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Happy Birthday to Presidents Lincoln and Washington – two great men who made it possible to have the great country we have today! I hope everyone had a great Valentine’s Day and enjoyed the Rams Super Bowl victory. Thank you to those who visited the Chamber office yesterday, I enjoyed speaking with all of you. Please join us this Thursday morning for BCN at Central Park as we celebrate heart health month with the American Heart Association.
There is good news out of Sacramento as the largest proposed tax increase in California history failed to advance in the Legislature. AB1400 stalled in the Assembly so the proposed tax increase will not be happening this year. Regardless of how well-intended the proposed tax was to pay for, the concern is that the taxpayers cannot afford it and California already has the highest income tax rates in the nation.
To illustrate the above, a person working full-time at minimum wage is subject to a 4% state income tax rate. If that same person makes just $1,760 more in that year, then the tax rate increases to 6%. Anyone making the minimum salary allowed by California law is subject to a 9.3% tax rate, and it incrementally increases thereafter to 13.3%. Another increase is not sustainable. If I wanted to be cynical, I would point out that the top 1% tax rate on incomes greater than one-million dollars was passed by the voters in 2004 to pay for mental health services, but I am not sure our mental health has improved since then.
On a different note, California just passed supplemental Covid paid sick leave (AB84) allowing up to 80 hours of additional sick pay. Yes, this will help certain workers who are unable to work due to Covid, but it is problematic that the State of California shifted this burdensome expense on California’s employers. Many businesses have already been shellacked by shutdowns, higher labor costs, supply chain disruptions, and increased costs of goods. No where in the legislative notes was any discussion as to how businesses would pay for this or what assistance the State will provide. For example, the State could have borne this cost directly by paying for sick leave through the State’s Employment Development Department. Perhaps, the EDD is too saddled with the billions of dollars in fraudulent payments it made the last time around such that the Legislature thought best to have businesses pay directly.
Here is how California’s new supplemental Covid paid sick leave works. First, it applies to all employers with 26 or more employees. Second, it is retroactive to January 1, 2022 and runs through September 30, 2022. Third, the amount of paid sick leave is up to 80 hours at a maximum of $511 per day and runs in addition to California’s previously imposed minimum of three paid sick days per year for all employees. Fourth there is no tax credit for any sick leave paid by the employer (unlike the prior Federal version). Finally, the law is vaguely written and will inevitably cause confusion.
To elaborate on that last point, the 80 hours are not all the same. 40 hours may be used by an employee to recover from Covid, care for a sick family member, attend a vaccination appointment or recover from the vaccine, or care for a child who cannot attend school because of a Covid related reason. An additional 40 hours may be used by an employee to recover from Covid or care for a sick family member, but not for the other reasons stated above. Not all the leave needs to be taken at once. It will be up to the employer to correctly categorize, track, and itemize on the wage statement or face a different Labor Code violation.
The law also creates confusion and uncertainty via its retroactive effect. Employers will have to review who missed work in January and for what reason despite none of this being budgeted for by the employer. It is unknown what happens if the employee cannot produce a positive Covid test result or how much flexibility the employer will have to investigate same. The law further states that employees who normally work a schedule of less than 40 hours per week will receive averages of what he or she was scheduled to work but for Covid. My calculator broke trying to figure this out.
I understand the need to help workers weather the prior month’s Covid surge – a laudable goal. But I do not understand the continued shifting of burdens directly onto the business community. A business can go broke paying $5,110 to every worker who took the maximum amount of Covid leave. Imagine a business that must pay $51,100 for ten workers who take the leave, or twenty workers who take half the leave. Eventually, there will be no business to pay any worker.
This law reminds me of the model rockets I used to play with when I was a kid. It looked great when I shot it up in the sky and everyone was impressed, but then I had to knock on every door in the neighborhood to find out whose backyard it landed in and what it broke when it came crashing down. The adverse consequences of supplemental Covid paid sick leave is foreseeable and harsh, but no one mentioned that at the fancy press conference when the Governor and Legislatures were congratulating themselves for passing it.
If the Chamber can be of any assistance, please contact me at Chairman@ranchochamber.org.
Sincerely,
Robert A. Hufnagel
President-Chair
Rancho Chamber
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