California Paid Sick Leave Law: Maintaining Profitability While Being Compliant

The California legislative change to mandate sick leave for all employees has been in the works for some time and became effective on July 1st. An employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment is entitled to paid sick leave at the rate of one hour per every 30 hours worked. An employer may limit the use of paid sick days to 24 hours or 3 days in each year of employment.

There are several overheads that staffing firms typically budget for, such as FICA, FUTA, SUTA, etc. However, as this law became effective in the middle of the year, and because the financial effect couldn’t be fully modeled until the law came into effect, it was difficult to budget for.

At one hour of sick time for every 30 hours billed, this law is anticipated to raise costs by approximately 3.33% (at least during the first 720 hours of employment, the point at which the employee would have accrued 24 hours of sick leave. After that, the employee continues to accrue sick leave). I don’t need to tell you that increase in cost could be a body blow to staffing companies – given the net margins most firms usually run at.

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I’m sharing some of our research and experience here, having gone through dozens of such conversations in the past six weeks:

1. Respond quickly when your customers reach out to you. Many of our larger customers anticipated the enormous impact this change would have. They advised us on a course of action that was fair to all parties involved and allowed us to maintain market wages for our employees. While the particulars of these discussions are confidential, suffice it to say our swift response allowed us to agree upon and then seamlessly roll out the necessary changes.

2. Increase bill rates/markups by 2.5% to 3.33% to offset costs. Staffing Industry Analysts provides this wonderful resource to qualified members that explains what is typically included in the contingent worker bill rate. You can see from this resource that expenses from the California Sick Leave Law fall firmly within statutory expenses, under markup.

3. Keep the same bill rate, but bill the customer for actual sick time hours, whenever they are availed. Some of our customers have asked us to simply bill them on actuals for up to three days of sick leave per assignment year. This might just be the most elegant option – it charges the customer on actuals and does not charge them if a consultant never avails of sick leave.

4. Modify contracts moving forward. Hindsight is 20/20. Moving forward, all of our contracts will contain language that can assist the company in the event of government mandated increases.

There are many other aspects of this law to be aware of: educating customers on retaliatory policies, selecting the grant or accrual method, keeping three years of records on-site, tracking accrual rates and accrual caps, etc.

But the most important thing to keep in mind is compliance is mandatory and early adoption, along with educating your customers, is the key to maintaining profitability.

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Pankaj Jindal

Pankaj Jindal
Pankaj Jindal is the former CEO of Akraya.

Pankaj Jindal

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One Response to “California Paid Sick Leave Law: Maintaining Profitability While Being Compliant”

  1. […] off or paid holidays. Some of this is changing. In California, for example, it is now mandatory for staffing firms to provide accrued sick leave. Companies often have restrictions on the types of perks contractors are allowed access to and as […]

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