Sick Leave Benefits for Local Government Employees, Part 2: Framework for Issue Assessment

This is part two of a four-part series on the subject of sick leave benefits for local government employees. Part one served as an introduction to the topic. Part two will identify issues to think about and questions to discuss regarding paid sick leave benefits.

“Does Anyone Come from a Family?” - Fred Klett, Comedian

Many HR professionals are taking a fresh look at issues associated with the cost and management of paid leaves due to illness or injury to the employee or members of the employee’s immediate family. This can be a complicated subject, finding the right balance between the interests of the employer and the employee and for the right reasons. Paid sick leave is often adopted with good intentions but not always realizing the intended results. If your organization has a paid sick leave policy, what do you think of it? Do you think it is fair? Do you think it accomplishes the purposes intended?

Being a member of an organization is like being a member of a family, a team, or a partnership. Questions about functional relationships and viewing whether actions of members are mutually beneficial arise almost daily. Sometimes, there comes a point when a benefit to one family member or team member adversely affects other family members. Something has to give, giving rise to some reflection and reconsideration.

Although there are many workplace issues to consider, one of the most important to address is how to best address paid sick leave, recognizing that it can be a controversial subject with many related questions and not so tidy answers. Is your organization satisfied with current outcomes of current policies?

Let’s assume paid sick leave is usually an essential benefit in the public employee's compensation package. It allows an employee who cannot work due to sickness or accidental injury to continue receiving all (or at least part) of his or her salary uninterrupted. Although sick leave was originally designed as a privilege and not as an entitlement, over time this benefit has come to be expected in the benefit program by most public employees.

The issues involve (1) the accruals and usage of paid time off for employee or family member illness or injury, (2) the mutual benefits and shared risks of paid time off for illness or injury (to include the incapacitated employee and care by the employee for incapacitated family members) in the employer’s compensation package.

Some Questions to Ponder

Why is the interest in paid sick leave benefits increasing? What are the mutual benefits of paid sick leave to employers and employees? How much paid sick leave benefits are the norm among employers in the state, in the organization? What circumstances are in place to support the status quo? Why do public sector employers include sick leave as time worked when determining overtime eligibility while most private sector employers do not? Where is the tipping point that upsets the status quo, i.e., the balance between the interests of the employer and the employee that calls for change? Is paid sick leave usage increasing? To what extent is paid sick leave used by employees for purposes other than incapacity to do the job? What do the largest employers in the region offer as part of their sick leave policies? What does an employer do about an employee whose sick leave balance is usually maintained at a very low level? Why do some employees in the same organization or department use more sick leave than others? If we go to the internet and look for writings on the subject, why do we see that some attention was given to the subject at the turn of the century but that not much serious research has been done on the subject of paid sick leave in the last 10 years?

Recently, interest in the subject has exploded. As recently as last year, HB 1313 was passed (52-45) by the Washington State House of Representatives in January. This bill would have required businesses in Washington State with more than 5 employees to provide paid sick leave (from 40 to 72 hours, depending on the size of the employer). The bill died in the Senate. The House was persuaded by advocates that it was only fair to require businesses to provide a certain amount of paid sick leave. The Senate was persuaded by the business community that there were better alternatives.

Up to this point, only three states currently require paid sick leave. Connecticut was the first state to require private sector employers to provide paid sick leave to their employees, with a law enacted in 2011. California became the second state to enact paid sick requirements, with the passage of the Healthy Workplace, Healthy Families Act of 2014, which becomes effective in July 2015. Massachusetts was the third state to require paid sick leave, as voters there approved the Earned Sick Time for Employees ballot measure during the 2014 general election.

The California Health Workplaces, Health Families Act of 2014 requires employers for the first time to provide paid sick days (up to 69.33 hours per year) to employees effective July 1, 2015. Some major cities, such as San Francisco (2007); Washington, D.C. (2008); Seattle (2012); Portland, Oregon (2013); New York City (2014); and Newark, New Jersey (2014), have already enacted paid sick leave provisions.

While President Obama has recently sought to promote paid sick leave at the federal level, there are no federal laws yet that require either public or private employers to provide paid sick leave for their employees.  However, the employer employing the largest number of employees in Washington State is the federal government, which provides 108 hours of paid sick leave per year (which also includes bereavement leave) which can be accumulated without limit. State of Washington employees can accrue one day of sick leave per month without limit and be cashed out of 25% of unused sick leave while employed or upon separation or retirement (RCW 41.04.340). Most Boeing Company employees receive 80 hours of sick leave per year (which also includes bereavement leave). Half of unused sick leave in the year can be carried over to the following year and maintained there while the other half of the current year account is forfeited. There is no maximum accrual. Most city and county employees accrue 96 hours of paid sick leave (23% in addition to bereavement leave). Unused sick leave can be carried over from year to year (usually to a maximum of 720 to 1440 hours) that varies from public employer to public employer.

Some Data Collected

In a nationwide survey, while paid sick leave is available to 61 percent of private-industry workers, it is available to 89% of state and local government workers. Private employers with plans providing a fixed number of sick leave offer an average of eight paid sick days to employees after one year of service. State and local government employees typically receive 11 paid sick days after 1 year of service. Among private-industry workers employed in establishments with more than 500 employees, 80% had access to paid sick leave, compared to 52% in establishments with fewer than 100 employees.

In a 2014 Puget Sound Regional Salary Survey and their 2014 Washington Public Employers Salary Survey (Table 2), Milliman reports that 43.0% of the large Puget Sound Employers offer a PTO Program.  57.0% do not.  For large Puget Sound employers offering a PTO program, the median number of reported annual PTO hours accrued to a full-time employee annually follows:

Note: The median number of paid holidays per year for the most of employees is 9 days.

For employers not offering a PTO program, the median number of reported vacation hours accrued to a full-time employee annually follows:

Note: The median number of paid holidays per year for the most of employees is 10 days and the median number of paid sick leave days is 10 days.

According to a survey by Milliman & AWC, 41.9% of the public employers offer a PTO Program.  58.1% do not.  81% offer sick leave.  29% do not.  PTO includes sick leave, personal days, vacation time, bereavement, etc. combined (excluding holidays).  For public employers offing a PTO program, the median number of reported PTO hours accrued to a full-time employee annually follows:

Note: The median number of paid holidays per year for the most of employees is 10 days.

For employers not offering a PTO program, the median number of reported vacation hours accrued to a full-time employee monthy follows:

Note: The median number of paid holidays per year for the most of employees is 10 days and the median number of paid sick leave days is 12 days.

On the other hand, many companies (and some public employers) in the country use pooled paid time off (a/k/a PTO) plans. According to Milliman, 43% of Puget Sound employers have such a plan. These plans lump together sick leave, vacation (and sometimes holidays) into a single leave pool. This system forces the employee to reconsider the use of days off from work. By providing the employee the ability to choose how to use these days allocated for sick leave, employers establish a system that increases the chance to better anticipate and manage sick days used for other purposes. Employees are more likely to plan ahead and make arrangements with the employer to take the time off. This system forces an employee who is abusing his or her sick day privileges to subtract them from vacation time or personal days if he or she continues to do so.  Since the time that falls under the PTO plan is essentially the employee’s time, the employee is less likely to abuse it. As a result, employers are better able to manage employee time for adequate coverage aiming for optimal production and performance.

According to a nationwide paid leave study released by Dressler (2008) pooled plans save employers money, e.g. less overtime pay and reduction in the need to hire temporary workers.

Turning to a worldwide study, an article published by the World Health Organization (2012) offers a broader perspective. At the global level, as many as 145 countries provide for paid sick leave. Usually, provisions include both time for leave and wage replacement during sickness. However, the benefit schedules for paid sick leave differ widely among countries. In our little corner of the world, employers and employees under paid sick leave programs have come to expect 100% wage replacement during sickness because that is what employers have adopted or agreed to do.  However, minimum replacement of income when an employee is absent due to sick leave varies around the world.  A 2007 study revealed the following statistics as to the percent of the employee’s wage that is covered by the sick leave program:

The same study also revealed the maximum length of paid sick leave covered by the sick leave program to vary widely:

Among developed countries, workers in Greece reported with 4.8 the lowest number of paid sick leave days.  And then there is Sweden reporting 22.0 days, the highest number of paid sick leave days.  The USA reported about six paid sick leave days, on the average.  United Kingdom reported 7.8 paid sick leave days but the average length of paid sick leave 38 percent lasts just one day. There are different statistics for men and women, industries, age groups, education levels, and jobs.

And then there is consideration of presenteeism defined as working during sickness.  Presenteeism results in costs related to increased risk of work accidents, development of chronic diseases and thus incapacity to work and health impacts on co-workers.  In other words, there are economic reasons why an employer does not want employees to come to work sick.

"This study of paid sick leave can turn out to be a dizzying subject." - Anonymous

So, most all readers can agree that an essential job requirement for any employee is showing up. Employers need not keep employees on the payroll who do not show up for work when scheduled to work. Although, the majority of employers are not yet required by law to provide paid sick leave benefits for their employees, many employers are already accustomed to providing paid sick leave as part of a benefit package. Part of the rationale is because it is the right thing to do; other employers do it to attract and retain trained workers – although recent studies indicate that there is no apparent linkage to turnover of employees.

Dollarizing the Issues

A review of payroll records would indicate that the cost to employers of providing paid sick leave benefits continues to increase over time. Let’s use dollars per hour to illustrate.

Example: Using $15 per hour, 48 hours of sick leave (out of 2080 hours scheduled work year) costs the employer $720, or 2.3%. If the employer has to backfill the employee’s assignment at time and one half overtime, the employer is paying $1,080 plus the $720 cost of the sick leave taken, for a total of $1800. On an annual wage of $31,200, the $1800 is 5.76%.

Higher paid sick leave costs over time for state and local government workers are due to a combination of legislated benefits, better access, more days received, and higher wage-related costs based on factors such as differences in occupational structures. Higher paid sick leave costs also show up in overtime budgets. For example, if a police or fire department’s overtime budget is $500,000, at least 25% is attributable to backfilling for maintaining staffing minimums caused by employees out of illness or injury leave. As the competition for dollars has become more acute in the last decade, it has become difficult to add FTEs. At the same time, the work force is aging and the amount of sick leave taken is continuing to increase, along with vacation schedules that increase over time, along with health insurance that increases with an aging workforce. 

In 2014, the average cost for sick leave per employee hour worked for private-sector employees was $0.30 cents, based on an hourly wage of $12.00 per hour. The cost for sick leave per employee hour worked in state and local government was $0.60, based on an hourly wage of $20.00 per hour. This is an annual cost of $1,906 per employee for 40 hour per week employees and $2,382 per employee, assuming a 50 hour week for firefighters.

Staffing of police and fire department operations present special challenges. The unnecessary use of sick leave in police and fire departments often costs the department at least an additional 150 percent over the budgeted amount to cover the vacancies with overtime pay. To illustrate the financial impact of misused sick leave on the organization, multiply the total leave taken by the employee's hourly salary. When other employees were paid overtime to cover the missed work, factor in that overtime cost also. This total can provide a sobering realization of the cost for overuse or abuse of sick leave benefits.

In preparation for a review of the research, analysis, recommendations that will be forthcoming in Part three of this series, management and labor leaders are encouraged to partner and consider going through the following exercise to get a better handle on the costs of paid sick leave.

Some Action Steps to Take:

1. identify the number of times absent per employee in each work unit and compute the total number of times absent for all the employees in the work unit.
2.  Add up the number of days of absence for each employee in the work unit and calculate the average number of days absent for all employees in the unit and average cost per day.
3. Share the results of the above computations to employees in the unit and discuss the calculations with them.
4. Inquire of the employees to help them determine all the causes for absence within the unit (making sure that employees are not in any way being accused of being absent without good reason).
5. With the help of the employees in the work unit, try to come up with as many ways as possible in which the cost/rate of absence might be effectively lowered in the work unit.