Small Businesses Say Paid FMLA Raises Costs, ‘Cripples Operations’

Connecticut small businesses say a proposed paid family and medical leave mandate will raise costs, disrupt operations, diminish productivity, and further erode competitiveness.
A new survey released this week shows 71% of Connecticut companies with less than 100 employees expect a significant impact on operations, while 17% anticipate a moderate impact.
Overall, CBIA’s 2018 Fourth Quarter Economic and Credit Availability Survey found 63% of businesses of all sizes believe paid FMLA will significantly impact their operations.
Nineteen percent expect a moderate impact, 6% anticipate no impact, and 4% were unsure.
A key legislative committee last month approved two identical bills mandating that all private sector employers offer up to 12 weeks annual leave at 100% of salary, capped at $1,000 per week.
As proposed in both bills, Connecticut’s paid FMLA program will be funded through an employee payroll tax, while employers are required to continue paying benefits for workers on leave.
To be eligible for leave, a claimant would only need to have earned a minimum $2,325 in any quarter of the previous five, and could also be unemployed at the time of applying.

Targets Small Businesses

Connecticut’s proposed program is more generous than those offered in neighboring states.
Neither New York, Rhode Island, nor Massachusetts offer 100% of salary for those on leave and eligibility requirements are more stringent in those states.
CBIA’s Eric Gjede said one-size-fits-all mandates like paid FMLA disproportionately target small businesses, many of whom “are absolutely fearful about these measures and their cost burdens.”

"It comes down to competitiveness," he said.
"That's the key element driving the viability of any business.
"The last thing we should be doing is adding to the growing cost of running a business in this state."

'Cripple Operations'

The survey asked business leaders how the state paid FMLA mandate will impact their company and what steps they will take to mitigate that. Here's a sampling of their responses:

• "A mandate like that would be impossible to mitigate. We would need to close. It would be the same effect as the state deciding not to renew business licenses for small businesses and just putting them all out of business."
• "We don't have redundancy for most jobs. The time and expense of training a replacement and then letting them go when the original worker returned would be impossible."
• "Significant financial hardship from benefits and lost time. Also additional expenses and recordkeeping would be a burden. I would probably move the business out of state."
• "[We would] require overtime to cover lost work, increasing costs. Would need to increase employee contributions to benefits packages."
  Small business owner

  Any increase in costs will negatively impact us and may lead to layoffs, reductions in benefits, or other cost-cutting measures.

• "It would obviously raise costs and make Connecticut and our overall business costs even more out of line on a national basis."
• "We operate on extremely thin margins, any increase in costs will negatively impact us and may lead to layoffs, reductions in benefits, or other cost-cutting measures."
• "We do very well working with our associates to ensure they have enough time off as needed. We don't need the state to get involved."
• "We are a small family owned business. This would cripple operations."
• "We would move to another state or close our business."
• "Twelve weeks is too much. We currently give eight weeks and we feel that is fair."

Minimum Wage

Businesses were evenly divided when asked about proposals raising the state's hourly minimum wage to $15—42% expect a significant or moderate impact, 41% project no impact.
When asked how they would mitigate that impact, surveyed businesses offered a range of responses, including making greater investments in automation and/or reducing workforce levels, hours, or benefits.
"This might bar us from bringing in unskilled, young workers and training them," responded one small business owner.

"Young interns or high school age employees do not bring enough skill, however we pay them while we train them over six months to a year."
Replied another: "We start most of our employees at $15 now, so this would have a minor effect on us. Reducing the cost of living is the only thing that will keep workers in this state."

Tax Hikes

With Connecticut facing a two-year, $3.7 billion budget deficit, business leaders are also concerned about the prospect of tax hikes.
Business leaders were asked hey they would react if significant tax increases were enacted. Here's how they responded:

• 18% would not give raises
• 17% would not hire new workers
• 16% would reduce or eliminate new investments
• 13% would reduce employee benefits
  CBIA's Eric Gjede

  The last thing we should be doing is adding to the growing cost of running a business in this state.

• 11% would cut their workforce
• 11% would move their residence out of state
• 10% would consider moving their business out of state

Business Conditions and Outlook

Nearly half (46%) of those surveyed expect business conditions to remain stable, the same percentage as in the fourth quarter of 2017.
Only 15% expect conditions to worsen (against 16% in 2017) and 40% expect conditions to improve somewhat or significantly, compared to 38% in 2017.
There is more optimism when it comes to hiring.
Fifty-eight percent of respondents expect employment levels to remain stable, up two percentage points from the fourth quarter of 2017, while 34% anticipate their workforce  to grow, either somewhat or significantly, compared to 28%.
Ten percent of business owners expect to reduce the size of their workforce, compared with 17% in the fourth quarter of 2017.