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BC Employer-Paid Sick Leave Program – Small and Medium Business Sentiment, Concerns, and Reality

BC Employer-Paid Sick Leave Program – Small and Medium Business Sentiment, Concerns, and Reality

Mengyao Niu, Public Policy and Entrepreneurship Intern

Samantha Howard, Senior Director, BC and Strategic Projects

 

The BC government has signaled it will introduce permanent employer-paid sick leave in January 2022 for any personal illness and injury. This will replace any provincial COVID-19 related leave for employees. Recently, a survey was released by the government to present a range of possible models for the new paid sick leave entitlement. The three possible models being proposed are 3, 5 or 10 employer-paid days for illness or injury leave. This is in addition to the 3 unpaid days of illness/injury leave already in place in BC.

Of the three models presented by the government, zero days was missing as an option, raising questions on the level of validity of the survey results and the fairness of the consultation process to small business owners. On top of that, various shared concerns have been expressed by business owners across BC over the program cost and timing.

CFIB research results suggest that 64 per cent of small businesses in BC do not support an employer-paid sick leave program. The reluctance to support such a program is associated with various concerns, of which increased cost on businesses is the top one (84 per cent). That said, 63 per cent of businesses would support the program if the associated costs were fully taken on and reimbursed in a timely fashion by government.

Given current business conditions in BC, such results are not at all surprising. It is projected that the implementation of an employer-paid sick leave program can cost small businesses collectively as much as 2.2 billion dollars[1].This would greatly push back the onset of full economic recovery and delay the path for businesses to become debt-free[2]. Meanwhile, BC businesses face other COVID-19 related obstacles, including but not limited to a lack of customers and reduced customer spending, labour shortages, and operational challenges. This is on top of non-COVID-19 related costs, such as various tax and minimum wage increases.

With all considered, a series of recommendations to the government have been made at the end of the report, urging the government to look closely at the state of small business, hold its promise, and continue to work to support a full business recovery in BC.

Increase in financial cost as the top concern to the program

 

Multiple concerns are expressed by small business owners in BC relating to the employer-paid sick leave program, including not being able to fill shifts on a temporary basis, the increased cost to businesses, misuse of the program benefits by employees, and undifferentiated entitlement to all types of employees. Of these four main concerns, the increased cost to businesses is reported as the greatest concern for businesses (84 per cent).

Source: CFIB, BC Sick Leave special survey, October 12–14, 2021, preliminary results, n = 1,051.

Fear of added financial stress as the top concern for businesses is not unanticipated, as many of them are still experiencing the financial aftermath of the pandemic. Adding the cost of an employer-paid sick leave program onto the shoulders of small businesses will lead to a setback on the path to economic recovery.

Current pace of recovery and challenges faced by BC small businesses

Small businesses in BC have been on a rocky path since the start of the pandemic. Research shows that 75 per cent of businesses have yet to fully recover from pandemic related losses up to the month of July[3]. Over half of businesses (57 per cent) reported not having normal sales levels as of October[4]. Moreover, as of May 2021, businesses in BC reported taking on an average of $129,348 in COVID-19 related debt.

Business reality vs. paid sick leave program expectation

Having taken on a significant amount of debt, close to half (44 per cent) of BC businesses have expressed that they will take a year or more to repay their debt. Some are even concerned they cannot afford to repay the debt at all. There is clearly an inconsistency between the effective date proposed by government for the paid sick leave program and the harsh reality faced by BC businesses. With the financial burden of this program being put squarely onto independent business owners in only 68 days[5] time, many will be looking at stunted economic recovery and possible closure.

“I am disappointed that the government is seeking to download yet another cost to businesses. The employer health tax already costs my small business $15,000/year. Paid sick days would cost my business $10,680/year.”

 

  • Personal & Miscellaneous Services Business Owner, Castlegar, BC

 

Other COVID-19 related challenges

 

Over the course of the pandemic, business owners have, and continue, to face other challenges that impact the revenues of their business. This includes a lack of customers and reduced customer spending. Nearly half (46 per cent) of businesses in BC reported lack of customers as the main reason that their business has not returned to normal revenues. On top of that, a third of businesses (33 per cent) indicated that their business revenues have been negatively impacted by reduced average spending by customers[6].

 

Labour shortages and operational challenges have also created an impediment for businesses on the path to recovery. Over a third (37 per cent) of businesses reported that labour shortages are a main reason why the revenues of their business have not returned to normal levels. When looking at capacity utilization, a combined effect of current staffing level and allowed operational capacity on a business, it is found that only 25 per cent of businesses in BC were operating at full capacity as of September 2021[7]. With the introduction of the employer-paid sick leave program, the issue of under-utilization of business capacity could be exacerbated. This is likely as a result of less employees to work shifts, or employers being unable to fill shifts on a temporary basis (which is reported by 42 per cent of businesses as a main concern).

 

While businesses are still functioning at a lesser capacity, this is not the time to add more cost to the business owners. Small and medium size businesses are not getting the support they deserve, and this will be one more huge cost that will hurt us. This doesn’t show support to the business that are trying to survive during this time.

  • Personal & Miscellaneous Services Business Owner, North Vancouver, BC

 

Already-existing financial burden on BC small businesses

 

Not only does the pandemic take a toll on small businesses in BC, disproportionately high payroll and property tax rates have also created a dampening effect on businesses, holding many of them back from thriving financially, even pre-pandemic.  

 

Employer paid benefits

Small businesses in BC face the second highest payroll tax burden in Canada, with a 10.51 per cent effective payroll tax rate (this figure is 9.77 per cent for the national average), including the WorkSafe (1.55 per cent), EI (2.27 per cent), CPP (4.74 per cent), and Employer Health Tax (1.95 per cent). A CFIB study shows that a 50-employee business with a $2.5 million payroll paid $5,256 tax for every $50,000 salary[8] in 2019. On top of the cost of these benefits, another cost to employers is the increase of minimum wage. From 2017 to 2021, minimum wage in BC has increased from $11.35 per hour to $15.20 per hour, a 34 per cent increase.

 

Figure: Effective Employer Payroll Tax on a $50,000 salary, by Province in 2019

 

Note: CFIB calculation, based on a small business with 50 employees and a payroll of $2.5 million.

 

Skyrocketing commercial property tax

In addition to payroll tax, small businesses in BC also face a heavy property tax burden, and it is only getting worse. An average, BC business owners pay well over 2.5 times the level of property tax as a resident on the same assessed property value in 2018. In Vancouver, commercial properties paid a rate of 5.03 per $1,000 of assessment verses residential properties paying a rate of 1.24 per $1,000. This rule applies even in the case where the commercial value does not make up the entire property. In that case, the building is still entirely deemed commercial, resulting a $15,090 tax bill for a $3 million property in Vancouver[9]. All these policies create a serious financial challenge for those who want to start or operate a small business in BC[10].

 

“The provincial government needs to be reminded that they have also introduced employer paid MSP premiums 2 years ago. This was already a major burden to our bottom line. I would like to see them cap it starting at $1,000,000 in annual payroll before it kicks in.”

  • Unclassified Sector Business Owner, Vancouver, BC

 

 

Small business sentiment towards employer paid sick leave program

 

Small businesses in BC understand the importance of public health and have been quick to pivot their businesses to protect their staff and customers throughout the pandemic. Despite many businesses still experiencing reduced revenues, labour shortages, and other operational challenges, a majority of businesses (63 per cent) indicate that they would support the paid sick leave program if the costs were fully taken on by the government and reimbursed on time. Support drops to 42 per cent if the government paid half of the costs associated with providing paid sick leave.

 

Nearly two thirds (64 per cent) of businesses do not support the paid sick leave program when the costs are entirely on businesses owners. Of those who do not support the program, the hospitality sector has the most, with 84 per cent in opposition. Those businesses in front-facing industries, not deemed essential, and unable to effectively deliver services virtually, have been impacted most by the pandemic and are least likely to show support for this program.

 

The lack of support for this program is unsurprising, as the program may cost independent businesses in BC anywhere from $404,759,221 to $2.2 billion (depending on the number of days) at a time where they have not fully recovered from COVID-19 related losses, and have accumulated an average of $129,348 in COVID-19 related debt, not to mention the already high tax bill. Proceeding with employer paid sick leave raises serious questions on whether the BC government understands the reality that small businesses face.

 

Conclusion and recommendations

 

COVID-19 has created a detrimental impact on BC small businesses. Many have yet to even start to recover for the COVID-19 pandemic, and heavy taxation continues to hold them back. Now is not the time to put the cost of an employer paid sick leave program onto the shoulders of small businesses. A pro-longed path to recovery, failure to service debt, and downright closure are the devasting results of rashly implementing such a policy.

 

Despite premier Horgan promising to find a “seamless way” to implement paid sick leave without putting more burden on businesses “at a time when businesses can least afford it”[11], the current plan fails to do so, leaving businesses staggering on an uncertain path to economic recovery.

 

With only 68 days left until the program comes into effect, we recommend the following:

  • At minimum, the government should postpone the program until BC businesses are fully recovered,
  • The government must fully take on the costs associated with the program, or offset the costs elsewhere,
  • The government should instead look at financial and policy support to BC small businesses, especially as the holiday season approaches.

 

 

 

 

Methodology

This report presents findings from the following recent CFIB surveys:

  • CFIB, BC Sick Leave Special Survey, an online survey completed by 1,051 CFIB members from BC between October 12 to 14, 2021. Results obtained at the time of reporting are preliminary. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±3.0 per cent, 19 times out of 20.
  • Your Voice Survey – October 2021, an online survey completed by 3,929 CFIB members between September 12 to 25. Results obtained at the time of reporting are preliminary. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.6 per cent, 19 times out of 20.
  • Your Voice Survey – September 2021, an online survey completed by 3,697 CFIB members between September 9 to 27. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.6 per cent, 19 times out of 20.
  • Your Voice Survey – August 2021, an online survey completed by 4,670 CFIB members between August 5 to 27. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.4 per cent, 19 times out of 20.
  • Your Voice Survey – July 2021, an online survey completed by 4,278 CFIB members between July 8 to 31. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.5 per cent, 19 times out of 20.
  • Your Voice Survey – May 2021, an online survey completed by 5,361 CFIB members between May 6 to 31. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.3 per cent, 19 times out of 20.
  • Business Barometer – September 2021 SME business outlook survey results. Results from an online survey completed by 894 CFIB members between September 7 to 20, 2021. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±3.3 per cent, 19 times out of 20.

 

 

[1] Source: Board of Trade. Depending on 3, 5, or 10 days, the costs could range from $404,759,211 to $2,248,662,340.   

[2] BC small businesses on average owe $129,348 COVID-19 related debt, according to CFIB’s Your Voice – May 2021 survey.

[3] Source: CFIB, Your Voice Survey – July 2021, July 8 - 31, 2021, n = 4,278.

[4] Source: CFIB, Your Voice Survey – October 2021, October 12 - 25, 2021, preliminary results, n = 3,929.

[6] Source: CFIB, Your Voice Survey – August 2021, August 5 - 27, 2021, n = 4,670.

[7] Source: CFIB, Business Barometer – September 2021 SME business outlook survey results. September 7 – 20, n = 894.

[8] 2019 data, and it is subject to change, as CPP, EI and minimum wage have gone up since then. An upcoming CFIB research is dedicated to this topic.

[9] Source: CFIB analysis, BC Ministry of Municipal Affairs sc707 2018. Tax bill is based on a $3 million commercial property. Numbers are subjects to change.

[10] School tax rates for commercial properties are reduced for the 2020 tax year. According to the BC Service website, overall, the commercial property tax bill for most businesses is reduced by 25% on average.

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