save the days for emergency use instead of exhausting days as they are accrued. Employers usually cover short-term employee absences by temporarily assigning tasks to other workers, allowing employees to swap shifts, putting work on hold, or having employees work from home when applicable; as such, labor cost increases have been modest.
However, some survey-based studies found the laws had a limited impact on reducing workplace illness, because some sick employees nevertheless report to work for various reasons. These studies typically involve interviews with employers and employees regarding their experiences with paid sick leave laws shortly before or after the laws’ implementation. In some cases, the same set of survey results may be viewed positively and negatively. For instance, some view a study that surveyed employers’ perspectives on Seattle’s paid sick leave ordinance as positive evidence that the policy has high support from both employers and employees and limited impact on profitability, whereas others state the survey shows no decrease of employee turnover.
However, paid sick leave policies can help improve public health by keeping sick workers at home. Across industries, workers in hospitality, leisure and food services have the lowest paid sick leave coverage; less than half of the workers in these industries have access to the benefit in 2019. Not surprisingly, when Seattle adopted a paid sick leave ordinance in September 2012, employers in the food and accommodation industry reported the biggest increase in coverage: before the ordinance, 14% employers in the industry offered paid sick leave, and 78% employers offered such benefit one year after the law went into effect.
A Minnesota-based study states nearly two-thirds of servers and cooks in the food service industry report that they have served or cooked while ill. In addition, a Centers for Disease Control and Prevention (CDC) study showed that 12% of restaurant workers said they had worked while they were sick, reporting vomiting or diarrhea on two or more shifts within the 12-month period prior to the survey. However, the CDC study stopped short of recommending paid sick leave as a solution; instead, it suggested policies that require workers to tell managers when they are ill, or that discourage restaurants from pressuring employees to report for work when sick.
The lack of indisputable conclusions about paid sick leave have also led to differences in issue framing, i.e., when the same set of facts are interpreted differently. Supporters of paid sick leave observe that jurisdictions with paid sick leave laws enjoyed a strong economy and job growth until the pandemic hit, so the cost issues raised by opponents should not be a major concern. Opponents, on the other hand, state that the cities without paid sick leave were also thriving, so there is no need to impose additional mandates.
Can We Come Out of the Pandemic Stronger?
Covid-19 accelerates the paid sick leave discussion on several levels, and exposes the weakness of the current system. Many employees are allowed to work from home during the pandemic. However, lower income workers are generally less likely to be able to work remotely; these workers overlap with the group that is least likely to have paid sick leave benefits. A fair portion of workers may only have minor symptoms or even be asymptomatic, but need to frequently interact with others. Time off may allow those who have contagious illness to avoid unnecessary contact with others.
Closing the gap of paid sick leave coverage will require joint efforts from both governments and employers, as well as zeroing in on low-income and small business employees who will reap the biggest benefit. However, the timing is tricky: some say that now is the perfect time to promote paid sick leave mandates, whereas others say there could not be a worse time because employers, especially small businesses, are struggling to stay afloat.
It may be an inconvenient time to consider paid sick leave policy, but it is the best time to examine how best to protect workers in Texas and have a healthy debate about the issue. Policymakers should view this unprecedented pandemic as an unprecedented opportunity to reassess our current system of protecting workers and public health. The federal measure under the Families First Coronavirus Response Act expires in four months. If nothing is changed, when the next pandemic hits, will we be in the same position again?