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- The only employees exempted from the mandate, local government employees have the right to opt-in voluntarily.
A curious decision - the law's drafters have exempted local government employers from the payroll contribution regardless of their size. +−
- Are they not also concerned about higher rates for state taxpayers or about higher prices across the private economy for consumers?
- The sustainability of the ambitious government-administered program has been in question all along.
- Proponents dismissed the concerns of businesses
- Another distortion, but this time permanent. A sector exemption will distort wages and shift burdens. To what purpose?
- The law does not extend job protection to local government employees. Why not?
- Last but not least, the disruption of comprehensive compensation agreements or collective bargaining is a challenge that all entities must face. Why the exception?
- Deep reservations remain about the program's sustainability as well as concerns for negative consequences.
One feature of Colorado’s new paid leave law that has drawn little attention is the curious exclusion of local government employees and employers from the mandate. The passionate campaign for a mandated government paid leave employment benefit was driven by an imperative for universal coverage. It was a response to what proponents claimed was a patchwork of inconsistency among employers.
The mandate policy model is in line with other government programs that rely on spreading risk across different classes of workers as with Social Security and Medicare. Voluntary participation is rejected because it would lead to “self-selection.” Those more likely to opt-in are those more at risk and those who have the most to gain from the benefit. That skewed participation would reduce affordability.
Yet the crafters of this ballot initiative included several provisions that build local government exceptions into the law. Why? And the more interesting question, why were the exceptions necessary?
The only employees exempted from the mandate, local government employees have the right to opt-in voluntarily.
The troublesome inconsistency leads first, to a front-end problem – there are no incentives for local government employees to contribute in 2023.
The law requires employees and employers across the State to pay the payroll tax for one full year without receiving benefits.1 This one-year collection will fund the program’s benefits pool in the Treasury. The benefits program will go live in January 2024.
Local government employees have the right to refrain from opting in until after January 1, 2024. Yet they access the same level of benefits as other workers across the state. The only stipulation is that they cannot then withdraw from the program without completing a minimum three-year commitment.
Therefore, they enjoy a unique choice: does this program offer value to them or not? They could even wait until they have a qualifying event that would make that 3-year commitment of value to them personally.
This will shift costs to those employees who will be mandated to contribute that first year – to the extent that local government employees exercise their unique option.
Another distortion is that local government wages, without the tax burden, would be artificially elevated. Employee pay would be higher relative to other sectors in the State while enjoying the same level of benefits.
A curious decision – the law’s drafters have exempted local government employers from the payroll contribution regardless of their size.
Why are advocates reluctant to require an employer contribution from local governments when an employee does opt-in? Is the thinking that a local government payroll tax contribution will be passed on to taxpayers and expose them to higher rates?
Are they not also concerned about higher rates for state taxpayers or about higher prices across the private economy for consumers?
Proponents went to great lengths in their campaigns to assure voters that the burdens on employers are trivial. They suggested that the business community was over-reacting. They insist that costs imposed, either through the payroll tax, the additional compliance, or the disruption to operations due to an absence, will be offset by the mechanisms of the policy or by its spillover effects. Among them is that higher labor-force attachment among caregivers due to program design will lower employee turnover and therefore related staffing expenses. Some even claim that multiple policy benefits will more than compensate for costs. Employers, who feel much closer to the daily requirements of their own businesses, disagree.
The sustainability of the ambitious government-administered program has been in question all along.
Many doubt the low rates of program use predicted by advocates. Recent expansions in response to public expectations are far beyond what the limited programs of the past have offered. Higher use will bring higher payroll tax assessments on employee pay. Businesses, who must accommodate the legally protected absences, are likely to see rising disruption of their daily operations. Many of the risks and costs cannot be understood through projections because they involve decision-making around interdependent or unquantifiable variables. At risk is the challenging reality that businesses must deliver to their clients and customers. They must be reliable. Yet the law protects the right of an employee to be unreliable based on an imposed, state-wide standard. Where does that friction – that unresolved conflict – go?
Proponents dismissed the concerns of businesses
There are volumes of academic literature supporting the benefits to caregivers and the ones they care for. Yet little is offered to assure the public that the policy is sound for employers. It is supported by weak surveys2, projections, or conjecture that it will not present significant downside risks to businesses.
“Paid leave policies benefit businesses by improving worker retention and productivity without increasing operating costs (and can even produce cost savings).”A National Paid Leave Program Would Help Workers, Families Center on Budget and Policy Priorities
Paid leave allows smaller businesses to compete better with larger businesses. Small businesses often have trouble matching the more generous leave benefits offered by larger employers – potentially resulting in a hiring disadvantage. When all employers must abide by the same rules, the playing field is more level. When paid leave is administered through a paid leave insurance program, small businesses benefit in particular because the cost of leave is shared.Paid Family and Medical Leave: Good for Business National Partnership for Women and Families
All we need is data to support these claims. And that won’t happen anytime soon. Not only are we early in the implementation of these recently expanded policies, but much of this data is private and not always clearly tracked. It is not possible to “level the playing field” between large and small firms. They are too different. They must be allowed to compete by leveraging their inherent strengths, yet regulations too often put a heavier burden on small firms relative to their resources and market power.
Another distortion, but this time permanent. A sector exemption will distort wages and shift burdens. To what purpose?
Economists widely acknowledge that the employer payroll tax contribution both lowers take-home wages and other benefits because businesses must account for the expense as a cost of labor. Will this special exemption for local government organizations result in permanently elevated wages relative to the comparable private sector or state employee wages across our workforce? Will it shift the burden of delivering this benefit to those workers?
The law does not extend job protection to local government employees. Why not?
The impact of job protection is a significant concern for small employers who are exempt from the FMLA, the Federal Family and Medical Leave Act. Firms with over 50 employees and state government employers, already subject to the FMLA, face the potential costs if employees stack these two leaves. Because the Colorado law has much broader qualifying circumstances, it would be possible to take 12 weeks of paid Colorado leave and an additional 12 weeks of (unpaid) FMLA leave. This risk will not fall on local government employers who will only be subject to the FMLA.
Are they unwilling to force this policy lever on local government organizations for the benefit of their workforce? If they are concerned about excess costs or risks that might be passed on to taxpayers, it should also be a concern for State taxpayers and consumers.
Last but not least, the disruption of comprehensive compensation agreements or collective bargaining is a challenge that all entities must face. Why the exception?
There are likely concerns for conflicts with collective bargaining. There are several unions with a presence in local government, including a significant number of K-12 employees. But all the other entities in the State will have to review their employment compensation contracts. Why shouldn’t the local government entities as well?
If there are concerns that some employees will lose superior benefits, they have plenty of company in the private sector. Yet those employees do not have a choice.
Deep reservations remain about the program’s sustainability as well as concerns for negative consequences.
The policy concept is still largely an experiment worldwide and certainly here in the US with only a few states exploring it. Opposition to the program has included the vast majority of businesses. They recognize that the impacts of the mandate will fall unequally across the economy. They actively support the concept of paid leave and have made great strides to provide it, but they also harbor deep concerns for the unknowns of a government-mandated policy that imposes one standard on businesses of all types and sizes that will resist changing as our needs change.
Yet advocates gained support from voters with promises of expansive benefits. They downplayed or dismissed any negative consequences. This makes the carving out of local government seem unnecessary – unless they lack confidence that the policy will deliver as promised.
1 Federal government employees are not covered.
Self-employed workers are not mandated to participate.
There is an opt-out for firms that want to self-insure. In that case, the firm will not remit premiums to the State but will decide internally how to fund their equivalent coverage. They are bound to meet, at a minimum, the provisions for coverage defined by the law.
2 Among the surveys are some that are convenience surveys done by the advocates in their fieldwork, random surveys conducted early in these programs before there was higher awareness and use, or before the expansions of the provisions like higher rates of wage replacement or broader job protection.