Sick-leave mandates make businesses queasy

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(FORTUNE Small Business) -- Washington, D.C., is moving forward with a bill that would make it the second city in the U.S. to require all businesses, including those with fewer than 10 employees, to provide paid sick leave for their staff.

With a city council vote on the "Accrued Sick and Safe Leave Act" currently scheduled for Feb. 5, local businesses, worker advocates, and elected officials are locked in a debate over whether the measure would be a drain or a boon for small businesses.

The D.C. bill is part of a growing national movement to push for universal sick-leave laws, which advocates say is necessary to provide job protection for the estimated 70 million American workers who currently lack sick time benefits.

In 2006, San Francisco voters approved a law mandating paid sick leave for all businesses in that city. Ten states, plus the city of Milwaukee, saw similar legislation introduced in 2007, according to the National Partnership for Women and Families, which promotes mandatory sick-leave bills. And waiting in the wings is the Congressional Healthy Families Act sponsored by Sen. Edward Kennedy (D-MA) and Rep. Rosa DeLauro (D-CT), which would require every employer in the nation with more than 15 employees to provide seven days a year of paid leave.

The D.C. Chamber of Commerce has been vocal in its opposition to the proposed law, turning out more than 150 business owners to meet with Schwartz to speak out against the bill.

"The bottom line is it's an unfunded mandate," says Chamber President Barbara Lang, who testified before the council that "this bill could place these business owners in the untenable position of choosing between compliance with the law, offering other employee healthcare benefits, or contributing to the local economy by hiring additional employees."

Under the council's proposed, initially put forward by councilmember Phil Mendelson and currently sponsored by councilmember Carol Schwartz, all businesses within the District would be required to provide paid leave to all workers, which could be used in case of illness or injury. The required number of paid leave days varies by company size, ranging from a maximum of seven days for businesses with more than 50 employees to a minimum of three, for companies with 10 or fewer employees. Part-timers would receive pro-rated leave time.

"I have five guys in the kitchen, and one guy calls in sick, what do I have to do to cover the shift?" says Paul Cohen, operator and co-founder of Capital Restaurant Concepts, which operates 11 restaurants in the D.C. area. "I'm going to have to hire extra people to fill in for that." Cohen estimates that the law could reduce his restaurants' profit margin by 20 percent.

But while proponents of sick-leave requirements mainly cast them as a worker-rights issue, they say the change could be a boon to businesses as well. Providing added benefits not only promotes worker retention, they say, but allowing employees to stay home when ill helps avoid what's been dubbed "presenteeism": sick workers showing up on the job and infecting their co-workers, dragging down productivity.

Small business owners counter that worker retention isn't as much of a benefit for business that employ many part-time and seasonal workers, as do many of the small businesses that are most likely to be affected by the new law. And while the the D.C. Fiscal Policy Institute, a budget-watch group that supports the sick-leave bill, estimated that savings to local businesses would amount to $11.69 per worker against $10.35 in added costs, the D.C. Chamber of Commerce notes that these figures fail to factor in the cost of benefits to additional hires.

As more cities and states mull sick leave requirements, all eyes are turning to San Francisco, which since last June has required employers with 10 or fewer workers to provide five days of annual paid leave, while larger employers must pay for nine days a year.

"Some employers initially were very alarmed," says Donna Levitt, head of the city's Office of Labor Standards Enforcement, but since then implementation has been "quite smooth."

Because the law was passed by a voter referendum, with no input from local businesses or even public hearings, many policy details had to be hashed out after the fact; Levitt's office delayed putting the new law into effect for four months while these were worked out, and set up a website to help explain how to obey the new law, which Levitt says has gotten "a huge number of hits" in the months since.

San Francisco Chamber of Commerce vice-president Jim Lazarus says he's heard few complaints from local business owners about the law.

"I have not gotten more than a handful of calls on this ordinance," he says, though he estimates that 90 percent of the city's employers already met the new law's requirements. "It's small businesses that may have informal sick leave programs - I take a day off here, you take a day off there, we cover for each other."

For them, the chamber has issued its own electronic handbook to help explain how to navigate the new law.

Stephen Cornell, the owner of Brownie's Hardware in downtown San Francisco, says that though he already provided sick leave benefits to his workers - "I'm a retail hardware store, so I want employees that are quite knowledgeable" - he understands why businesses like restaurants that rely heavily on part-time or seasonal labor might feel otherwise.

"The people who wrote this up never owned a business, never did a payroll," he says, noting that business owners must keep what amounts to an extra set of books to track accrued leave time. And since the law exempts workers for their first three months of employment, he wonders if it will end up encouraging employers to cycle through temporary workers to avoid providing paid leave.

Cornell's biggest concern is that municipally mandated sick leave requirements will put businesses like his at a disadvantage to neighboring areas. In fact, he says, he'd rather have state or federal legislation requiring sick leave for all workers than the current patchwork of laws.

"Put us all in the same boat here," he says. "I think all of us don't like to do things, but if we're all on a level playing field, we don't mind doing it."