Minimum Wage, Paid Family Leave, or Both?

The House General, Housing, and Military Affairs Committee is in its third week of testimony on proposals to increase the minimum wage to $15 an hour (see related post for details).  Also on the Legislature’s agenda, however, is a proposal to establish a paid family leave program financed through payroll taxes, recently introduced as H.196 and having an initial run through by the Committee last Friday.  There is a slightly different version of a paid family leave bill in the Senate, S.82.

There is increasing speculation as to whether the House leadership will aggressively push both proposals this year or focus on one.  There is history to the Democratic leadership in the Legislature focusing on one major workplace mandate or regulation in any given session, but AIV and allied business organizations are actively engaging on both issues and employers should be sure to stay informed and consider weighing in as debates continues.

Minimum Wage:  Concerns and Alternatives

AIV joined representatives of retail, hospitality, and other business sectors in initial testimony in outlining the concerns with increasing Vermont’s minimum wage yet again.  AIV stressed that while the minimum wage is often perceived as a retail and hospitality issue, it can also impact manufacturing.

One report based on BLS data estimated that 26% of manufacturing jobs in Vermont paid less than $15 an hour in 2014.  With the passage of time that statistic has certainly changed and AIV is working on finding more up to date information, but it does indicate that an increase to $15 would have a meaningful impact on Vermont manufacturers.

AIV outlined several concerns with this impact, including:

  • Cost of increasing wages currently below the new minimum wage.
  • Cost of increasing higher wage scales to maintain recruitment and retention incentives.
  • Increased challenges in attracting entry level and other employees from competing sectors.
  • Increased pressure to automate or otherwise reduce employment relative to production.
  • Increased pressure to relocate or redirect investment and production to facilities outside of Vermont owing to inability to pass on additional costs through higher prices (a particular concern for manufacturers, especially those part of multi-state or multi-national corporations).
  • General lost opportunity costs owing to diverting funding from other priorities, including employee benefits, capital investments, etc.

AIV also noted the importance of predictability and credibility in state policies that affect operating costs as manufacturers and other businesses plan their futures in Vermont.  In 2007 and again just in 2014 there were major changes and increases in Vermont’s minimum wage laws that were proclaimed to settle the debate as to what the law should be and provide the basis for understanding wage costs moving forward.  To now once again reopen the issue would undermine the credibility of the legislative process and the predictability of operating costs in Vermont.

As alternative ways to promote better paying jobs in Vermont, AIV stressed the importance of looking for ways to reduce the costs of doing business in the state (which is consistently one of the most expensive states in the country for manufacturing) to help employers afford higher wages.  But of particular help for manufacturing would be to focus more on improving Vermont’s school systems and workforce education and training resources so that more Vermonters can qualify for the higher skilled and higher paying positions that manufacturers are currently struggling to fill.

Members interested in options for engaging on this issue are encouraged to contact us at info@aivt.org.  We would especially encourage manufacturers with positions that would be directly impacted by such an increase in the minimum wage to contact us about how the proposal would affect them.

Paid Family Leave Proposals

Of the two paid family leave bills, H.196 has gotten the most attention and is the more expensive and expansive, but both H.196 and S.82 share similar provisions and are the cause for similar concerns.

Overview of Proposals

H.196 would amend Vermont’s existing (unpaid) parental and family leave provisions (21 VSA §471 and §472) to  provide for up to 12 weeks of paid leave during any 12-month period to all employees who are currently employed and have been employed in Vermont for at least six of the previous 12 months.  This also effectively imposes the leave and return to work obligations, which under Vermont’s current parental and family leave law apply to employers with 15 or more employees for family leave and 10 or more for parental leave, on all employers regardless of size.  However, the current requirement to guarantee return to work would now only apply to employees employed for at least 12 months.

Leave would be available for the following reasons:

  • the serious illness of the employee
  • the serious illness of the employee’s child, stepchild or ward who lives with the employee, foster child, parent, grandparent, sibling, spouse, or parent of the employee’s spouse
  • the employee’s pregnancy
  • the birth of the employee’s child
  • the initial placement of a child 16 years of age or younger with the employee for the purpose of adoption or foster care

This would add care of sick siblings and grandparents, as well as newly placed foster children under 16 years of age, to the allowed uses of existing unpaid leave law.

Similar to current law, an employee, at their discretion, may use any normal accrued paid leave (sick, vacation, etc.) during paid family leave, but this would not extend their period of paid family leave.  As under current family leave law, the employee shall provide “reasonable written notice of intent” to take paid family leave.

Paid leave benefits would be the lesser of the employee’s average weekly wage or the equivalent of a 40 hour workweek at a rate double the “livable wage” as determined according to 2 VSA §505.  The “livable wage” was determined to e $13.03 in 2016 (see latest Basic Needs Budget and the Livable Wage report, page 3, for details), so the cap on paid family leave if in effect this year would be $26.06 an hour.

Paid leave would be paid through a new Family Leave Insurance Program administered by the Department of Labor and financed by a 0.93% tax on the amount of all employees’ wages, divided equally between a deduction from employees’ wages and a direct tax on their employers.  The Department would be able to adjust this tax every two years to match projected demands on the program, but not to exceed a total tax rate of 1%.  If a 1% tax rate is insufficient, the Commissioner shall adjust benefits accordingly.

Tax payments would commence July 1, 2018, and benefits would be available January 1, 2019.

S.82 differs from H.196 on a few key points.  Highlights of these differences include:

  • Qualified employees would be those working at least 6 months at 20 hours a week or more.
  • Coverage would not include care for sick grandparents or siblings.
  • Employers with four or fewer employees would not have to guarantee return to work; however, employees seeking to return must be given preference in filling positions.
  • The payroll tax would be 0.75%, similarly divided between employees and employers, with the option for employers to choose to pay a larger share.
  • Benefits would be based on a stepped graduated percentage between 90% and 50% wage replacement depending on normal wage rates, but would be capped at twice the state livable wage (see above).
  • The bill includes a strict definition of “worker” that could result in paid leave being provided to many independent contractors with corresponding taxes on their client companies.
  • Benefits could not be collected while the employee is receiving workers’ compensation or unemployment insurance or federal disability benefits.

Key Concerns

H.196 raises a number of concerns.  While supporters of the proposal assert that the payroll tax is a negligible cost, that fails to put it in the actual context of both employers and employees.  For comparison, in 2015 the average effective UI tax rate in Vermont was 1.51% of total wages.  The effective state income tax rate in 2014 ranged between -0.1% to 6.4% of adjusted gross income, but the overwhelming majority of Vermonters payed less than 2.7%.  Any proposed increase in UI tax rates or personal income tax rates equivalent to 0.465% of wages would be considered extreme.

This cost would be especially acute for employers not currently offering paid parental or family leave, and could exceed the costs of some who currently do.  There is also the additional cost and administrative burden of accommodating leave and holding positions open for returning employees for small employers not currently covered by the state’s unpaid parental and family leave law, and paid leave could encourage more frequent and lengthy utilization by employees of those companies that are covered by current law.

There is also the concern that setting the precedent for financing new programs and benefits through incremental payroll taxes will only encourage additional proposals.

Although the initial payroll tax is lower in S.82, the bill carries the same and similar concerns.

Members are strongly encouraged to review H.196 and S.82 and to contact us at info@aivt.org with any specific questions or concerns with the bill, and if you are interested in discussing options for engaging on this issue.  We are especially interested in hearing from companies that offer paid parental or family leave about the benefits you offer and the costs of your current policies.