Small businesses face new challenges as state’s paid leave program kicks in

The toughest task may be figuring out how to fill workers’ shoes while they are out

Eric Michelson, co-owner of Michelson’s Shoes in Lexington and Needham, wants his workers to have easy access to the program.John Tlumacki/Globe Staff

Owners of small businesses have wrestled with logistical problems and plummeting sales since COVID-19 arrived. Now, they can add one more possible headache to the list: the state’s new paid family and medical leave program.

Starting on Friday, state law requires employers to offer workers up to 12 weeks of paid family leave, and up to 20 weeks of paid medical leave. The paid leave will expand to include care for a family member in July.

Many owners welcome this opportunity to offer another benefit to employees, particularly at a stressful time. But they also recognize potential downsides.

“Going into this before the pandemic, small businesses were already at a high anxiety level about this program,” said Christopher Carlozzi, state director for the National Federation of Independent Business. “This just makes it infinitely worse to have a pandemic going on while this is being rolled out.”

Now, employees can start taking their paid leave, either to deal with a medical issue or to bond with a new child within a year of the birth, adoption, or foster-care placement. They will get a portion of their salary, capped at $850 a week.

“There are people who have been waiting . . . for January 1 to roll around,” said Bill Randell, principal at Advantage Benefits Group in Worcester. “The state is going to be overrun with claims.”

Small businesses need to figure out how best to explain this complex program to employees, and calculate how it gels with the array of preexisting leave requirements. Perhaps the toughest task: deciding how to fill the shoes of their workers while they are out.

“It’s just one more thing that employers need to deal with, administratively and financially,” said Ken Bettenhauser, managing director at HR Knowledge, a benefits broker and HR service provider in Mansfield.

Eric Michelson, co-owner of Michelson’s Shoes in Lexington and Needham, said his biggest concern is making sure his employees have easy access to the state program, which is set up to be similar to unemployment benefits. He said he tried to create a primer for his 10 or so employees, but didn’t have luck finding the information he needed.

The pandemic actually makes it easier to roll out the program at Michelson’s, he said, because traffic is down at the stores. He has fewer than 25 employees, so the business is not required to contribute to the state fund. But he still expects to incur some financial costs, in the form of paying for overtime to fill staffing gaps, or maybe hiring and training part-timers as a backup.

“I’ve tried my best over the years to accommodate my employees as best as we can,” Michelson said. “[But] this just puts us in a tough position because of all the potential downsides.”

At companies like Michelson’s that are under the 25-employee threshold, only the employees need to pay into the state program, with a deduction equal to 0.38 percent of a person’s eligible wages. Employers with at least 25 workers need to chip in roughly half the costs; for these companies, the payments to the state equal 0.75 percent of wages.

For a worker at one of these larger companies with $1,000 a week in eligible earnings, that translates to a weekly premium of $7.50, usually split between the individual and employer. (Some companies will pay for it all.)

Participating businesses started collecting payroll deductions 15 months ago to cover the costs. However, state officials say about 4,200 employers, including more than 3,300 above the 25-worker threshold, have received exemptions by adopting private plans instead; these alternatives are required to be more generous or at least comparable to the state plan.

Generally speaking, it has been more enticing for the larger companies to seek less expensive or more robust alternatives offered by private insurers. Going private also means employers can permit employees to use accrued paid time off to supplement the partial pay available through the leave policies, to get a full paycheck.

Leigh-Ann Larson, chief executive at Elevate Counseling Services in Easton, said she opted for the state program, even though she has 33 employees, enough to require her business to match her workers’ contributions. “I’m actually pleased that they are doing this,” Larson said. “It helps us offer more to our employees. . . . It’s about what we’re gaining. I think it’s going to give peace of mind to a lot of employees.”

The state’s paid family leave law can be traced back to a truce among business, labor, and community groups in 2018, dubbed the “Grand Bargain.” Among the other changes enacted by the Legislature as a result: a phased-in increase in the state’s minimum wage, to $15 an hour in 2023. For that reason, the minimum is going up to $13.50 an hour in 2021.

“When we negotiated the deal back in ’18, no one saw COVID coming,” said Jim Rooney, chief executive of the Greater Boston Chamber of Commerce. “It’s a difficult time to be absorbing these costs. But it’s also a difficult time for the workforce. Anything that provides . . . a sense of relief to workers in this moment has to be considered a positive thing.”

Andrew Farnitano, spokesman for the union-backed Raise Up Massachusetts coalition, said the paid leave program is kicking in just as a federal mandate created by Congress last March to allow for 10 paid sick days to deal with COVID-19 is expiring. That is a gap, he said, that still needs to be filled for workers who are exposed to COVID-19 and need a short-term quarantine. The state’s program, meanwhile, comes at a critical time for people unable to work due to long-term health effects.

“We feel like it couldn’t happen soon enough,” Farnitano said of the new program.

At Associated Industries of Massachusetts, one big question that the staff regularly gets is whether the paid leave will cover COVID-19. The answer? AIM executive vice president Kyle Pardo said: “It depends.”

The program will cover COVID-related illnesses if they are serious health conditions, she said, but not someone who is positive but asymptomatic or must simply quarantine.

Another thorny issue looms: a possible tax hike to keep the state’s paid leave fund solvent, when officials revisit it in the fall, especially with 4,000-plus employers not in the mix. “I have very little doubt that the taxes are going to go up, both for employers and employees,” said Jon Hurst, president of the Retailers Association of Massachusetts. “I would be very surprised if come October, the state does not say it’s underfunded.”

But Marjory Robertson, an executive at insurer Sun Life Financial, isn’t worried yet. “I know Massachusetts is going to get a surge [of requests],” she said. “But I’m optimistic they’re going to get it under control.”