Covering Small Businesses in Paid Leave

By Jeff Hayes, Ph.D.

Whether to cover all employers or to exclude small employers from coverage is a frequent topic that emerges during discussions about policies to expand access to worker leave for family and medical needs. For example, the Family and Medical Leave Act of 1993 (FMLA) excludes those working for employers of less than 50 within a 75 mile radius. This restriction is one of the primary reasons that the FMLA excludes about two in five workers in the United States from job protected unpaid leave up to 12 weeks in length. (Another reason is its requirement that workers have one full year of tenure with the same employer working more than half-time (at least 1,250 hours that year).

Access to paid leave varies widely by employer size (Table 1):

  • Overall, 71 percent of private sector employees have access to paid sick leave, ranging from 62 percent of those working in establishments with fewer than 50 employees to 87 percent for those working in establishments with 500 or more employees.
  • Sixteen percent of private sector workers have access to paid family leave, ranging from 12 percent of those working in establishments with fewer than 50 employees to 25 percent for those working in establishments with 500 or more employees.
  • Temporary disability insurance (TDI) that can usually be used for maternity leave is available to 42 percent of private workers, varying from 28 percent of those working in establishments with fewer than 50 employees to 63 percent for those working in establishments with 500 or more employees.

Table 1: Distribution of Employment and Paid Leave Benefit Access Rates by Establishment Size, Private Employers.

table 2 paid leave

Source: *Quarterly Census of Employment and Wages, First Quarter 2018. **National Compensation Survey, March 2018.

These data tell us that if a state excludes small businesses with 1-49 workers from a requirement to participate in a paid leave program, then the state will also exclude 42 percent of its workforce from paid leave benefits (depending on the particular size distribution of firms in the state).

While it is important to provide opportunities for small businesses to thrive and grow, their employees also need the protections and benefits of paid leave for their own serious health conditions, parental leave for new children, and caring for family members. Several states have passed family and medical leave laws expanding job protection to those employed in establishments with fewer than 50 employees.

Since 2006, when San Francisco adopted the first paid sick days law, more than 45 states, counties, and cities have adopted policies that take the form of employer mandates requiring employers to provide a minimum number of days of leave for most workers. The workers earn leave according to a formula and benefits are expected to reflect their usual wages when leave is used. Many of these laws make distinctions based on the number of employees in the establishment in terms of the number of days that can be earned and accumulated in a year. For example, the San Francisco paid sick days ordinance allows workers to earn one hour of paid leave for every 30 hours of paid work, accumulating a maximum of nine days in firms with 10 or more employees and five days in smaller firms, for their own health needs, as well as those of other family members (including a “designated person” or chosen family).

In contrast, none of the five states that have programs for paid family and medical leave explicitly exclude employers from coverage based on their number of employees. Most of these programs have been set up as social insurance programs, and they aim for more universal benefits (these state programs were established between 1942 and 1969, with family leave implemented as add-ons between 2004 and 2013).

In the majority of states, workers pay all or the majority of the insurance premiums; therefore, it makes sense that the leave benefits are portable and can move with the workers as they switch jobs within their states, without worry about which employers are covered and which are not. There are other small differences among the five state programs:

  • Some states, like California and New Jersey historically allowed employers to use private coverage for the TDI (medical leave) portion of their programs, but the state insurance plan is predominant.[i]
  • Other states, like New York, encourage use of private insurance companies but have a state fund as back up.[ii]
  • Only Hawaii requires all employers to use private insurance to provide TDI, so it is universal like social insurance, but in the form of a mandate on employers.
  • Rhode Island is pure social insurance (no employer can opt out by using a private insurance company or self-insuring) and the workers pay the entire premium.

Of these five states, all but Hawaii have added paid family leave, for all size employers, for lengths of benefit receipt from 4 to 12 weeks.  All programs have a one week waiting period before benefits are applied to a covered absence from work.[iii]

Some of the more recent laws to pass include special provisions to help smaller employers meet their obligations under the new policy, but their workers are not denied benefit coverage. While most Americans understand that small businesses are very important to the American economy, many may not have considered the definition of “small” and the consequences for workers under policies that differentiate according to the number of people employed by an establishment.

Nationally, nearly two-thirds (63 percent) of establishments employ fewer than 5 workers (Table 2). But just 7.3 percent of the private workforce is employed in these very small establishments, with most U.S. workers employed by larger firms. Under FMLA (which has more complex criteria for determining worker eligibility), 96 percent of the establishments in the United States are smaller than 50 employees, but they employ just 44 percent of workers.

Table 2: Detailed Distribution of Private-Sector Employment and Establishments by Number of Employees per Establishment

table 1 paid leave

Source: Quarterly Census of Employment and Wages, First Quarter 2018.

If firms with 49 or fewer employees are excluded from paid leave programs, then 44 percent of workers are excluded.  The excluded share falls to 26 percent if firms with less than 20 employees are excluded. Even if only the smallest firms—with fewer than 5 employees—are excluded from a mandate to provide paid leave, still 7.3 percent of all employees are excluded.

There is evidence that small businesses are supportive of these policies. Recent survey data of a nationally representative sample of small businesses from the Main Street Alliance found that nearly two of three small business owners would support a national paid family and medical leave program (64 percent) and eight of ten (79 percent) small business owners reported a paid family and medical leave policy through a social insurance program would help them provide this benefit to their employees.[iv]

Making it easier for small businesses to provide these vital benefits to their workers by including them in paid leave insurance programs is a win-win-win for workers, employers, and the economy.


[i] Self-insurance is allowed, but regulated. For example, less than 4 percent of California workers are covered by Voluntary Plans that can include private or self-insurance.

[ii] New York law allows, but does not require, employers to deduct one-half of one percent of an employee’s wage, up to a maximum of $.60 per week, towards the cost of disability benefits insurance.

[iii] Waiting periods may be waived when continuing on family leave following a medical leave for childbirth.

[iv] Among respondents to this survey, 90 percent had 10 or fewer employees.

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