How Paid Sick Leave Could Backfire

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President Obama’s most recent executive order on paid sick leave is a “big idea” and as such, it’s become a big deal. But once the fanfare dies and the “big idea” is relegated to the corporate process, we will see that it was heavier on ideals than instruction.

According to the order, sick days will be earned, not simply awarded. Workers (at this time only those on federal contracts) will earn 1 hour of time off for every 30 hours they worked, with a cap at 7 days per year. This process seems straightforward, perhaps even fair.

But is it fair to assume that all businesses working on federal contracts already have a sophisticated time tracking system for all their workers to manage this new mandate? Some government contractors are small, minority owned businesses; low cost bidders who may be working on thin margins with project-based professionals that have never recorded their specific work times.

If these businesses do not yet have sophisticated systems, then this executive order is effectively a purchase order for an automated time and labor system. Add that to the cost of paying for the absences and it’s no longer a simple accrual add-on. Furthermore, the lack of clear details in this executive order makes it possible for businesses to seek and find loopholes.

Want proof? Here are just a few I found:

1.  Eligibility Dates

Workers know when their workforce benefits like 401K and vacation accrual begin, but there’s no expectation for when sick leave accrual begins.

  • Will it begin the first day of work? After orientation?
  • Will there be a 30, 60, or 90 day probation period to promote retention?

We aren’t sure if employers already providing at least 7 days of general paid time off will be exempt from this order. If not, they may slash such automatic or fringe benefits to compensate.

For some workers, the benefits they really want could remain just out of reach.

2.  Pay Out

We aren’t even sure if the order’s true intent is it for workers to use the time off or merely have it. In some organizations, unused leave used to be paid-out (cashed) at the end of the year (or in the event of job termination, in some cases). It’s unclear whether those 7 days will carry over to the next year or restart each year.

Pay outs can be a sizable liability for a business. If an employee making $10/hour takes none of his 7 sick days (and assuming 8 hours of pay), then he collects $560.

For organization with 100 employees, that’s a $56,000 liability per year.

3.   Number of Hours and Rate of Pay

Employers will need to determine which hours contribute to the sick bank accrual. For example, under the Fair Labor Standards Act, overtime is awarded based on the actual hours an employee performs duties for the employer (“hours worked”). However, according to the IRS’s definitions for identifying full-time employees (the rules used to determine ACA coverage), hours of service include time during which no duties are performed, such as vacation, holiday, or leave of absence.

So employees might earn more sick time even as they take sick time. 

Employers will also need to choose how many hours to compensate for one “sick day.” For example, a hospital may have nurses working 12 hour shifts, clerical employees on 8 hour shifts and part-time cafeteria workers on only 5-6 hour shifts.

  • Which will be considered a full sick day?

Different shifts may carry different pay rates or incentives too. Third shift may carry a premium rate; a consecutive shift may be eligible for a bonus.

  • Will special rates like overtime apply to the sick time rate?

How we enter time into the time and labor system will affect how it’s paid. Poorly translated or unchecked policies lead to abuse.

4.   Use of Time

Neither workers nor employers know yet when or how workers can use their sick time. If an employee worked 60 hours in the past two weeks, will he be able to take his 2 hours of sick time tomorrow or will he need to earn a full 8 hour day (after working 240 hours)?

  • Will employers restrict consecutive sick days?
  • Will workers need to request time off in advance?
  • Will leaving at 11 a.m. be considered a full-day or partial day off?

If allowing partial sick days, employers may stipulate that they be taken in 1 hour or 15 minute increments. Workforce management systems may need new labels for the time to ensure it’s fairly deducted from the accrual bank and accurately compensated.

With some companies struggling to even keep track of standard and overtime hours, effectively handling this additional time variable will be questionable.

5.   Ripple Effects

Employers will have little help controlling the direct and indirect costs of absence. Sick days—paid or unpaid—will always carry a cost of time and money for the employer. To mitigate the loss of productivity, the employer needs to find a replacement or defer the work to another time. Because the executive order seems to gloss over these difficult, expensive tasks, some employers will balk.

Some will cut benefits, reduce pay, or cap hours. Others may even try to buy out of it, even if there is a penalty.