The Math of Paid Time Off

I was looking at some meme one of my more conservative friends reposted on Facebook about how unfair it was to require businesses to provide paid sick leave. I don’t think it’s a bad idea to get sick people to stay home, especially when they or the child they have to send to school could infect other people like your other employees and customers, and paying them for sick days is a good way to make them feel safe about staying home. But with all the wailing and gnashing of teeth, what is economically lost by employers and gained by employees?

If you’re working hourly, how much is five days of sick leave worth? Well, it’s worth a week’s pay. If you’re making the federal $7.25 minimum wage, that’s $290 or the equivalent of a raise of 14.2 cents an hour for the other 2040 hours a year you’re expected to work. For an employer, it’s a 1.9% increase in labor costs. As the hourly wage goes up, so does the hourly value of the paid sick leave, but the percentage increase in labor costs remains the same. Whether you’re paying $7.25, $10, or $15 an hour, adding a week of sick leave is a 1.9% increase.

If, however, you gave workers 5 unpaid days of sick leave and a 1.9% raise, would they use the sick leave? If those workers are living paycheck to paycheck and not able to save anything, the $5.50 a week that raise would represent over minimum wage would be spent as fast as it came in and those sick days would be perceived as lost income that could not be afforded.

Rather than give the employee 5 unpaid sick days and a 1.9% raise, the employer is holding that 1.9% raise on account for the employee and paying it out in increments over the course of the year. If the employee takes less than 5 sick days, the employer gets to keep the undisbursed portion of the 1.9% raise, plus they get the “float” (interest accumulated) while they’re holding the money.

So aside from a petulant “it’s not fair that you’re making me do this” libertarianism, conservatives should be applauding sick leave. It not only strengthens families (by allowing them to take care of each other), but helps make sure sick kids and workers can stay home from school or work and create a widespread economic benefit of reducing the spread of communicable diseases like colds and flu. And when compared to other worker dignity measures, like raising the minimum wage by 33% to 100% or more, a week of sick leave is downright cheap at 1.9% (or 2.85%* if you have to pay someone else with the same hourly rate overtime for every hour they cover for the sick person).

* It’s easy to mistake the cost of sick time as 3.8% with 5.7% for overtime by adding the sick pay to the replacement’s pay. But if worker A is getting paid to work while worker B is getting sick pay, worker A’s pay is just the money you planned to pay someone to work that shift and it would have been paid to someone no matter what. Only the sick pay and any overtime overage would be extra.

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