The economic costs of expanding the Family and Medical Leave Act to small business: Well-Intended public policy may have some unintended consequences

Business Economics, April, 2002 by Bruce D. Phillips

1. whether the leave would be counted against the employee's FML entitlement;

2. requirements for medical certification for a serious health condition and the consequences for failing to do so;

3. the employee's right to substitute paid leave, and whether the employer would require the substitution of paid leave before beginning a period of unpaid leave;

4. requirements for the employee to make health benefit premium payments, consequences for failing to make timely payments, and circumstances under which coverage might lapse;

5. requirements to submit a fitness-for-duty-certificate to be restored to employment;

6. employee's status as a key employee; (4)

7. employee's right to restoration when leave is completed;

8. employee's potential liability, if the employee fails to return to work, for employer-paid health insurance premium payments while the employee is on unpaid FML Even for a large firm, sorting/storing this much paperwork is a large burden, often requiring an upgraded book-keeping system. The Department of Labor and the Government Accounting Office estimated the annual cost to employers at $825 million. (5) Joseph Johnson (2001) estimated the FMLA burden at between $3.9 billion and $24 billion per year. Even at the low end, this burden translates into a paperwork burden of perhaps 390 million hours in larger firms. These kinds of problems associated with the 1993 FMLA have led to calls and coalitions to fix it before considering expansion to smaller firms. (6)

According to Gerstel and McGonagle (1999), one-fifth of surveyed employees in 1995 perceived a need to take family leave, and about four-fifths of that one-fifth (or about sixteen percent) actually took it. Expanding the FMLA to firms with one to forty-nine employees would, by extension, include an additional 5.05 million employees. (Sixteen percent of the 31.59 million employees in firms with less than fifty employees.) (7) If it were true that one employee in every five firms with one to forty-nine employees took FML based upon the above percentages, then sixteen percent of 5.37 million small firms--or 859,000--would be affected.

The States Enter the FMLA Picture

Beginning about 1998, and spurred on by Clinton administration proposals, various advocates of strengthening the FMLA made several additional proposals. These proposals came from both the outgoing administration and state FMLA advocates (U.S. Department of Labor, 2001 and National Partnership, 2001). Proposals from the state advocates took two basic forms:

a) using the unemployment insurance (UI) system to pay workers while they were on leave (the so-called baby UI proposals), and

b) extending the FMLA to firms with twenty-five to forty-nine employees, and eventually to all small business employers (some states apply portions of it already to firms with six or more employees).

There is no prototype state FMLA-type bill, but our model assumes a form of paid FML of twelve weeks duration, applicable to small firms with fewer than fifty employees. We do not yet know which states would cover which conditions; some states may cover only pregnancy and adoption, while others would also include personal illness and care for sick parents and children. We assume, for modeling purposes, that all causes permitting a period of unpaid FML in the federal act would be included in the proposed paid FML state acts.