The Small Business Guide to Sick Leave

As COVID-19 continues its spread across the globe, a chief concern among employers and employees alike is sick leave. Numbers as recent as March 2019 show that nearly a quarter of American workers had no access to paid sick leave benefits.[1] This has quickly become a major concern, as the CDC’s first step for those who feel sick is to stay home in order to prevent the spread of the virus.[2]

For those without paid sick leave, this forces employees to choose whether to show up to work sick and potentially infect others or stay home, lose their paycheck and, potentially, their job. Considering over 74% of U.S. employees would experience financial difficulty if their paychecks were delayed by even a week, this isn’t an easy decision for most.[3]

Previously, there were no federal legal requirements for paid sick leave. However, the Families First Coronavirus Response Act and the newly passed coronavirus aid bill have changed that.

This sick leave guide for small business will help you understand the new rules around paid sick leave, as well as how to create a policy of your own to support your employees beyond the COVID-19 outbreak.

Is Sick Leave Required by Law?

As mentioned, there were previously no federal requirements for paid sick leave in the U.S. Under the Family and Medical Leave Act, employers with over 50 employees have to provide up to 12 weeks of unpaid, job-protected leave for eligible employees for specified family or medical reasons, such as the birth or adoption of a child or for serious illness of the employee or family member.

Families First Coronavirus Response Act

The Families First Coronavirus Response Act changes employers’ responsibilities. Now, small businesses (those with fewer than 500 employees) must provide full-time employees with 80 hours of paid sick leave for corona-related purposes, including to self-isolate or care for a family member or child. Employees are to receive their full wages during this time.

Additionally, employers are also required to provide 10 weeks of paid family leave for employees who can’t work because they’re caring for their child(ren). In this scenario, employers are required to provide two-thirds of an employee’s pay.

Of course, this presents a financial burden for many small businesses—many of which are already struggling to keep the lights on. Under the Families First Coronavirus Response Act, employers will receive a tax credit to help offset these costs. The latest coronavirus aid bill further addresses how employers can cover these expenses.

CARES Act

The CARES Act, which was signed into law on March 27, provides $2 trillion in economic support to a variety of industries and individuals. Under this new legislation, small businesses can use SBA 7(a) loans, as well as advance payments under the SBA Emergency Economic Injury Disaster loans, to cover the above paid sick leave and paid family leave policies.

For more ways your company can help offset these costs and more, take a look at these other coronavirus small business relief options.

State Laws Around Paid Sick Leave

It’s also worth noting that a number of states have separate policies surrounding paid sick leave. Beyond the above policies, you should make sure you’re aware of your state’s policies and how your sick leave policy should reflect them. 

Paid sick leave is required by these states:

  • Arizona
  • California
  • Connecticut
  • Maryland
  • Massachusetts
  • Michigan
  • New Jersey
  • Oregon
  • Rhode Island
  • Vermont
  • Washington
  • Washington, D.C.

Each state has slightly different laws as to what paid sick leave looks like, how it’s accrued, restrictions, and more. Work with your HR department and business attorney to make sure you fully understand the laws around paid sick leave in your state so that you can craft a policy that is compliant.

How to Create a Sick Leave Policy

Beyond the recent policies specific to COVID-19, all small business owners should consider a sick leave policy of their own—whether their state requires one or not. If recent events have taught us anything, it’s that paid sick and family leave policies are crucial.

Including paid sick leave in your employee benefits package can not only help you attract new talent, but it also shows your current employees that you value them and are invested in their health. Here’s how to create a sick leave guide of your own.

1. Define the Terms

Because there is little legislation on the topic, sick leave policies are often left to the discretion of the employer. This means you’ll need to decide the terms of your own sick leave policy. You should work closely with your HR team and business attorney to create your policy. Factors you will need to consider include:

Who Is Eligible

If you have several types of employees working for you, such as independent contractors vs. employees, or part-time vs. full-time workers, you will need to decide who is eligible for sick leave and for how long someone must be employed before they’re eligible to use their sick time.

Type of Leave

When creating your sick leave policy for employees, there are a number of different ways you can structure your policy. Some employers provide designated sick days that can only be used for health-related reasons. Others include sick days in a general PTO policy, where employees receive a set number of days off each year, which they can use for whatever reason they like—i.e. when they get sick, to go on vacation, or take a personal day away from work with no questions asked. 

Some companies also incorporate a donation policy into their sick leave guidelines. This type of policy allows one employee to donate their accrued sick days or paid time off to another employee. This allows coworkers to support a colleague who’s in need.

How Time Is Accrued

In general, how much sick time an employee has is dependent upon the number of hours worked. In some states, for instance, one hour of sick leave is accrued for every 40 hours worked.

Unless there are laws set down by your state, it’s entirely up to your business to decide how much sick leave to offer your employees.

According to the U.S. Department of Labor, these are the sick leave averages offered by employers:

  • One to five years of employment: seven sick days per year
  • Five to 10 years of employment: eight sick days per year
  • 20+ years of service: nine sick days per year

In general, larger companies (100+ employees) offer more sick leave than smaller companies. However, how many sick days you offer your employees is up to you as the business owner, and you’ll want to do some competitive research to make sure your policies are in line with other, similar businesses in your area.

Limits

Based on the rate that an employee can accrue sick leave, there will be a natural limit to how much time is accrued in one year. You’ll want to define this limit clearly in your policy. It’s also important to consider carry-over. 

With a carry-over plan, unused paid time off carries over from one year to the next. This can allow employees to build up a significant amount of paid time off, which would allow them to take a longer vacation or leave down the road.

You’ll want to decide if paid sick days can carry over to subsequent years, and if so, if there’s a limit on how many are eligible. 

Another thing to consider with paid sick leave and time off policies is what happens when an employee leaves the company and has unused PTO days. Often, employers will pay this out to the employee. 

2. Use Time Tracking or Payroll Software

Since most sick leave policies are based on the number of hours an employee works, using time tracking software can be especially helpful if your employees are hourly instead of salaried.

Time tracking software lets employees virtually clock in and out, tracking how many hours an employee has worked and automatically calculating their accrued sick leave or PTO.

For salaried employees who don’t clock in and out, your payroll software can typically keep track of hours worked and calculate time off as it’s accrued. Automating these processes can save you a lot of time, as well as reduce the likelihood of error. 

Many companies also use software to allow their employees to schedule their own time off (or send a request to their manager) in order to keep track of time off and ensure they’re not taking more time than they’ve accrued.

3. Define PTO Abuse

When designing your sick leave policy, keep in mind that some employees may eventually abuse the system, whether failing to log their time off correctly or using sick days for unapproved reasons. To address these potential issues from the start, define what PTO abuse is and what the ramifications are so that your employees are aware of what is and is not allowed.

4. Share Your Policy

Once your sick leave policy is complete, make sure it is distributed to your team and easily found in your employee handbook or company’s intranet so that everyone is aware of this benefit and how to use it. 

Likewise, make sure potential new employees are aware of your sick leave policy and receive an explanation with a breakdown of their other benefits, such as health insurance and retirement savings plans. 

The Bottom Line

One of the many consequences of the COVID-19 outbreak is new guidelines around paid sick leave and paid family leave. For the time being, many small businesses are required to provide 80 hours of paid sick leave and 10 weeks of paid family leave to eligible employees.

Beyond these regulations, there are few guidelines for providing paid sick leave to employees. If your business operates outside of one of the 12 states with paid sick leave laws, you’re typically not required to offer a sick leave policy. However, for companies that want to do so, you have the autonomy to create a policy as you see fit. 

That being said, sick leave and paid time off are a benefit that can attract high-caliber employees and retain the best talent. We hope this sick leave guide for small business will help you create a policy to help keep your employees safe and healthy.

Article Sources:

  1. BLS.gov. “Paid Sick Leave: What is Available to Workers?
  2. CDC.gov. “What to Do If You Are Sick
  3. PRNewswire.com. “Survey Finds Majority of Americans Live Paycheck to Paycheck

Christine Aebischer

Christine Aebischer is an editor at Fundera.

Prior to Fundera, Christine was an editor at the financial planning startup LearnVest and its parent company, Northwestern Mutual. There she wrote and edited on topics such as debt, budgeting, insurance, taxes, investing, and retirement. She has written for print and online on topics ranging from personal finance to luxury real estate.

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