Proposals to lower the exemption threshold for small businesses under the Family and Medical Leave Act died this fall with the 106th Congress.
Yet a Clinton Administration initiative to let states spend unemployment insurance funds on paid leave for new parents survives, while advocates of the lower FMLA exemption vow they’ll be back early in the incoming 107th Congress.
“The discussion in Washington about lowering the threshold from 50 [employees] to as low as 20 has the attention of small employers,” notes Dan Toussant, principal in the New Philadelphia office at Rea & Associates, a regional CPA and business consulting firm.
“Family and medical leave is a very popular idea, whether you are a Democrat or a Republican,” adds Roger R. Geiger, state director for the Ohio chapter of the National Federation of Independent Business in Columbus. Despite continued GOP dominance of the Statehouse and legislature, Geiger expects Ohio to begin debating the merits of using unemployment insurance for paid parental leave sometime early next year.
“This confirms our fear about [FMLA] taking us down the slippery slope, in which unpaid leave will now be paid,” Geiger says. As for the unemployment insurance initiative, “It’s a huge, huge shift from what the program was meant to do.”
Tightening FMLA
The Family and Medical Leave Act passed by Congress in 1993 lets most workers take up to 12 weeks of unpaid leave from their job to care for a sick relative or greet the arrival of a new baby. Companies with fewer than 50 employees won a small business exemption from the law.
At least a dozen bills were introduced in the 106th Congress to lower that exemption.
The unemployment insurance initiative began with a directive to the Department of Labor from President Clinton in May 1999. The final rule — officially a clarification of existing law that some advocates say already grants states the option to use the funds for paid leave — became effective in August.
What seems like two separate issues are, in fact, closely linked, Geiger and other business advocates say. In fact, the interaction between them will have adverse consequences for small and growing companies, advocates said.
FMLA “was well-intended but vague in some respects,” according to Deanna Gelak, executive director of the FMLA Technical Corrections Coalition (TCC). Labor Department interpretations of the 1993 law caused a “litigation explosion [that] has made it extremely difficult for employers to comply with the act, because the definitions keep changing.”
The TCC — founded by the Society for Human Resource Management and joined by the NFIB, the National Association of Manufacturers and the U.S. Chamber of Commerce, among others — lobbied Congress to tighten definitions of eligible employees and FMLA-covered leave, winning support from early FMLA champion Rep. Nancy L. Johnson (R-Conn.). That legislation will have to be reintroduced in the 107th Congress.
The National Partnership for Women and Families “supports lowering the small business exemption to 25 employees, primarily because we think the evidence is clear at this point that those companies won’t be harmed,” says Donna Lenhoff, NPWF general counsel and author of the original FMLA.
A 1995 survey of FMLA-covered businesses by the NPWF showed 89 percent of employers reported “no [or] small increased” administrative costs resulting from the new law. More than 93 percent of employers surveyed cited no or small increased benefit costs, while nearly 95 percent reported no or small increased hiring costs. More than 90 percent reported no noticeable effects from the law on business growth and profitability.
Further, Lenhoff notes, the survey showed subsidiaries of larger companies exempted from the law because their parent company was located within 75 miles also reported only negligible effects.
“So many of the business community’s dire predictions about this law killing off jobs and businesses never came true,” she says.
Yet businesses under the current 50-employee threshold face a higher burden, Gelak says, because they have fewer resources.
“Having an FMLA that is clear and sound and strongly enforced is something that we all want,” she says.
The TCC and its allies will resume their push for congressional clarification of the law as soon as the 107th Congress gets down to business.
Making unemployment pay?
“Clinton’s unemployment insurance regulation essentially negates the small business exemption under the FMLA,” Gelak claims.
Giovanni Coratolo, U.S. Chamber of Commerce director of small business policy, adds, “We feel that small business is actually subsidizing larger companies in the use of these funds.”
Here’s how these business advocates see it: FMLA mandatory unpaid leave applies in most cases only to companies with 50 employees or more. The Labor Department’s paid parental leave provision would use state unemployment insurance trust funds paid for by all employers.
Employees of big companies who used to take unpaid parental leave would thus be able to draw unemployment compensation. Yet many employees at small companies would be ineligible for leave, under hardship exemptions meant to protect small businesses, even though their employers helped pay for their counterparts at the bigger companies.
Lenhoff replies: “I think that’s dead wrong on two counts.”
First, nothing in the new program would require employers to return employees who take leave to their old positions. But it would allow those who take leave for the birth or adoption of a child to draw unemployment compensation if they need to look for a new job.
Second, many small employers already provide some unpaid leave to retain valued employees. The new unemployment insurance program would allow them to provide paid leave, and thus increase the chances of retention, Lenhoff says.
“I think the smaller employers should be jumping on this bandwagon. Unpaid family leave is good, but it doesn’t help anywhere near enough people.”
Gelak, Geiger and Coratolo argue that state unemployment insurance trust funds — some tapped nearly to insolvency as recently as a few years ago — should be sequestered for cushioning the next recession.
“This proposal is founded on the proposition that the good times will never end,” Gelak says.
Lenhoff counters that no state is required to undertake a paid parental leave program. Indeed, she says, some states probably shouldn’t try. Labor Department calculations indicate Ohio’s 1999 unemployment trust fund would last only 60 percent of one year under the stress of an average recession. The national average is 94 percent of one year, she notes, “which might explain why Ohio hasn’t faced this issue yet.”
The TCC filed suit in federal court this fall to overturn the Labor Department rule. The Labor Department challenged the suit on grounds of “ripeness” — basically arguing the court can’t nullify a rule that hasn’t been implemented yet. The TCC responded that businesses are already gearing up for the rule, so the damage is done.
Oral arguments on both sides were scheduled for late November.
Setting priorities
Most local employers are in a “wait-and-see mode,” according to Toussant, whose company writes employee handbooks for small and growing companies.
“They don’t want to spend any more time thinking or talking about it than they have to,” he says.
At the same time, they prefer to retain their autonomy in dealing with employee leave: “I think it would clearly be to the benefit of the [small business] owners that they control this thing, rather than have it mandated,” he says.
Dorene A. Miller, president of Black Tie Affair Party & Conference Center in Wooster, says her company grants unpaid leave whenever possible to accommodate employees. Her 30 employee “feast-or-famine” catering and conference operation alternates between hectic, appointment-filled weeks and extended periods during which employees may not draw a paycheck.
“We take the position that we will be as flexible as we can with you, since we’re going to ask you to do the same,” she says.
Ronald R. Lyons, president and CEO of Stewart Bros. Paint Co. in Alliance, says his company usually pays employees during unexpected absences to care for a parent or relative.
“We in small business have to make a lot of decisions based on our employees, because they’re the most valuable asset we have,” Lyons says. “We don’t have the luxury of being able to say we have to get someone else in here to do your job, mainly because of the amount of training it takes.”
Miller says that she was a school teacher when the FMLA became law in 1993.
“You came back to work [soon] after you gave birth, or you lost your job. We didn’t have options,” she says.
She supported the FMLA law then; she still supports it in principle now. But she opposes extending it to companies with 25 or more employees.
“If we had the opportunity for employees to stay home and get paid for a set period of time, I just see the opportunity for a massive amount of abuse there, both as an employer and a taxpayer,” Miller says.
The ethical considerations make family leave decisions difficult when they collide with small business economic dilemmas, she says.
“You almost have to take it on a case-by-case basis. I think in this economy we need to be careful that we don’t tap into funds just because they’re in pretty good shape right now,” she says. “You have to set your priorities. For how many decades have people done that?”
Lyons says his company now pays limited leave because “I feel we need to do that to keep good people on staff.” But if the state offered a paid leave benefit, he’d consider using it.
Coratolo, at the U.S. Chamber, said businesses would be better served if Congress repealed the 15-year-old, .2 percent “temporary” FUTA (Federal Unemployment Tax Act) surcharge, originally imposed to shore up states’ flagging unemployment insurance trust funds.
“Refunds are where it should be, not in expanding benefits,” Coratolo says. How to reach: Ohio chapter of the National Federation of Independent Business, (614) 221-4107; Rea & Associates, (330) 339-6651; The National Partnership for Women & Families, www.nationalpartnership.org
