Even Amended, Michigan’s Paid Sick Leave Would Cost Employers $1.1 Billion

But original proposal was much worse

The supporters of the paid sick leave ballot proposal are upset that the Legislature is considering amendments to it. They argue that the amendments “gut” the proposal. But even with the changes and even with improving the compliance problems the original proposal creates, this remains an expensive mandate on employers that will likely do many employees more harm than good.

The proposal originally required that workers get one hour of paid leave for every 30 hours they work, up to nine days per year for larger employers and five for smaller companies. The amendments changed this to 40 hours and a cap of 4.5 days annually.

While the majority of employers already offer paid sick leave, the proposal and the amendments makes these benefits mandatory. Given the breakdowns for the number of employees covered, the proportion of business establishments with fewer than 10 workers, the proportion of part-time workers as a percentage of the workforce, the average hours worked by part-time employees, and the average hourly wage, the proposal requires an estimated $7.1 billion in benefits to be paid out. The amendments reduce this mandate to about $3.4 billion.

That is not the increased cost of the benefits, though, it is only the cost of the mandate. Employers already providing benefits at these rates won’t face new costs. Assuming that all employers providing paid leave benefits offer them at levels at least as generous as the new mandate, and that Michigan offers the same proportion of paid leave benefits as the regional average, employers are going to need to provide an estimated $2.3 billion in new benefits. The amendments proposed by the Legislature reduce this to about $1.1 billion.

Even the amended mandate will cost businesses more than the corporate income taxes this year. And it does not include the extra human resources costs to comply with the mandate.

There may be some further unintended consequences if employers are required to pay $2.3 billion or $1.1 billion in paid leave benefits. They have options to lower their costs elsewhere. They may cut back on vacation days. That would be a loss for employees that would prefer to have vacation days rather than paid sick leave. Or they may drop the average wage rates. Or they might lay off employees as the mandatory costs of employment increase.

Bottom line: These new mandatory costs will be paid for by reductions in spending elsewhere, and it’s likely that most businesses will have no options but to make changes that will result in more employees being worse off than before. As others have put it, there’s no free lunch.

While the amended mandate is still an expensive requirement, it fixes the compliance problems of the proposal. The proposal gave little recourse for employers to ensure that benefits were being used for allowable purposes. An employee could be a “no-call, no-show” with impunity. The business could not even request an explanation about why an employee was missing work until the worker missed three straight days. Complaints from employees could give them a “rebuttable presumption” that employers were violating their rights and subject employers to court costs, double damages and a fine of up to $1,000. The amendments do away with these rules and let employers use their already-established processes for managing paid sick leave benefits.

The amendments to the paid sick leave proposal leave the essential features of the policy intact. They make it less burdensome and allow employers to keep their enforcement policies. This is far from “gutting” the original proposal, as it leaves the essential structures in place.