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Thoughts on paid sick leave

Jock Finlayson and Ken Peacock look at the numbers, nuts, and bolts of paid sick leave, how it will affect employers, and how its fits alongside existing programs.
What’s the time? Time to get ill.

The NDP government’s decision to introduce a mandatory paid sick day requirement through a change to the Employment Standards Act will add to the significant payroll cost pressures B.C. businesses have been grappling with in the past few years.

Effective January 1, 2022, companies, non-profits, and public sector organizations must provide at least five paid sick days per employee each year. The new benefit will extend to both full- and part-time employees. It replaces a temporary program introduced in May 2021 that provided three paid sick days.

With the temporary program, the provincial government picked up the cost, up to a maximum of $200 per employee per day. Now, employers will be on the hook.

The case for paid short-term sick leave is compelling, particularly in light of the turmoil and hardship caused by the protracted COVID-19 pandemic. Most advanced economy jurisdictions have short-term paid sick leave as part of their labour and employment laws. The COVID-19 saga has reinforced the importance of maintaining safe and healthy workplaces. Among other things, this means ensuring that employees who are ill stay home. Without paid sick leave, the concern is that some employees who don’t feel well will come to work to be paid.

The new measure should lead to healthier workplaces and fewer transmissions of infectious diseases in workplace settings. But for employers, it comes with a sizable cost.

The Greater Vancouver Board of Trade estimates that mandating five paid sick days will cost B.C. employers a minimum of $500 million annually – and potentially more, depending on the extent of uptake. This reflects the fact that more than half of all employers don’t currently provide paid short-term sick leave, and that many sick leave provisions are for fewer than five days per year and/or only extend to full-time staff.

To put the government’s announcement in context, we should recall other recent policy and regulatory changes that have driven up payroll costs for employers in British Columbia. Below, we list the most important examples.

B.C.’s Employer Health Tax (EHT): Implemented over the course of 2018-19, the EHT levied a new payroll tax on most employers. The basic rate was set at 1.95% of payroll - though employers with annual payrolls below $501,000 are exempt. The EHT revenues allowed the province to eliminate Medical Services Plan (MSP) premiums. A majority of MSP premiums were paid by individuals and families. Some employers covered this cost on behalf of their employees and their dependents – but most did not. The Business Council estimates that the EHT led to a net annual payroll tax increase for B.C. employers of almost $1.5 billion as of 2021.

Canada Pension Plan: Under a federal-provincial agreement concluded a few years ago, annual CPP premiums are climbing as part of a plan to gradually enrich the CPP program. For 2022, CPP premiums rise to 5.7% from 5.45% in 2021; back in 2019, the CPP premium rate was 5.1%. CPP premiums are paid equally by employers and employees. The premiums are paid on an employee’s earnings up to an annual amount -- the yearly maximum pensionable earnings (YMPE). The YMPE increases in tandem with the average industrial wage.

For 2022, the YMPE is rising from $61,600 to $64,900 – a big jump that reflects an unusual increase in the average wage due to shifts in the composition of jobs in the labour market during the ongoing COVID-19 shock. Essentially, relatively more low paid jobs have disappeared during the pandemic while higher-paying jobs have increased. The overall effect has been to boost the average industrial wage across the economy.

What this means is that the cost of the CPP for employers is rising significantly due both to the higher premium rate and to the increase in the YMPE. The Business Council estimates that the incremental cost to B.C. businesses from higher CPP premiums and the higher YMPE will be about $300 million for 2022, excluding the public sector. This comes on top of the extra CPP costs flowing from increases in the CPP premium rate and the YMPE in 2019, 2020 and 2021.

In total, the additional costs for B.C. employers associated with escalating CPP premiums and the increases in the YMPE over 2019-2022 exceed $500 million per year.

Employment Insurance (EI): Like the CPP program, employers and employees both contribute to the EI program via premiums that are levied up to a maximum insurable earnings amount (MEI). Unlike the CPP, with EI employers cover a majority (almost 60%) of all premiums paid into the system – meaning the employer premium rate is higher than the employee rate.

For both 2020 and 2021, the basic EI premium for employees was 1.58%, down marginally from 2018 and 2019. For employers, the EI rate is always set at 1.4 times the rate paid by employees. The federal government has announced that the EI rate is not changing for 2022, although it will likely increase in 2023 and beyond given the large $30 billion deficit that has accumulated in the EI Account.

As with CPP, the maximum insurable earnings for the EI program increases every year based on the average industrial wage. The MEI was set at $56,300 in 2021, up from $53,100 in 2019. For 2022, the MEI will be $60,300 – also an unusually big jump.

The Business Council estimates that the “extra” EI cost born by B.C. businesses in 2022 due to the higher MEI amount will be roughly $50 million. EI costs were also rising for B.C. businesses over the 2019-21 period, but by less than $50 million annually.

If we consider B.C.’s new five day paid sick leave requirement against the backdrop of the EHT and recent changes to the CPP and EI programs, it is clear business are being hit hard -- burdened with billions of dollars in additional payroll costs.

We estimate that the extra payroll costs imposed on B.C. employers as a result of government decisions and new policy measures summarized above will approach $3 billion per year as of 2022, compared to the situation four years ago. Moreover, this estimate excludes other government policy changes that have also affected payroll costs – for example, B.C.’s move to a significantly higher minimum wage, the extra costs B.C. employers will face over time due to expanded and enriched benefits for injured workers under the province’s Bill 23, and the impact of other modifications to B.C.’s employment and labour laws and policies since 2017.

Jock Finlayson is a Senior Advisor of the Business Council of British Columbia; Ken Peacock is the Council’s Chief Economist.