Running a small business is rewarding in many ways, but it can also be tough and the cost of doing business—rent, inventory, utilities, advertising, marketing, payroll, taxes and regulation—adds up very quickly and sometimes, especially in difficult economic times, it can be a real struggle for a business owner to keep their employees on the payroll. The fact is that small businesses are not like the giant uber-corporations that dot the big business landscape; they don’t see their employees as pawns in the great game of stock value and investor profit. No, to small firms, employees are the life and soul of the business just as small business is the life and soul of communities across the nation.

Of course, some folks don’t see it that way. Blinded by their class warfare ideology, they give no thought to the burden they are placing on people when they come up with their latest “great idea.” No, they assume that business owners will just work harder to find a way to cope with whatever tax or new regulation they choose to impose. Of course, the reality is—and has always been—that the higher the taxes and more onerous the regulations, the more likely it is that business will either flee the area or simply cease to do business at all. This means that jobs vanish, unemployment goes up and the welfare rolls swell as willing and able workers find themselves idled. Too bad that this history is lost on these so-called progressives, who persist in thinking that if taxing and regulating their way to prosperity hasn’t worked since 1776, it will work this time. You have to admire the persistence, if nothing else.

The Family and Medical Leave Act and You

Obviously, there has to be a balance between work and quality of life issues. If your child is hospitalized, for example, it would be terrible if your employer fired you for spending time with her. That was something that the government recognized in the Family and Medical Leave Act of 1993 (FMLA), which provides 12 weeks of unpaid leave per year so that people can take care of their families in times of emergency or major life change, such as the birth or adoption of a child. Of course, some restrictions do apply. The law also stipulates who is actually covered by the law:

Eligible employees are defined by the law an employee of a covered employer who has been employed by the employer for at least 12 months, and has been employed for at least 1,250 hours of service during the 12-month period immediately preceding the commencement of the leave, and is employed at a worksite where 50 or more employees are employed by the employer within 75 miles of that worksite.

Covered employers are defined by the law as any person engaged in commerce or in any industry or activity affecting commerce, who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year. Employers covered by FMLA also include any person acting, directly or indirectly, in the interest of a covered employer to any of the employees of the employer, any successor in interest of a covered employer, and any public agency. Public agencies are covered employers without regard to the number of employees employed. Public as well as private elementary and secondary schools are also covered employers.

In other words, if you have at least 50 employees, you employ them for at least 20 weeks and the worksite is within 75 miles of your business, then the FMLA applies to you. Of course, as it worked out, the FMLA wasn’t really too hard on business. True, in the event of a major life change, injury or illness, a firm would lose the services of one of their people. However, the effected person was not being paid for that time, which softened the blow considerably for the business in that they had the money to hire a temporary worker to fill the gap until the regular employee returned.

I bring this up because FMLA, as good as it is, is the inspiration for a new law that could prove disastrous to small business.

The Healthy Families Act

On the face of it, this proposed legislation seems innocuous enough. Co-sponsored by U.S. Senator Edward M. Kennedy (D-MA) and Representative Rosa L. DeLauro (D-CT), it would guarantee seven paid sick days per year for full-time employees, and a pro-rated number for part-time employees. The law would also guarantee paid sick days to recover from an illness, to care for a sick family member or to attend doctor visits. However, the eligibility for coverage under the proposed legislation is a bit different.

The chief difference is that instead of 50 employees, an employer would be covered if he employs just 15 people, which means that far more businesses—small businesses—would be covered under the law. This is just fine by workers’ advocates, who say that low wage earners are frequently forced to choose between the health of their families and their job, and have been trying to push this kind of legislation since 2004. They point to federal Bureau of Labor Statistics estimates that 43% of the private industry labor force in 2007 worked without paid sick time. The statistics also show that this group is primarily made up of low-paid employees at small businesses. I find it rather difficult to accept the idea that small business was not the primary target of this legislation.

The Needs of the Firm Come First

So, what would be the effect of the Healthy Families Act on small businesses that actually employ the “low-paid employees” mentioned in the statistics? It is likely that many of them would go from low-paid to not-paid as employers face the fact that it would be too expensive to keep them or, in some cases, too expensive to stay in business at all. According to Karen Kerrigan, President & CEO of the Small Business & Entrepreneurship Council (SBE):

The initial impact of the paid sick leave mandate would be jolting. There is only so much in compensation dollars available for small firms to expend, and they would have to make immediate decisions regarding pay cuts, job cuts, and the design of benefit packages, perhaps cutting back on health coverage to make up for the paid sick days, etc. Businesses may also decide to give less vacation time because of the sick leave mandate. It is our opinion that the consequences of the mandate would severely hurt those that it is purported to help—that is, lower income, low-skilled workers would get hurt the most. To the extent possible, businesses will turn to automation and technology much more rapidly in order to avoid these higher costs. This is happening already, and the paid sick mandate would accelerate that trend.

Over the long-haul, and again to the extent possible, small and mid-size firms will accelerate the use of outsourcing and independent contractors. Obviously for some firms, this is impossible. Entrepreneurship and small business start-up activity (as well as the growth of small businesses) will not be as robust as the mandate adds another major cost barrier to hiring employees. 

There are a wide variety of things that employers could do to soften this blow, things they would rather not do at all, and things that they should not have to do and yet will for the good of their company.

The Bottom Line

I hate it when people come to work sick. When they do, they inevitably spread their disease to all and sundry, which does have a negative effect on productivity. Instead of one worker being ill, now you have a whole bunch of them hacking and coughing their way through the day. It can take weeks, sometimes, to get a bug out of the office. That being the case, I would say to employers that if you can make it easier for that sick person to stay home and not infect everyone else, you should. It is common sense and common decency, but it should not be hallowed into common law. Entrepreneurs go into business to make a living. They create jobs. Some of these jobs pay well, some don’t. Some have great benefits, some have no benefits at all. It all depends on the market value placed upon the job and the specific circumstances of the employer. Unfunded mandates on business, such as the Healthy Families Act, do nothing other than make existing problems worse for all involved and steal the upside of going into business in the first place.

Many states have backed away from similar legislation already, and Kerrigan says that the chance of its passing at the federal level is slim, and depends on a number of factors:

At the federal level, passage ultimately depends upon control of the Senate and who is elected president in November. Senator Obama proposes to incentivize state enactment of a paid sick leave mandate through a $1.5 billion federal fund.

Ultimately, I think the state of the economy is the biggest factor driving this issue. No one has said this mandate is "free" and won't cost businesses anything. The small business cost/survival argument has been a potent one, along with what the mandate will do to a state's competitive position vis a vis other states. I believe the economy will continue in its "uncertain" state for some time and the business costs in the areas of health coverage, energy and the effect of inflation on other prices will stay with us for the unforeseeable future. Given that, the cost and flexibility argument will win out.