Don’t ‘Repeal and Replace’ Paid Family and Medical Leave

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This Labor Day, DC workers should be celebrating the recent victory to adopt a paid family and medical leave program for new parents and people needing time from work to care for an ill relative. Instead, the new program is being delayed by DC Council bills, driven largely by business interests, that would “repeal and replace” it with something much worse for workers.

Like federal efforts to repeal and replace healthcare, the DC paid family leave repeal and replace efforts would be bad for all of us and should be rejected.

The Universal Paid Leave Act (UPLA), passed earlier this year, gives private-sector workers eight weeks of paid leave to be with a new child, six weeks of paid leave to care for an ill relative, and two weeks of paid leave to care for themselves. DC’s program will be especially helpful to low-wage workers, by replacing nearly all of their wages when they take leave.

Paid family leave has been shown to have great benefits, like increased breastfeeding and helping women stay in the labor market. The new program also will be good for small businesses that want to provide paid family leave but currently cannot afford it. The program’s benefits will be paid for with a modest tax on employer payrolls, about $300 a year for a worker making $50,000. Even with the new tax, a DC Council analysis shows that the new program is “unlikely to alter the current upward trajectory of the District’s economy.”

However, nearly as soon as UPLA became law, several alternative proposals to “repeal and replace” it were introduced, driven in large part by business opposition. All of the new bills keep the same benefits, but most require employers to provide paid family leave benefits directly to their workers – a so-called employer mandate – rather than operating it as a government program. Businesses under the mandate would pay a lower tax than UPLA currently requires, but they would also have to finance their own leave benefits.

An employer mandate would be much worse, especially for the workers it’s intended to benefit.

How the New Program Will Work
DC’s paid family and medical leave program uses a social insurance model, a tested and successful structure similar to how unemployment insurance and Social Security benefits work.

Private-sector employers in the District will pay a fixed payroll tax into a government-run fund to cover the cost of benefits for their workers. The agency administering the fund is responsible for processing claims and paying benefits. This has several benefits: a predictable tax to employers; low administrative costs with virtually no burden on employers; and use of a neutral third-party arbiter to decide whether a claim for benefits should be approved. For these reasons, the states that offer paid family and medical leave use this structure.

The “employer mandate” bills before the DC Council would undermine all of these and be bad for workers, bad for many businesses, and bad for administrative simplicity.

Bad for Workers
Under an employer mandate, employees request paid leave from their own employer, rather than filing a claim for benefits with a neutral government agency under UPLA. This is problematic because employers will have incentives to deny claims. Think of the way for-profit health insurance works – where it is common for workers’ benefits to be denied –versus the way that Social Security benefits are administered, in which retirees rarely have a problem receiving their payments.

This means that some employers who self-insure will discourage employees from taking leave, and some workers will be especially vulnerable. There is evidence that employers in countries with an employer mandate discriminate against workers most likely to take leave, especially women of child-bearing age. Employees in low-wage occupations will likely face intimidation, because they often experience retaliation in the form of reduced hours, worse schedules, or even termination. They often do not even ask for benefits to which they are currently entitled, such as paid sick days.

An employer mandate also prevents people from accessing benefits when they are between jobs, even if contributions were made on their behalf while they were working.

Bad for Many Businesses
An employer mandate could be costly and unpredictable for businesses. No insurance product exists in the private market for family leave. Employers would have to self-insure, which is financially risky and administratively challenging. Self-insurance could lead to volatile costs that vary greatly from employer to employer and from year to year. For example, if a worker making $500 a week takes six weeks of leave, an employer who self-insures would have to pay $2,700. Under UPLA, the employer would pay just $161 a year into the insurance pool to provide the same benefit.

Bad for Program Administration and Costs
Administration of DC’s paid leave program would be handled by one government agency, with costs coming from the payroll tax. Under the alternative proposals, the total costs have not been calculated, and these total costs are likely to be higher than those under UPLA.

For one, rather than using the economy of scale of a single, centralized agency, an employer mandate will turn each employer into an individual program administrator. Under self-insurance, every employer would need to have staff, software, and procedures for administering this benefit.

Also, an employer mandate program would require very strong education and enforcement mechanisms to ensure that workers know about their rights, so they can access their leave benefits and can seek redress when they are wrongfully denied such benefits.

DC’s paid family and medical leave program, which is already adopted, was well-thought out and heavily debated, and adjusted over the course of two years. The universal social insurance model it creates makes the most sense for vulnerable workers, small businesses, and the broader DC economy.

The DC Council should disregard the alternative bills and instead turn its energy on fully implementing UPLA as passed, so that workers can get the benefits that they so desperately need, as soon as possible.

 

Ilana Boivie is the senior policy analyst at the DC Fiscal Policy Institute (www.dcfpi.org), which conducts research on tax and budget issues that affect low- and moderate-income DC residents.