The full story of its passage and the questions that remain to be answered for Washington state small businesses
NFIB was the only business group to actively oppose Senate Bill 5975 and warns the new state-run insurance program promises to spawn more problems for small business.
When Democrat Gov. Jay Inslee signed Senate Bill 5975, sponsored by Republican state Sen. Joe Fain, into law July 5, 2017, Washington state became one of only five in the nation to adopt a paid family and medical leave program. The bipartisan effort drew congratulatory back-patting from the political industry and glowing media approval here and across the nation.
The story, however, is far from over, warns the National Federation of Independent Business, the lone business voice against this latest paid leave mandate, and the sole group warning against its punishing expansion, attempts of which are inevitable.
A recounting of the bill’s progress through its legislative hoops is useful for those concerned with the issue, for in it can be found clues where further attempts to expand the law may lay.
In the Beginning
Fresh off the success of I-1433, last fall’s minimum wage and paid sick leave initiative, Big Labor, progressive groups, and their legislative allies were eager to advance a paid family and medical leave program, by any means necessary.
State Sen. Karen Keiser and Rep. June Robinson introduced companion bills greatly expanding Keiser’s stalled, decade-old paid family leave program that the Legislature adopted in 2007, but never funded. Those proposals, Senate Bill 5032 and House Bill 1116, envisioned a portable benefit for all workers, funded by employers who could deduct up to 50 percent of the premium from workers, much like the state-run workers’ compensation system premiums. Under these proposals, qualifying workers would be eligible for up to 26 weeks of paid family leave, at 90 percent wage replacement, capped at $1,000 per week, for a birth or adoption, to care for a sick relative, or military related needs. Workers could also take up to 12 additional weeks of paid medical leave for their own personal health condition, for a possible total of 38 weeks paid leave.
Republicans – and most of the business community – were eager to forge a legislative compromise rather than risk another loss at the polls.
Enter Sen. Joe Fain and the Association of Washington Business.
A new father himself, Fain was sympathetic to the paid leave crusade, but mindful of the potential harm to Washington employers. As an alternative to the Democrat proposals, he introduced Senate Bill 5149. His legislation called for an entirely worker-funded insurance program that would provide phased-in weekly benefits and leave beginning in 2020. Qualifying workers could receive up to eight weeks paid leave at a maximum of about $550 per week:
- for a birth or adoption
- to care for a sick relative
- for issues related to military duty.
Independent contractors and local governments could opt into the Fain model that would grow to a maximum of 12 weeks leave and a roughly $725 weekly benefit by 2023.
Stung by the loss of the “No on I-1433” campaign they and the state hospitality association were assigned to oversee, an endeavor neither group was eager to pursue to begin with, the Association of Washington Business (AWB) and a few hand-selected associates funded a poll to determine the potential popularity of a paid family leave initiative at the ballot box. Not surprisingly, the poll said what anyone should have expected, the public generally supports spending other people’s money for a feel-good policy where they expect to be potential beneficiaries.
Thus, the Fain plan was a useful prop around which AWB and its faithful partner, the Washington Hospitality Association, could rally a nervous business community. Setting a middle course between the Fain and Keiser approaches was sure to appease Big Labor and its progressive allies, thus fending off the threatened initiative, which the business community and some legislative Republicans were certain would be far worse than any Olympia compromise could possibly be.
The table was set.
NFIB’s Position on Paid Leave
While reliably opposed to new taxes and mandates on small businesses, NFIB signaled its willingness to be neutral if firms with fewer than 50 employees were fully exempt, the same as under the federal Family Medical Leave Act, and the benefit entirely worker-funded. Fain’s bill met the latter requirement.
NFIB reminded lawmakers – and fellow members of the business community – that the vast majority of businesses already offer paid or unpaid time off, and for any reason the employee chooses: sickness, care for a family member, parental duties, personal or family member victim of domestic violence, etc. (see infographic here). Also, the federal Family and Medical Leave Act “provides certain employees with up to 12 weeks of unpaid, job-protected leave per year. It also requires that their group health benefits be maintained during the leave.”
Additional state mandates, NFIB emphasized, could do more harm than good.
As NFIB continues to point out, unlike the heads of corporations, small-business owners know personally each of their employees and their families, and most offer paid time off on a case-by-case basis, providing the employee what he or she needs in a way the business can afford. Mandatory paid leave would only impose unnecessary limitations on these businesses. Such initiatives assume one size fits all. In the small-business world, what works in one company could be detrimental for the next. The rigid nature of mandated paid leave often has a negative impact on employee morale. Other points NFIB regularly reminds policymakers of are:
- Big businesses and huge corporations have full-time legal, accounting, and human resource departments to deal with local, state, and federal rules and regulations. Small businesses do not.
- Small businesses already pay 30 percent moreper employee than big businesses do to comply with the same regulations.
- Employee replacement costs can be a big issue for small-business owners when an employee goes on paid leave.
- A worker taking extended time off leaves a hole that must be filled by other staff working overtime or by finding, hiring, and training a new temporary employee as a replacement – both of which are direct costs to the business.
For more information on how devastating paid leave could be, the Research Foundation of NFIB took a detailed look at a federal proposal, using sophisticated BSIM modeling (Business Size Insight Module). State paid-leave mandates on top of federal ones only exacerbate the already difficult jobs small-business owners have in keeping their doors open and Washingtonians employed.
To its credit, AWB eventually invited NFIB to participate in several strategy development discussions it hosted among the broader business community. It was clear from the outset though, that a legislative compromise was a foregone conclusion; an initiative battle would be unwinnable.
Not surprisingly, due to NFIB’s insistence on a full small-business exemption and worker-funded premium, viewed as intransigent by many business groups eager to broker a deal, NFIB was excluded from the negotiating team.
Nonetheless, NFIB maintained its position, which some others in the business community appeared to have embraced. But that was not the case among the business negotiators.
As talks with Labor and its progressive coalition began behind closed doors, their negotiators insisted on several points:
- All businesses, regardless of size, must participate.
- Payroll tax (“insurance premium”) split 50-50 between employers and workers.
- Two separate types of leave – personal illness and family (birth, adoption, foster placement, family illness) leave – in the neighborhood of 30-38 weeks annually.
- Job protection for any worker taking leave who has six-months tenure, even part-time, with a firm employing eight or more workers.
- No more than 680 hours on the job to qualify to take leave (same as unemployment insurance).
- Employers already offering paid leave may receive a waiver if their leave program is more generous than the state plan; those employers would still be charged “full administrative and enforcement costs.”
- No pre-emption, so any municipality (say, the city of Seattle) could impose its own separate program.
As a sop to small businesses, Labor’s handouts included:
- a training grant equal to the average weekly wage normally paid to the worker on leave (likely capped at $1,000)
- $500 credit towards future “premiums”
- and/or $750 per month health insurance premium subsidy if a worker is on leave 12 or more weeks, since the employer would be required to maintain health insurance coverage for that worker.
These “small business assistance” concepts, if implemented, would have applied only to firms with 10, 15, and 25 or fewer employees respectively. Based on this, NFIB had no choice but to oppose the plan based on our national policies and input from its state leadership council.
Among the first business community priorities to be scuttled was a full exemption for small firms employing fewer than 50 workers. Business negotiators agreed the program would cover all workers in exchange for a concession that certain small employers would be exempt from their portion of the new payroll tax.
That, coupled with business negotiators’ willingness to accept a payroll tax on employers and workers to fund the program, doomed NFIB’s efforts to be neutral on the emerging agreement.
NFIB initially attempted to take a rather low-key lobbying approach centered on educating lawmakers, not alarming them. Unfortunately, erstwhile allies mounted a disinformation campaign to undermine NFIB’s position once it exposed numerous flaws with the proposal.
NFIB policy is to notify lawmakers of its positions on key bills in advance of an expected vote, when possible. Accordingly, NFIB emailed a Priority Vote alert to all legislators June 26, which clearly vexed business community colleagues who negotiated SB 5975 behind closed doors.
A few sparks flew during testimony on the then-latest draft bill before the state Senate Commerce, Labor, & Sports Committee two days later.
The Association of Washington Business’s labor lobbyist mentioned NFIB three times in his testimony, and claimed that by inviting NFIB to several group meetings (and excluding it from many others) NFIB was part of AWB’s “coalition” effort. In addition, a rebuttal to our Priority Vote alert was circulated by this “coalition” June 29. They cited nine of NFIB’s objections, but only disagreed with three of them. NFIB challenged the rebuttal on those three points:
- “Secondary employment” is not defined in the bill. The term commonly means holding a second job, or “moonlighting.” The assertion that it somehow refers to employment by an ailing family member cared for by a worker on paid leave, not the worker on leave him or herself, is specious at best.
- The new bill appears to have removed personal liability for employers. That is welcome news, and NFIB should take credit since that language mysteriously disappeared from later drafts after NFIB brought it to the Legislature’s attention. However, the bill still gives the Employment Security Department (ESD) authority to lien assets, seize and sell property, and pursue civil litigation to collect premiums [Sec. 56, 57, 59, 60, 61, 64, 65].
- Negotiators claim so-called “voluntary plans” will be available for any employer regardless of size. NFIB must take their word for this because the bill gives ESD sole discretion to approve voluntary plans [Sec. 14]. There is a “must approve” clause [Sec. 14(5)], provided the proposed plan meets nine criteria. Nonetheless, implementation will be subject to the department’s rulemaking and interpretation. NFIB hopes all employers will in fact qualify, if this alternative is worthwhile, once the regulations are promulgated.
NFIB Members Rally for the Cause
NFIB-member Kerry Cox braved that rather tense Senate Commerce, Labor, & Sports Committee public hearing June 28 to join state director Patrick Connor in voicing objections to the moving target that the bill had become. Cox’s excellent testimony can be viewed here. Fellow members Steve Neighbors and Lois Cook provided written testimony, which NFIB submitted to the committee. (Neighbors’ letter can be read here, Cook’s here.)
NFIB faced a number of questions from committee members, many dumbfounded that small business would oppose such an affordable new mandate with such high poll numbers among the public. NFIB’s testimony and questioning ran a little more than 20 minutes in total, and can be viewed in full here.
Coincidentally, a new bill was released the day after the hearing. Accordingly, NFIB sent lawmakers an updated Priority Vote alert June 30 reflecting the changes in that latest draft. In related communications, NFIB also reasserted its opposition, quelling absurd rumors circulated by business negotiators that our state and national positions were somehow different. More than 400 emails from NFIB members to lawmakers reinforced that point.
In the end, although opposed to the legislation every step of the way, NFIB succeeded in smoothing a few of the rougher edges of the new law.
By the End—72 Pages!
After months of jockeying and secret negotiations, SB 5975, which would eventually become law, finally emerged June 29. Highlights of the 72-page draft include:
- The Employment Security Department (ESD) will administer the program, including developing rules and regulations.
- To be eligible for benefits, an employee must work 820 hours within the preceding four of five quarters.
- The intent is for the benefit to be portable with few or no additional requirements when workers change jobs, except a requirement to complete 340 hours at a firm offering a “voluntary plan” before that plan is charged for any leave new workers take.
- Leave is split into two “buckets”: family leave for the birth or placement of a child, or care of a relative with a serious health condition; and medical leave for a worker’s own serious health condition. Beginning in 2020, eligible workers would be entitled to 12 weeks of either family or medical leave, or 16 weeks for a combination of both. In the event of pregnancy-related complications, two additional weeks leave is allowed. The bill does not specify whether the added leave is available solely to the mother or to both parents.
- Workers should provide 30 days’ notice before taking leave, if possible.
- ESD may require certification from a medical provider to confirm the worker’s health condition requiring leave. Workers would have to consent to medical information being released to the department.
- Workers would receive a weekly benefit between $100 and $1,000 based on their average weekly wage … unless their average weekly earnings are below $100, in which case they would receive the full amount of their lesser average weekly wage. Workers would have to earn the equivalent of an $85,000 annual salary to reach the $1,000 weekly cap. The cap will be indexed to wage inflation, and adjusted annually.
- Starting in 2019, the program will be funded by a payroll tax starting at 0.004 times an individual’s wage. Workers will pay about 63 percent of the tax.
- ESD will set the annual premium, which may vary between 0.001 and 0.006 of wages. Proponents estimate the initial premium would cost minimum-wage workers about $2 per week.
- Employers with 50 or more workers would pay approximately 37 percent of the payroll tax or “premium,” with workers paying the balance. Small businesses with fewer than 50 workers would not be required to pay the employer portion of the premium. Proponents estimate the employer premium would cost roughly $1,480 for a $1 million payroll.
- Only employers paying their portion of the premium would be eligible for training and wage-offset grants. The program would offer $3,000 grants for training temporary replacement workers or $1,000 to offset overtime or increased hours for other workers covering for the employee on leave.
- Employers with 50 or more workers would be required to provide job protection for workers taking leave, expect in a few special situations. They would also be required to maintain health insurance benefits.
- Employers would NOT be charged unemployment insurance (UI) costs for temporary replacement workers, but it appears small employers that do not hold a job open for a worker on paid leave would be charged for unemployment benefits, and their UI experience rating affected accordingly.
- The bill allows any employer to establish an alternative “voluntary plan” so long as several conditions established in law and by rule are met. Negotiators have indicated the total leave duration and benefit payout under these plans must be equal or better than the state program. Worker premiums for any voluntary plan could not be greater than those charged for the state program. These plans also require job protection and maintaining health insurance benefits.
- Self-employed individuals and tribes could opt-in to the state program for a minimum period of three years. Self-employed persons would be required to pay the worker portion of the premium to participate. Tribal participation will be subject to rules developed by ESD.
- The bill seeks to prohibit local governments from creating their own programs, but does not use customary language to fully pre-empt and occupy this area of labor law. Seattle has already indicated they believe the bill still allows them to regulate businesses in this regard.
- An ombudsman and advisory committee will be appointed. It appears AWB would nominate all employer representatives on the advisory panel, all but ensuring opposing voices will never have a vote on program operations or policies, exactly the same problem as exists on the state Department of Labor & Industries Workers Compensation Advisory Committee.
- The bill also includes various penalties for violations of the act, as well as a lengthy description of appeals processes.
- Premiums collected by employers would be held in trust. Unpaid premiums would be subject to penalties and interest. The department could also issue liens, seize and sell assets, and pursue civil legal action to collect premiums owed.
After Governor Inslee signed SB 5975 into law, small-business owners had some immediate questions:
Q: Are businesses with fewer than 50 employees automatically exempt from paying the tax or will they have to opt out?
A: All employers will have to collect and remit the payroll tax for all workers … unless the business adopts its own “voluntary plan,” which must be approved by ESD. There are very few details about what an approved voluntary plan would look like. It will be left to rulemaking to flesh out.
The statute “exempts” employers with fewer than 50 workers from paying the employer portion of the payroll tax/premium (estimated at 37 percent), unless the firm opts in to the state program, for a minimum three-year period, to qualify for the “small business assistance” funds.
Opting into the state program also triggers a requirement for small employers to hold the job open for the worker on leave.
Q: Even though small businesses are exempt from a portion of the tax, do their employees still have access to the benefit?
A: Yes. All workers will be eligible to take paid leave beginning in 2020, regardless of their employer’s firm size.
Q: Is the exemption for 50 employees or 50 full-time equivalents (FTE)?
A: The law states, “’Employee’ means an individual who is in the employment of an employer.” That appears to include every worker, regardless of hours worked, so it is NOT an FTE count, it is a body count. Part-time workers will be eligible for the program once they reach the qualifying number of hours.
Q: Can workers opt out?
A: Workers may NOT opt out of the program. However, an employer that has implemented an approved voluntary plan, or is subject to a collective bargaining agreement (CBA), might be able to structure that plan or CBA in a way that the employer pays the entire premium (no worker payroll tax or other financial contribution), but workers will still be eligible for some sort of leave benefit. Details will be determined by rule.
Q: Will businesses be subject to experience rating for this new program?
A: The law is silent on experience rating for using the new program. Instead, it includes a formula for ESD to determine the payroll tax rate for the following year based on expected utilization and reserve needs.
Employers will NOT be charged for unemployment insurance (UI) benefits paid to a temporary worker hired to replace a permanent worker taking paid leave, so long as that temporary worker is employed for 20 weeks or less, and is terminated because the permanent worker returned to their job.
It appears UI experience rating would be affected for a small employer that choose not to hold a job for a worker taking paid leave, driving up that firm’s unemployment taxes for four years. Larger employers must hold the job for a worker taking paid leave, except under specific special circumstances.
Q: How much will the payroll tax cost employers and workers, and how much will workers be paid if they take family or medical leave?
A: Senator Fain posted this handy Family Leave Benefit Calculator. Please note it provides estimates only.
Related News Stories
The Daily News (Longview), July 8—The new paid leave law takes choices away from workers, State Director Patrick Connor explains in this article.
KIRO-AM, Seattle, July 6—State Director Patrick Connor comments on the paid family and medical leave bill.
The Spokesman-Review, Spokane, July 6—The new paid leave law is certain to make some workers very unhappy, says State Director Patrick Connor. The story also ran in The Daily World in Aberdeen. NFIB’s opposition also cited in Crosscut, an online news site.
Washington Policy Center, June 30—Erin Shannon, director of the center’s Small Business and Labor Reform unit, cites NFIB’s opposition to the paid family leave bill.