The Healthy Families Act (HFA, S. 910), sponsored by Senator Ted
Kennedy (D-MA), would require businesses with 15 or more employees
to provide mandatory paid sick leave. While the law should help
workers taking time off when they or a family member needs medical
care, a paid sick leave mandate would lead to wage cuts, forcing
workers to take their pay in the form of sick leave whether they
want to or not. Congress could better meet the goals of the Healthy
Family Act by providing tax relief, creating sick leave savings
accounts, and allowing workers to bank compensatory time to use for
sick leaves. These policies would give workers, rather than
employers, control over how they receive their earnings and take
time off work.
Paid Sick Leave Comes Out of Workers'
Workers should have the flexibility to balance their work and
family lives, and the law should facilitate this. Forcing companies
to provide paid sick leave, however, would reduce employee
Eighty-two percent of employers already provide paid sick leave
or another form of paid time off. The Healthy Families Act
(HFA) focuses on the few workers lacking this benefit who must take
unpaid Family and Medical Leave Act (FMLA) leave when they fall
sick. Simply requiring employers to provide paid sick leave will
not make these workers better off.
When considering the cost of employing workers, employers focus
on total compensation; they do not care whether workers take their
pay in the form of wages or benefits. Employers currently pay their
employees an average of $0.30 per hour in sick leave benefits and
$1.94 per hour in all forms of paid time off.
If Congress requires employers to provide paid sick leave,
employers would not increase workers' total compensation. Rather,
they would increase the amount of compensation they provide as sick
leave and decrease other benefits or wages, leaving workers' total
compensation unchanged. The HFA would only change how workers
receive their pay, not how much they are paid.
This is not just a theoretical argument. Empirical studies
demonstrate that companies respond in exactly this way when the
government forces them to provide more generous benefits. For
example, when the government required health insurance plans to
provide maternity coverage, the cost of health insurance premiums
for women of childbearing age and their husbands rose. Employers
paid those higher premiums and reduced those workers' wages
commensurately. Many other studies show similar results
when the government has required employers to pay greater
benefits. The HFA would change the composition of
workers' pay, not its amount.
Mandatory Sick Leave Reduces Worker
Thus mandating paid sick leave would reduce workers' control
over their work lives. Today, employees who need paid leave can set
aside savings for when they need to take unpaid time off work. The
HFA would essentially force workers to do this, whether they want
to or not. Workers living on tight budgets or struggling to support
families might prefer more income and less time off. The HFA would
legally prevent these workers from making that choice, even if they
would rather not take a pay cut to get more sick leave.
The HFA also dictates how workers can take their time off work.
While many workers would abuse the system and use sick leave as an
excuse for tardiness or unannounced days off work, millions of
conscientious employees would not call in sick without true cause.
These workers would be prevented from using the time off that the
HFA has reserved for sick leave for other purposes. These workers
might want time off to watch a school play, help their children
with homework, or engage in other family activities, but the HFA
would deny them this flexibility. Congress should not tell
conscientious workers that their earnings can only go toward some
forms of paid leave but not others.
There are better solutions that do not force workers to take a
pay cut in exchange for a heavily restricted benefit. Instead of
requiring employers to provide paid sick leave, Congress should
increase workers' take-home pay by reducing taxes, create sick
leave savings accounts, and allow private-sector workers to take
The FMLA guarantees most employees unpaid time off work when
they or a family member is sick. The goal of the HFA is to help
workers pay for this time off work. Rather than require workers to
pay for sick leave whether they want it or not, Congress should
give workers more flexibility, including the ability to take needed
sick leave, by reducing the tax burden facing American
Federal taxes cost an average of over $21,000 per household. To
help offset the financial cost of an illness, Congress should let
families keep more of the money that they earn. A 2 percentage
point reduction in every marginal income tax bracket would save a
family of four with $50,000 in taxable income $1,000 a year, enough
money to pay for seven or more sick days.
Congress could also help Americans prepare for illnesses by
creating sick leave savings accounts. These accounts would operate
like a traditional IRAs. Workers could put pre-tax dollars into the
accounts, which they could invest in various low-risk bonds and
similar savings vehicles. The government would not tax earnings in
the account, and when workers need time off work because of an
illness or to tend to a family member, they could draw on these
savings. The same tax advantages that encourage employers to match
contributions to a 401(k) plan would also apply. Upon retirement,
any unused funds could be rolled into a retirement account or taken
as a lump-sum, tax-free payment.
Savings accounts would work just like mandatory paid sick leave:
Workers would trade take-home pay for more time off work. The
crucial difference is that workers themselves would choose
how much pay to trade for how much leave. And because the money
going into the account would belong to the worker and could be used
in retirement, dishonest workers would have no incentive to game
the system by taking sick leave when they are healthy.
Compensatory time would also help workers to spend more time
with their families when they want to, not when the government says
they can. Comp time is widely used in the federal government but is
illegal for most private-sector employers. With comp time, workers
can, at their request and with their supervisors' approval, work
more than 40 hours in a week, saving the extra hours in a comp time
"bank." When workers need time off work for any reason, they can
draw hours from the bank. Comp time gives workers great flexibility
to take time off when they need it, and for whatever reason that
they need it, without encouraging abuse.
Congress should make it easier for employees to manage the
demands of work and family life, but requiring employers to provide
paid time off is the wrong approach. Employers would respond to
mandatory greater sick leave benefits by reducing other benefits
and wages. Congress should not force workers to take a pay cut to
receive more sick leave. Instead of making this choice for workers,
Congress should raise incomes by reducing taxes, creating sick
leave savings accounts for workers, and allowing employers to offer
comp time. Unlike a mandatory sick leave benefit, these policies
would give workers more choices and greater flexibility to balance
work and family life.
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
Society for Human Research Management, "2006 Benefits," Survey
Report, 2006, Table G-1.
Department of Labor, Bureau of Labor Statistics, "Employer Costs
for Employee Compensation (ECEC) Survey," Table 1: Civilian Workers
by Major Occupational Group, Q4 2006, all civilian workers.
Jonathan Gruber, "The Incidence of Mandated
Maternity Benefits," The American Economic Review, June
1994, Volume 84, No. 3, pp. 622-641.
See, e.g., Patricia M. Anderson and Bruce D. Meyer, "The Incidence
of a Firm-Varying Payroll Tax: The Case of Unemployment Insurance,"
NBER Working Paper No. W5201, August 1, 1995, and Jonathan
Gruber and Alan B. Krueger, "The Incidence of Mandated
Employer-Provided Insurance: Lessons from Workers' Compensation
Insurance," NBER Working Paper No. W3557, December 1990.