SA Businesses Begin to Calculate Costs of Paid Sick Leave Law

In the first 212 days of this year, 82 percent of employees who work the morning shift at Division Laundry & Cleaners, a San Antonio-based commercial laundry service, took sick leave to care for themselves or a family member or to see a doctor. The night shift had 79 percent take sick leave – a paid benefit mandated by an Obama-era rule for companies with federal contracts.

The cost to Division Laundry was $169,333.02, said Patrick Garcia, president of the 79-year-old company.

“We’re sitting here working on increases for our accounts, analyzing my cost for [health insurance benefits], and analyzing how much I need to ask the customer for,” Garcia told the Rivard Report one week after the San Antonio City Council voted in favor of the earned paid sick-leave ordinance that will take effect in 2019.

“With nine months of sick-leave costs under your belt, you know how much it’s going to cost,” Garcia said. It’s an expense he has to not only figure into the cost of doing business, but also explain to his customers – local hospitals, hotels, and restaurants.

But Garcia said he isn’t against a paid sick-leave policy, despite seeing absenteeism rates skyrocket since implementing the benefit nine months ago for his 356 employees. “I’m just saying I’ve had this experience with it, and if we’re going to impose it on the business community, businesses need to understand how it works.”

The ordinance goes into effect Jan. 1, 2019, and requires employers to provide one hour of earned sick time for every 30 hours worked, with a yearly cap of 48 hours for small employers and 64 hours for those with more than 15 employees. Businesses with more the five employees must comply by Aug. 1, 2019; those with fewer have until August 2021.

Despite the City’s vote to pass, the measure faces an uncertain future: Attorney General Ken Paxton has said he opposes cities attempting to implement local paid sick leave ordinances, citing “direct conflict” with state law.

Many questions remain among business owners, including how to budget for the benefit long-term.

Elizabeth Eguía-García, executive director of the Maestro Entrepreneur Center, has been getting those kinds of calls at the small-business incubator program, a partner of the San Antonio Hispanic Chamber of Commerce. “They are all in different situations, and some consistently offer some [benefits] already, but what they are seeking are the facts, and based on the ordinance, what they need to adhere to.”

She said the Aug. 1, 2019, compliance deadline gives small business owners the time they need to prepare and budget for the benefit. But paid sick leave will also be included as a topic in Maestro’s upcoming Entrepreneurship 10-Week Cohort, an intensive business accelerator program for small minority-, women-, and veteran-owned businesses funded by Woodforest National Bank. (The deadline to apply for the 2019 cohort is Sept. 14.)

But experience will be the only real way to know for sure what the cost will be to a business’ bottom line, Garcia said. “Nobody knows what their costs are going to be until they start paying it out, because [employees] have to accrue it.”

He noted there’s an added cost to tracking sick-leave accrual and reporting that to the employee.

Ellen Hasslocher, owner of Dutchess Promotions and Consulting, which supports food manufacturers working to get products into retail, currently hires only subcontractors, but had full-time and part-time workers when she was previously based in Austin.

“In my career, I know you have to dedicate someone to that record-keeping, either by making an investment in software or adding to the payroll, because we owe that to our employees to give them an update to their benefits,” she said. “But I also know dedicating someone to it is not a luxury most small businesses would have.”

Including hers, now and in the near future. “As a small business owner, [paid sick leave] will hinder growth with additional expenses, or I’ll have to look into shifting into a mix [of employees and contractors] and regenerating a business plan that uses more contracting work than full-time staff,” she said.

Though Hasslocher believes paid sick leave should be a basic employee benefit, she thinks the mandate should include only medium and large businesses and be modified to businesses that have only a small number of employees.

Tejas Premier Building Contractor President Julissa Carielo opposes the ordinance. “First, none of us believe that city government should be regulating or mandating how small businesses are run,” she said. “We have to have the flexibility to decide what is needed and change it on a daily basis. Sometimes that is the only way we survive.”

Carielo stopped bidding on projects in Austin when that city passed a paid sick-leave ordinance in February. (Last week, a state appeals court temporarily blocked the ordinance from going into effect in that city.)

The City should have looked at the data before passing such an ordinance to help council members understand why some small companies are not already offering paid sick leave, said Carielo, who also oversees the budget component of the Maestro curriculum.

“When I first started the company, I could not afford to pay benefits,” Carielo said. “I could not even afford to pay myself. I needed to learn how to complete a profitable project first, and I had more than 15 employees, so a sick leave policy like this would have only killed me as I could not have workers if I could not offer benefits. We have to work our way to benefits.”

At Division Laundry, 50 machines run almost around the clock, with teams of employees and supervisors positioned around the plant. When one calls in sick, or leaves early due to illness, another employee is called in and paid overtime so the company can meet its 24-hour turnaround as obligated under its contracts.

Although the company has been providing paid sick leave to its employees this year, it previously allowed employees to take time off without pay for illness and preserved their jobs until they could return to work. Now that the paid sick-leave policy is in place, Division is grappling with how to manage what Garcia calls abuse of the benefit, which costs the company time and money as well.

“We’ve had to counsel a few people because they falsified,” he said. “If I have to babysit this sick-leave policy, are managers going to spend more time and hours figuring out who is abusing it? Or am I just better off just paying it and passing the cost to customers?”

Some opponents of mandated sick-leave policies say the cost of providing the benefit is also passed on to employees, in the form of less take-home pay. According to the Bureau of Labor Statistics, more than 30 percent of a worker’s total compensation already goes to provide benefits. Private industry employer costs for paid leave averaged $2.40 per hour worked, or 7 percent of total compensation.

Division Laundry provides several employment benefits, including retirement savings, paid vacation, higher pay rates for some work, and paid sick leave. Yet, due to current employment levels, the company currently has 45 open positions it can’t fill, Garcia said. Chronic absenteeism makes it even harder to do business.

Various studies have shown that paid sick leave slows the spread of illness and prevents injuries and deaths on the job, reducing the associated costs to employers and society. However, the majority of all working adults say they go to work when they are sick.

In fact, half of all restaurant workers and more than half of those in medical jobs said they go to work always or most of the time when they have a cold or the flu, according to a 2016 Harvard Workplace and Health Report. There’s even advice online about how to get work done while you’re sick.

But adults in low-paying jobs, where only 38 percent have paid sick-leave benefits, are more likely to say they go to work when sick than those in average- and high-paying jobs.

Los Barrios Restaurant owner Louis Barrios believes restaurants, the majority of which are small businesses, will be hit hardest by the ordinance. For many, he said, it will be the final “nail in the coffin,” and others will be forced to cut jobs that young people and minorities rely on most.

“The restaurant industry is the poorest out there,” said Barrios, president and CEO of Los Barrios Enterprises. “I’ve got a phenomenal executive team. We’ll figure it out, and I now have 300 to 350 employees. Los Barrios and Mi Tierra and La Gloria, those are not going away. But the ‘mom and pops,’ I don’t even know how they made it this far.”

The San Antonio Chamber of Commerce has stated it does not oppose paid sick leave, only the mandate. “We believe private businesses alone should determine the right mix of pay/benefits that they offer to their employees,” Chamber President and CEO Richard Perez wrote in a letter to members just before the ordinance was passed.

“We all want to offer the best benefits we can to attract and keep good employees,” Carielo said. “This is the incentive we offer to be competitive and have the best workforce possible. When we have good workers we do everything we can to keep them.  They become part of our family.”

State Rep. Diego Bernal (D-San Antonio) has been meeting with local business owners to talk about paid sick leave. “I’ve been hearing the majority of people believe that it’s needed, that they all believe it should be earned, but they are all worried about abuse,” he said. “And every business is structured differently, so they have questions about how would it work for ‘this’ kind of employee or ‘this’ kind of business relationship.”

Mayor Ron Nirenberg has said he will form a commission to consider options to revise the ordinance and address legal concerns. Councilman Manny Pelaez (D8), a labor attorney, has been tapped to serve on the committee.