Seattle paid sick leave and reduced employee-employer flexibility

Increasing the minimum wage in Seattle is getting all the employment policy attention right now, but it is one of many compensation and benefit mandates. Another of those mandates in Seattle is paid sick leave, which went into effect September 1, 2012.

A second report on the ordinance was released April 23. (More on the first report, released last year, here.) This new report includes a survey of employers, interviews of employers and employees, and an analysis of Employment Security Department (ESD) data.

Unsurprisingly, “Compared to when the Ordinance first went into effect, more employers now offer leave to their part-time and full-time employees.”

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For employers, the most challenging part of implementing the ordinance was the record-keeping: 32 percent said it was somewhat or very difficult. 29 percent of employers said it was somewhat or very difficult to understand the legal requirements of the ordinance.

The review of ESD data (comparing Seattle to Bellevue, Everett, and Tacoma) showed that employer growth and number of jobs didn’t seem to decline in Seattle following implementation. However,

Total wages appeared to grow more slowly in Seattle than in the comparison cities after the Ordinance took effect. Additional analysis shows this may be due to the wages paid per worker, suggesting that employers in Seattle increased workers’ hours or workers’ per-hour wages less than did employers in the comparison cities. This is consistent with hypotheses that employers reduce (or do not expand) wage compensation to balance out potential costs of the required paid sick and safe leave. This evidence should be interpreted cautiously, as the effect is not strong statistically and may be due to other factors.

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As the report notes,

The Ordinance mandates a change in employee compensation. Businesses and non-profit organizations had several options for accommodate this change. They could 1) change the proportion of resources devoted to employee compensation, 2) shift the nature of current or planned compensation (through decreasing other paid leave, for instance), or 3) attempt to increase revenue to compensate for increased labor costs.

In response to the mandate, 8.2 percent of employers raised prices, 6.4 percent decreased employee pay raises or bonuses, 5.3 percent decreased vacation time, 2.7 percent reduced the number of Seattle employees, and 0.7 percent closed or relocated Seattle locations.

One of the reasons supporters said mandated paid sick leave was necessary was that fewer employees would come to work sick. Supporters also claimed that it would be a benefit to employers because there would be less employee turnover. But, according to the employer survey, 93 percent say the ordinance has had no effect on the number of sick employees at work and 98 percent say there has been no change in employee turnover. Additionally, 17 percent say that profitability is worse due to the ordinance.

Employers “viewed the Ordinance as part of a package of realized and potential reforms – including the federal health care reform and local minimum wage efforts – that threaten their livelihood via increased costs and reduced flexibility.” For example,

A food and accommodation sector employer had previously offered an annual bonus equal to roughly two weeks of earnings; employees could choose to use this bonus as pay for time taken off or as a supplement to their earnings. This policy was deactivated in favor of a paid time off bank that meets the Ordinance’s stipulations.

Paid sick leave is indeed part of a package of mandated benefits and compensation. Although any one of the pieces may not put an employer out of business, the cumulative costs of doing business in Seattle do start to add up. Additionally, “employers who oppose the Ordinance cite philosophical beliefs about government interference in the employee-employer relationship.” Certainly, this mandate requires a specific benefit, regardless of whether employees might find a different benefit (like the bonus in the example above) preferable.