Democrats approve two costly mandates on small business
At its first work session of the Second Session of the 130th Legislature, the Joint Standing Committee on Labor and Housing sharply divided along party line on two bills that hold significant cost consequences for all Maine employers, but particularly small businesses. With all eight Democrats on the committee voting to approve, and all five Republicans opposing, a majority of the committee approved amended version of LD 225, An Act Regarding the Treatment of Vacation Time upon the Cessation of Employment, sponsored by Rep. Amy Roeder (D-Bangor), and LD 607, An Act to Restore Overtime Protection for Maine Workers, sponsored by Rep. Rachel Talbot Ross (D-Portland).
Regarding LD 225, it is important to point out that providing vacation pay to workers in Maine is completely discretionary. Under Maine’s Earned Paid Leave (EPL) law, passed in 2019 and effective starting January 1, 2022, employers with more than 10 workers are required to provide full- and part-time workers with up to 40 hours a year of EPL to use as they wish. The EPL day could be used as a vacation day, a sick day, or for any personal reason. Many businesses that fall under this category chose to provide more vacation time – some significantly more – than just the EPL days to their workers. However, small business owners with 10 or fewer workers can determine whether and how many vacation days to provide.
Whether an employee is eligible to “cash out” at the end of their employment has been governed by whether the employer’s workplace policy or employment agreement allows for cashing out. This is true for large or small employers and includes EPL days as governed by the Maine DOL rules. Currently, MRSA Title 26, Section 626, makes it clear that Maine law does not create a right to paid vacation time unless the employer’s policies and practices provide for it. So, if a business has such a policy or agreement in place, then unused but accrued vacation time takes the same status as wages earned. If they do not have such a policy, then employers can require a “use it or lose it” vacation policy. In other words, employees must use their vacation time or risk losing it.
The net effect of the passage of LD 225 may well be a loss of workplace control and managing costs. The result will be higher, perhaps significantly, cost of doing business here in Maine – hitting our small businesses particularly hard, as they continue to struggle in this pandemic environment and its aftermath. As indicated above, employers are not required to offer vacation or sick time beyond the recently enacted EPL law.
The Maine State Chamber has heard from many small businesses that the additional costs associated with the EPL law and the increases in the minimum wage – particularly the 60 cent jump effective earlier this month – have created financial challenges, particularly for many small rural employers. If companies are required to cash out any extra vacation benefits currently offered beyond ELP, then in many cases, they will simply stop providing those benefits. And if you are not a business covered under the EPL law – namely, one of Maine’s very small businesses – it will most certainly disincentivize you to start or continue to provide vacation benefits.
Furthermore, under the bill as presented, there are absolutely no guardrails associated with this cash out provision. Essentially, an employer could be required to cash out an employee discharged for misconduct, including theft, assault, or any other violation of workplace policy, even if their policies say otherwise.
While the final language remains to be seen, it appears the approved amendment will make the effective date of the law prospective to January 1, 2023, and does not include a mandate to cash out unused EPL time unless the employer choses to do so. It is unclear whether this will impact or even prohibit other elements of “vacation” time – such as “paid time off” (PTO), a “use it or lose it” policy; or caps on earn vacation time.
Passage of LD 607 would be disastrous on numerous levels for Maine businesses. In addition to making our state an outlier when it comes to overtime salary thresholds, it will drastically increase costs of doing business here, as well as create disruption and productivity issues in the workplace.
As approved by a majority of the Labor committee, the amendment tinkers with the existing multiplier tied to changes in the minimum wage. For example, the multiplier would increase in 2023 from 3,000 times the minimum wage to 3,500 times; it would increase in 2024 to 4,000 times; and, it would again increase in 2025 to 4,500 times. Just based on the current minimum wage of $12.75 an hour, these increases translate into a threshold of $44,626 in 2023; $51,000 in 2024; and, $57,375 by 2025. But the problem is, the minimum wage will increase each year, as adjusted for by the Consumer Price Index (CPI), at the same time the multiplier increases. This year’s adjustment was a 6-percent increase, or 60 cents. It will again increase in 2023, so actual cost estimates are low and can ONLY go higher than the above numbers.
As noted earlier, since 2009, Maine’s monetary dividing line separating hourly/non-exempt and salaried/exempt has been tied to changes in Maine’s minimum wage. At that time, Title 26 was amended to create a threshold that is 3,000 times the state’s minimum wage. While the federal threshold is currently set at the newly established threshold of $35,568, Maine’s threshold has climbed again this year to its current level of $38,250 – again tied to the most recent increase in the minimum wage as indexed by changes to the CPI effective on January 1, 2022. Therefore Maine’s “threshold” is already over the federal level and will continue to climb each year, even if nothing is done in in our state’s public policy arena.
Last session, the Maine State Chamber led a coalition of more than 30 statewide business associations in strong opposition to this bill. Due to the global pandemic and its impact on Maine’s small businesses, little has changed for many small businesses that would be hardest hit by this increase. Maine businesses are struggling just to survive, setting aside any attempt to prosper. For many, it would most certainly be the final straw, leading to numerous business closures and job losses. In addition, while not it may not translate to costs per se, we must also factor in the impact to morale, the loss of productivity, and the workplace disruption imposed by this change.
Furthermore, LD 607 would be on top of other workplace mandates that have occurred here during the past 24 months – including, as noted earlier, another increase in Maine’s minimum wage and the added cost of providing up to 40 hours a year in paid time off (PTO) for all full- and part-time employees in businesses with more than 10 workers, that started in January of last year.
Both bills come at a time when business find themselves challenged as never before – with costs skyrocketing in areas of wages, benefits, and raw materials. Simply put, Maine’s small businesses cannot afford these bills. The Maine State Chamber will continue to strongly oppose both bills, especially LD 607. For additional information or questions, please contact Peter Gore by calling (207) 623-4568, ext. 107, or by emailing email@example.com.