United States: Paid Sick Leave: Key Compliance Tips For Employers

Although paid sick leave statutes and ordinances have been adopted by state and local municipalities for years, many employers are only now realizing they are not compliant. Ordinances in Chicago and Cook County, Illinois, and Minneapolis and St. Paul, Minnesota, became effective July 1, 2017. The Washington state statute becomes effective January 1, 2018. Employers must be able to spot issues and craft compliant policies before it is too late. Below are some key compliance considerations.

Accrual Over Time Versus Frontloaded Accrual

An initial question is whether to allow employees to accrue over time or to accrue in advance (i.e., "frontload" paid sick leave). The paid sick leave laws contemplate an accrual-over-time method whereby an employee accrues sick leave for working a certain number of hours. Most state and local laws alternatively allow frontloaded accrual, which can avoid issues with tracking accrual and annual carryover requirements.

Most jurisdictions require accrual of paid sick leave at 1 hour for every 30 hours worked, but 1 hour for every 40 is fairly common. In a few jurisdictions, accrual rates vary based on the overall size of the employer. Fortunately, the differences in these accrual rates can be resolved in several ways. First, in most jurisdictions employers may frontload the full annual amount on a date certain each year. Alternatively, employers have the option of accruing at the rate of 1 hour for every 30 worked, the most favorable rate in all jurisdictions. Finally, despite potential challenges, employers may draft separate policies for each jurisdiction or a subset of jurisdictions.

Many employers find accrual over time to be cumbersome, particularly when they operate in multiple jurisdictions with different accrual requirements. If the administrative burden is too great, or if an employer's payroll vendor will not reasonably support accrual over time, frontloaded accrual may be preferable. Fortunately, none of the current paid sick leave ordinances forbid frontloading. However, even frontloading accrual is not without potential pitfalls.

Frontloading should be calculated to be within the relevant jurisdiction's allowable accrual cap or more. Because accrual, use, and carryover caps vary, often depending upon employer size, implementing a uniform policy covering multiple jurisdictions may be problematic. Solutions for this problem are similar to those where an employer is grappling with accrual over time at different rates in different jurisdictions—i.e., an employer could: (1) frontload accrual in all jurisdictions at the amount required in the jurisdiction with the highest applicable accrual cap; (2) implement separate policies for all jurisdictions; (3) implement one policy for all jurisdictions that uses different accrual caps in the relevant locations; or (4) if the majority of applicable locations allow similar accrual caps, create a "standard" policy with separate policies for outliers.

As with the accrual rate issue, the concern here is simplicity of administration versus the economics of frontloading more paid sick leave than an ordinance might require or an employee might accrue in a year. Further, employers must consider whether administration of multiple policies has costs in addition to administrative headaches that negate potential economic advantages. This is a complicated analysis that can only be performed through a careful analysis of the applicable jurisdictions' accrual, use, and carryover requirements.

While frontloaded accrual appears to be an option in all jurisdictions, employers must be careful in employees' first year of employment, or in any partial year in which a paid sick leave policy is implemented. Most employers want to prorate accrual for these partial years, but the statutes, ordinances, or enforcement guidance rarely suggests doing so would be lawful. Fortunately, the availability of waiting periods prior to use or accrual are helpful in eliminating potential problems with abuse early in employment.

Waiting Periods

Paid sick leave laws typically require new employees to wait some period of time before they are eligible to use or accrue paid sick leave. These waiting periods are far from uniform or consistent, which makes multistate policy drafting difficult. Most paid sick leave laws require immediate accrual for eligible employees, but have a 90-day waiting period before use, whether it is accrued over time or frontloaded. Although some jurisdictions have longer waiting periods, or comparable waiting periods before accrual, a 90-waiting period is generally sufficient for broader compliance purposes (except in SeaTac, Washington).

Accrual, Use, and Carryover "Caps"

Differences in lawful limits on accrual, use, and carryover are particularly troublesome in policy drafting. Many jurisdictions allow employers to cap accrual annually. Others allow a total accrual cap without regard to annual accrual. In many jurisdictions, different annual accrual caps apply to businesses depending on employee numbers. Similarly, some jurisdictions allow for different limits on total accrual depending upon employer size, but not necessarily annual accrual.

Annual use limitations also vary. Most jurisdictions allow employees to use all accrued paid sick leave in a year, but some allow annual use to be capped. Of those that allow use caps, they vary in terms of related carryover caps.

Barring frontloading options, most jurisdictions require carryover of unused paid sick leave from one benefit year to the next, often in some limited amount. As with limits on accrual or use, carryover limits may vary depending on the employer's size.

Drafting Tips

Employers may still have time to implement compliant policies, but should act soon. For those companies operating in only one or a few of the relevant jurisdictions, policy drafting on an individual basis is simpler and often more compliant. Employers with a broader base of operations who choose a single policy over individual policies in each jurisdiction should consider the details of specific provisions of each state and local law. A single policy is generally possible, subject to some concessions to account for the more restrictive requirements in relevant jurisdictions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.