Picture a small factory owner in northern Minneapolis waking up to a new reality. Steve Gilbertson runs Electramatic, a custom electrical cable assembly manufacturer that employs about 175 people across two shifts. This January, Minnesota joined the growing list of states that guarantee private-sector workers up to 12 weeks of paid leave for family or medical needs, with a state-funded benefit of as much as $1,423 a week and a guaranteed right to return to the same job afterward. For many workers, this sounds like a long-overdue safety net. For Gilbertson, it feels like a hiring crisis waiting to happen. He has been so worried about suddenly losing employees that he hired a dozen extra workers just to keep both shifts fully staffed. “Someone could come in today and ask for time off starting tomorrow,” he says, his voice heavy with the practical stress of running a business where every skilled hand matters. His bigger worry is competition. When he bids against manufacturers in neighboring states that don’t have the same mandate, he says the math simply doesn’t work in his favor. “I’m not able to compete any longer with North or South Dakota, Iowa or Wisconsin. My competitors that are there have lower overhead rates and they can win projects away from me.” His fear is not hypothetical; it’s the everyday reality of trying to keep a business afloat while new laws shift the ground beneath him.
The larger context is that the United States remains the only wealthy industrialized nation in the world without a national paid family and medical leave program. Congress last acted in 1994, when it passed the Family and Medical Leave Act, which required companies with 50 or more employees to provide up to 12 weeks of unpaid, job-protected leave for medical, parental and family caregiving reasons. That law was a landmark at the time, but it left millions of workers without real financial support when they needed time off. In the decades since, Democratic-controlled states have pushed much further. Fourteen states plus the District of Columbia now have laws requiring paid leave. In addition to Minnesota, the list includes California, Colorado, Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Virginia and Washington. These programs usually operate as social insurance: the state pays benefits, funded by a payroll tax, often split between employers and employees. Some are still waiting to take effect, like Maryland and Virginia. New York, an older program, works differently, requiring employers to provide benefits through private insurance or self-insured disability plans. The generosity varies widely. California offers up to $1,765 a week, the highest in the nation, while Delaware caps benefits at $900 a week. The length of leave also differs, with most states offering around 12 weeks, though California allows a full 52 weeks of paid leave for a worker’s own medical problems. The result is a patchwork of policies that can feel empowering to employees and overwhelming to the small-business owners who must navigate them.
Nowhere is the strain felt more acutely than among small businesses, which often lack the human-resources departments and payroll teams that large corporations take for granted. In the majority of states with paid leave mandates, tiny businesses get some relief from the new payroll taxes that fund the programs, but they are still required to provide the actual leave and guarantee a job when the employee returns. That requirement can be the hardest part. Delaware exempts businesses with fewer than 10 employees entirely, and the District of Columbia exempts those with fewer than five. But many smaller companies across the country are left to figure out how to cover the work of someone who is out for months. A survey by the Bipartisan Policy Center and Morning Consult in 2019 asked 500 owners of businesses with 50 or fewer workers what would happen if one or more employees took 12 weeks of leave. Sixty percent said it would be “hurtful” to their business. The worry was especially pronounced among the smallest firms, while those with 16 to 50 workers were somewhat less concerned. The survey also found a gap between ideals and practice: many small-business owners, particularly younger millennials, supported the concept of paid family leave in principle, but fewer than 45% actually offered paid leave for an employee’s own medical care, let alone for other family needs. In response to the push for mandates, seven Republican-controlled states—Alabama, Arkansas, Florida, Kentucky, South Carolina, Tennessee and Texas—have taken a different path, allowing private insurers to offer family leave insurance to employers who choose to buy it. New Hampshire and Vermont set up voluntary plans by putting state workers into the risk pools. For a small business owner, the choice between an unfunded mandate and the confusing array of voluntary plans is not an easy one.
Not everyone in the policy world thinks paid leave mandates are bad for small business. John J. Kalamarides, a visiting nonresident fellow at the Bipartisan Policy Center and a former Prudential Financial executive, makes a passionate case that state-paid family leave programs can actually help small businesses compete with larger ones for top talent. “Paid family medical leave is actually a great budget solution for small businesses, because they’re not self-insuring,” he says. “It’s not coming out of that employer’s pocket to pay for that person while they’re out on leave. The insurance is doing that, and instead, they can redeploy that payroll elsewhere.” Kalamarides also believes these programs improve employee loyalty and productivity by reducing the financial and family stress that workers carry into the workplace. He acknowledges that business owners in states with paid leave mandates often complain about labor shortages, but he insists the fix is often simple: cross-train employees so that coverage is available when someone is absent. “It’s a backup approach,” he says. “I’d rather have the worker have the baby and not quit, but come back when they are ready.” He points out that workers are going to take time off for major life events regardless of whether it’s paid. “A baby’s born, which is what 60% of these claims are. That woman and that father in the case of paternity leave, they’re going to take it anyway,” he says. “We might as well make sure that there’s a paycheck and payroll insurance along the way.” For Kalamarides, the question is not whether leave will happen, but whether it will be a financial crisis for workers and a logistical surprise for employers.
And yet, the political and practical risks are real, especially when state governments decide to change the rules after businesses have already adjusted. In Washington, D.C., the new city budget that began Oct. 1 rolled back the number of paid weeks for personal medical leave from 12 to 10, and for family caregiving from 12 to six. The maximum weekly benefit was also cut, from $1,190 to $1,100. The reason? The city siphoned off some of the revenue from the 0.75% payroll tax on employers to balance its budget. That kind of maneuver infuriates business owners who feel they are being asked to fund a program that politicians can later raid. In New Mexico, the state legislature has debated paid leave for three years, but opposition from the National Federation of Independent Business has so far stalled the effort. Jason Espinoza, NFIB’s New Mexico state director, calls the law a new payroll tax but says the larger issue is staffing. “We think certainly the state can help through those payroll taxes in their program to replace a portion of the employee’s wages, but what the state can’t do for us is really provide a qualified person to perform that work,” he says. For small businesses, the labor force is already thin, and an extended absence can disrupt the entire operation. “When you look in healthcare, construction or any of the skilled trades, those are almost irreplaceable individuals and skills at that point that you’re just like, ‘I cannot find a temporary employee for 12 weeks to cover that.’” Colorado State Senator Scott Bright, a Republican, hears the same complaints weekly. Colorado voters approved a paid family leave law in 2020 by a 58% to 42% margin, with payroll deductions starting in 2023 and benefits a year later. Businesses with under nine employees are exempt from the payroll tax but still must provide leave and guarantee reinstatement. Bright is the third-generation owner of ABC Child Development Centers in Greeley, a city of about 115,000 people, with 170 employees spread across 20 locations. “It has been really difficult since the law was implemented to find qualified people to step into those places,” he says. “They don’t just come trained in the door. We have to train those people over six, 12, 18 months to be able to do that work. And we can’t afford to just hire a pool of substitutes that just wait in the wings for the next person that needs to step out on family medical leave.” He testified against the law before it went to voters, and he remains philosophically opposed to the mandate. “Should parents stay at home with their kids, the answer unequivocally to that is ‘yes,’” he says. “Should all the rest of us pay for that? The answer for me unequivocally is ‘no.’” To him, the law is just another example of state government intruding into the childcare industry and, by extension, his daily life.
State governments have started to recognize that new paid leave laws can create real hardship for small businesses, and some have tried to soften the blow. Oregon established a grant program offering up to $3,000 for small businesses that need to hire temporary help to cover employees who are out on leave. Washington state has a similar grant program for businesses with up to 150 employees, and Minnesota has its own version. These programs are helpful, but they don’t erase the deeper worry that many business owners feel about the unpredictability of it all. In New Mexico, Espinoza argues that the problem isn’t limited to small businesses. Companies with operations in multiple states would prefer a streamlined national policy over the current patchwork. “A state-by-state patchwork is generally problematic,” he says. Still, the NFIB doesn’t actually support a national paid family leave law. Instead, it argues for businesses to be able to set their own leave policies, free from mandates. For a worker like the one Gilbertson fears losing, the paid leave law might be the difference between taking time to heal or welcome a new baby and being forced back to work too soon or quitting entirely. For a small-business owner, it can feel like a burden that no amount of cross-training can fully solve. The debate over paid family leave is not abstract; it is playing out every day in factories, childcare centers, construction sites and kitchens across the country. The real question, as states continue to experiment, is whether the cost of caring for workers and their families can be shared in a way that feels fair to the people who sign the paychecks—and the people who rely on them.
