Paid leave legislation is moving in the Virginia General Assembly this session. Several companion bills would create both a paid sick leave mandate and a state-run paid leave insurance program.
Here’s what business leaders need to understand.
The Big Picture
Two separate policy approaches are advancing:
- Employer-mandated paid sick leave
- 1 hour of leave for every 30 hours worked
- State-administered paid family and medical leave insurance program
- Funded through payroll contributions
These proposals operate differently — but both directly affect payroll costs, administrative responsibilities, and long-term cost predictability.
HB5 / SB199
Paid Sick Leave Mandate
What it requires:
- Employers must provide 1 hour of paid sick leave for every 30 hours worked
- Applies to full-time and part-time employees
- Accrual tracking required
- Leave paid at the employee’s regular rate
What that means financially:
- Equivalent to ~3.3% increase in payroll costs
- Closer to ~3.6–3.7% when employer payroll taxes are included
- Higher impact for businesses with large part-time or seasonal workforces
Why this is challenging:
Margin Compression
A business operating on a 5% margin could see 20–40% of net profit reduced once payroll impact is calculated.
Layered Costs
Paid leave would be added on top of:
- Scheduled minimum wage increases
- Rising health insurance premiums
- Escalating commercial rent
- Existing compliance requirements
Operational Complexity
Tracking accrual across part-time, tipped, or commissioned employees adds administrative burden — particularly for small businesses without HR departments.
Impact on Seasonal Employers
Businesses employing large part-time or seasonal teams would see costs multiply quickly across headcount.
HB1207 / SB2
Paid Leave Insurance Program
What it creates:
- A statewide paid family and medical leave insurance program
- Funded through payroll contributions
- Contributions split between employer and employee [link to bottom of page for details] (for employers above the size threshold)
Current estimate:
- 0.72% payroll contribution (initial estimate from VEC)
- Rate recalculated annually based on program solvency
What that means financially:
For a business with $350,000 in payroll:
- ~ $2,520 annually at 0.72%
- Potentially higher depending on future rate adjustments
Why this raises concerns:
- Cost Uncertainty
The contribution rate is not fixed. It will be recalculated each year based on usage and fund balance. - No Defined Employer Cap
Employers lack long-term cost predictability, making workforce planning difficult. - Compounded Mandates
If both the sick leave mandate and insurance program advance, employers could face:- Plus an additional insurance contribution
- A 3.6% payroll increase
- Administrative Burden
- Payroll adjustments, remittance tracking, employee communication, and compliance reporting add ongoing operational demands.
Why This Matters for Small Businesses
Small businesses do not operate with excess margin.
For many:
- Payroll is their largest expense
- Net margins range from 3–7%
- Cost increases are absorbed directly in profit or passed to consumers
A 3–4% payroll increase is not absorbed from surplus — it typically results in:
- Slower hiring
- Reduced hours
- Price increases
- Delayed investment
- Reduced flexibility in existing benefit offerings
Important Context
Many Virginia small businesses already offer paid leave or flexible PTO.
The challenge is not the concept of leave — it is:
- The structure
- The predictability of cost
- The cumulative burden
- The impact on small employer flexibility
What Business Leaders Should Do Now
1. Calculate your projected payroll impact.
2. Review how these policies interact with your current benefit structure.
3. Communicate with lawmakers about how the bills would affect your specific operations.
Paid leave legislation is likely to move this session. The structure of the final legislation will depend on whether policymakers understand its real-world business impact.
