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Viral Aftereffect: A Federal Paid Leave Mandate

The vast majority of COVID-19 sufferers will fully recover, but the new respiratory disease is likely to have permanent aftereffects on American labor law, in the form of a federal paid leave mandate.

We don’t yet know what form such a mandate will take, or how lawmakers will address its economic side effects and practical limitations. But the terms of the debate have shifted to an extent that a national mandate is probably inevitable. It may come quite soon.

A dozen states plus the District of Columbia already have some form of paid-leave requirement on the books, the terms of which vary widely. If a federal mandate is enacted, it will probably set a floor on such requirements while allowing states to enact greater mandates, as is the case with federal minimum wage laws. I do not expect Congress to try to preempt tougher state requirements, at least not for some time.

Until now, Democrats have generally favored paid-leave mandates, including but not necessarily limited to leave for personal or family illness. Republicans (myself included) have tended to oppose them. This is not, as critics often charge, mainly to protect profits, but because anything that drives up the real cost of labor tends to burden the most marginal workers, the ones whose skills barely generate enough value to justify hiring or keeping them. In some workplaces it can also encourage unwarranted absenteeism and create conditions that are unfair to more diligent and dedicated employees.

Such arguments are irrelevant, however, if the issue of sick leave comes to be seen as a matter of public health rather than economics. In light of COVID-19, this is now the case. The government task force, led by Vice President Mike Pence, is urging people to stay home if they have even mild respiratory symptoms. That is something not everyone can afford to do. Workers may only be able to access unpaid time, which can strain or break a budget after weeks of isolation. Or workers’ employers may not permit them stay home for only mild symptoms, meaning they can lose their jobs outright if they follow the task force’s guidance. If we really want people to stay home, we have to make it feasible for them to do so.

I am not sure what it says about our public discourse that the new virus achieved such quick results when there was little discussion of the seasonal flu this year (or any other). At this writing, the novel coronavirus has been found in about 1,100 Americans and killed 32. Meanwhile, in the 2019-2020 season, the flu has infected 30 million to 40 million of us, sent hundreds of thousands to hospitals and killed between 20,000 and 40,000, according to figures from the Centers for Disease Control and Prevention reported by NPR. Yet here we are, finally asking ourselves how we will allocate and share (some might say “socialize”) the costs of illnesses that can affect all of us, although hardly equally.

House Democrats have already offered a bill to require accruals of up to seven days of paid sick leave for most employees in enterprises with at least 15 workers. The bill also mandates an immediate grant of 14 extra days when there is a public health emergency. Consider this an opening offer in what is likely to be a contentious but compressed negotiation.

Such mandates do nothing for self-employed individuals. This includes typical workers in the “gig economy” (though we can expect more fights like the one over California’s AB-5 legislation that classifies most such workers as employees). But it also includes owners of small businesses, such as home repair contractors and retail shops. In fact, sick leave mandates may make it harder for such businesses to take on workers at all, especially the last few workers who might push them across a threshold like the Democrats’ 15-employee figure.

There are some ways to address these limitations legislatively. Liberalizing rules to allow greater borrowing from employer-sponsored retirement plans, and to allow borrowing against individual retirement accounts for the first time, could create a source of emergency cash for business owners and employees alike with little long-term impact to federal revenue. Banks and brokerage houses that act as IRA custodians could administer such loans without much difficulty and with modest fees. Having them do so would prevent these loans from becoming an avenue to evade the taxes and penalties that apply to distributions.

The federal government could also grant a credit against payroll tax to small employers that are required to offer paid sick leave. Such a credit could be phased out for larger businesses, which probably would offer such paid leave anyway. This might be the only way to avoid having this mandate act as a brake on direct employee compensation. No matter what justification we cite for requiring businesses to incur specified labor expenses, there are still only so many dollars available for employers to pay their workforce.

Decades of experience as an employer and business owner have taught me that people will do what you pay them to do. If you pay them to be sick, they will be “sick.” If you pay them not to be sick, they will still get sick from time to time – we are all human – but they won’t be doing it for compensation.

I never wanted to be in the business of determining when an employee, or an employee’s family member, is sick enough to warrant a paid day off from work. Some people will take time off for even a mild sniffle or a mental health day; others will show up for work on crutches before the plaster in their casts has had time to dry. So I never offered paid “sick days.” I provide our staff with ample amounts of paid leave for them to use at their discretion, or to carry over to future years when not used. I prioritize fairness above all in compensation matters. This seemed, to me, the fairest approach.

Yet I made an adjustment when the novel coronavirus first became a serious issue in the United States. Early last week, I informed Palisades Hudson’s staff that any personal time off between now and April 15, for whatever reason, will not be charged against their accrued paid leave.

This is our busy tax season. I want as much of our staff as possible to work from home, even though we must keep at least a minimal crew on hand at our larger offices. I don’t want anyone bringing any infection to the office that might result in multiple employees being forced to self-quarantine for extended periods. So, rather than let employees decide for themselves whether an illness is serious enough to warrant missing work (and using paid leave to do so), I took the decision out of their hands. I told them I want them to stay home. They can work from home if they are up to it, or not, or use the time to take care of family members. I will pay them anyway. We will revisit the policy next month to see what makes sense after April 15.

The policies that work well in my business would not be practical or well-received in some others. Ordinarily it is up to those business owners to do what is best for their enterprise, including for their workers. Policies on paid leave were generally the purview of business owners – until now. That part of the economic social contract is going to become one of the casualties of COVID-19. The new virus will leave most of us unharmed, but it will not leave any of us unchanged.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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