A PRACTICAL GUIDE TO THE SAN FRANCISCO HEALTH CARE SECURITY ORDINANCE

Background

In 2006, the San Francisco Board of Supervisors passed, and the Mayor signed into law, the San Francisco Health Care Security Ordinance ("HCSO"). The ordinance requires covered employers to make health care expenditures in specified amounts to or on behalf of each covered employee.

Portions of the HCSO were originally scheduled to take effect in July 2007, but the ordinance was amended to postpone the effective dates until 2008.

The HCSO was challenged in federal district court by the Golden Gate Restaurant Association. In late December 2007, the district court granted summary judgment in favor of the Restaurant Association and imposed an injunction that prevented implementation of the ordinance. However, the City appealed the grant of summary judgment, and, on January 9, 2008, the Ninth Circuit stayed the injunction pending the outcome of the appeal.

Nearly all employers with employees working in San Francisco are now required to comply with the HCSO.

Who Is a Covered Employer?

The HCSO applies to for-profit businesses that employ 20 or more employees per week and all non-profits with 50 or more employees per week.

An employer's coverage under the ordinance is determined by counting everyone who works for the organization, whether in San Francisco or elsewhere and regardless of the employee's status or classification (part-time, temporary, full-time, permanent, contracted, etc. are all counted).

When the size of an employer's workforce fluctuates, employer coverage under the ordinance is determined for each quarter based upon the average number of employees per week during the quarter.

Who Is a Covered Employee?

A covered employee is any employee who: (1) works in San Francisco; (2) has been employed for at least ninety days¹; and (3) works an average of at least 10 hours per week in San Francisco.² Employers who are located outside of San Francisco must make the required expenditures, but only to or on behalf of employees who perform work within the geographic boundaries of the city. Expenditures do not have to be made to or on behalf of an employee who travels through San Francisco, provided that the employee does not stop in the city to perform any job duties.

Covered employers do not need to make health care expenditures to or on behalf of the following employees:

(1) Employees who have signed an Employee Voluntary Waiver Form because they are receiving health care benefits through a spouse or domestic partner, or from another employer.

(2) Managerial employees, supervisory employees, and confidential employees who earn more than $76,851 annually in 2008.³ "Managerial employees" are those who have authority to formulate, determine, or effectuate employer policies by expressing and making operative the decisions of the employer and who have discretion in the performance of their jobs independent of the employer's established policies. "Supervisory employees" are those who have the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the authority to direct them, or to adjust their grievances, or effectively to recommend any such action, if the exercise of this authority or responsibility is not of a merely routing or clerical nature, but requires the use of independent judgment. "Confidential employees" are those who act in a confidential capacity to formulate, determine, and effectuate management policies with regard to labor relations, or who regularly substitute for employees having such duties.

(3) Employees who are employed by a non-profit corporation for up to one year as trainees in a federally-approved training program that enables them to become eligible for advancement to a permanent position.

(4) Employees who work for employers that have contracts with the City of San Francisco and who are covered by the San Francisco Health Care Accountability Ordinance.

(5) Employees who are eligible to receive Medicare or TRICARE/CHAMPUS⁴ benefits.

When Did the Requirements Take Effect?

The effective dates of the ordinance depend on the size of the employer.

For employers with 50 or more employees, the ordinance took effect on January 1, 2008.

For employers with between 20 and 49 employees, the ordinance took effect on April 1, 2008.⁵

How Much Are Employers Required to Spend?

The amount of required health care expenditures a covered employer must make depends on the size of the employer.

Employers with 100 or more employees must spend $1.76 per "hour paid" to each covered employee.

Covered employers with 20 to 99 employees must make expenditures at the rate of $1.17 per "hour paid" to each covered employee.

An "hour paid" includes all hours for which the employee receives wages for labor performed in San Francisco, as well as all hours for which the employee is entitled to compensation even if no labor was performed (i.e., paid vacation or PTO, paid holidays, and any other paid time off), up to a cap of 172 hours per month.

The expenditure rates will change in 2009.

When Must the Expenditures Be Made?

Health care expenditure payments must be made no later than 30 days after the end of the preceding quarter. Therefore, those employers with 50 or more employees who became subject to the ordinance in January, 2008 must make their required health care expenditures no later than April 30, 2008.

What Constitutes Health Care Expenditures?

There are five ways that employers can make "health care expenditures" under the HCSO:

(1) Purchase health care insurance from a third party (i.e., health care premiums);

(2) Provide employees with health care services directly (i.e., self-insured or self-funded insurance plans);

(3) Make a contribution on behalf of an employee to a health savings account, health care spending account or other flexible spending account;

(4) Reimburse employees for out-of-pocket health care expenses; or

(5) Pay the City on behalf of the employee for enrollment of the employee in the Healthy San Francisco Health Access Program.⁶

Payments made for workers' compensation, social security, state disability insurance, and Medicare/Medi-Cal payments do not qualify as health care expenditures under the HCSO. If an employer elects to purchase health insurance for some or all of its employees, the insurance premiums paid on behalf of each employee must equal or exceed the HCSO hourly expenditure requirement.

How Are Health Care Expenditures Calculated?

The following steps can be used to calculate the health care expenditure necessary for each employee. Note that this calculation must be made for each employee that is a "covered employee" as discussed above.⁷

(1) For each covered employee, multiply the required hourly expenditure rate (e.g., $1.76 for large employers) by the number of "hours paid" to that employee for the quarter for work in San Francisco; this figure is the "Required Expenditure" for each employee;

(2) Calculate the total of all health care expenditures actually made to or on behalf of each covered employee for the quarter (for example, the total amount of health insurance premiums paid on behalf of the employee for that quarter); this figure is the "Payments Made" for each employee;

(3) Subtract the Payments Made for each employee from the Required Expenditure for each employee;

a. If the difference is zero or a negative number, then the employer has satisfied the spending requirements for that employee during the quarter;

b. If the difference is a positive number, the employer must make additional health care expenditures for that employee equaling or exceeding the positive number.

What Else Does the HCSO Require?

Recordkeeping and Reporting:

The HCSO requires employers to keep accurate and detailed records of all expenditures made, the number of eligible employees, and the number of "hours paid" to each employee (i.e., the number of eligible hours) during each quarter.

These records must be kept for a period of four years, and must be available for inspection by the Office of Labor Standards Enforcement ("OLSE") on demand. In addition, employers must do annual reporting to the OLSE of all health care expenditures made.

Employers must also keep copies of all signed Voluntary Waiver Forms on file for each employee.

No Retaliation:

It is unlawful for an employer to retaliate against an employee for exercising his or her rights under the ordinance.

What are the penalties for non-compliance?

Employers that fail to comply with the HCSO are subject to penalties payable to the City of San Francisco. The amount of the penalty can be up to one-and-one-half times the total expenditures that a covered employer failed to make plus simple annual interest of up to ten (10) percent from the date payment should have been made. Penalties are capped at $1,000.00 for each employee for each week that such expenditures are not made.

For recordkeeping and other violations of the HCSO, the potential penalties are as follows:

1. For refusing to allow the OLSE to have access to records, $25.00 as to each worker whose records are in issue for each day that the violation occurs.

2. For failing to maintain or retain accurate and adequate records and for failing to make the required annual report of information, the penalty is $500.

3. For retaliation, the penalty is $100.00 as to each person who is the target of the prohibited action for each day that the violation occurs.

4. For all other violations for which a penalty is not otherwise specified, the penalty is $25.00 per day for each day that the violation occurs.

¹The 90-day period includes any leave of absence to which the employee is legally entitled. Also, the 90-day period does not have to be continuous. The regulations provide that for a separated employee who does not complete the 90-day eligibility period before separation, the days of employment prior to separation will count toward the 90-day eligibility period if the employee returns to employment within one year. If the employee completes the eligibility period, separates from employment, and then returns within one year, the employee does not need to complete a new eligibility period.

²In 2009, this will drop to 8 hours per week. At that time, any employee who works at least 8 hours per week in San Francisco and has been employed at least 90 days will be covered.

³The minimum annual earnings threshold for this exemption will increase annually by an amount corresponding to the prior year’s increase, if any, in the Consumer Price Index for urban wage earners and clerical workers for the San Francisco-Oakland-San Jose metropolitan statistical area.

⁴TRICARE/CHAMPUS is the federal health care and health benefits program for active duty and retired members of the uniformed services, their families, and survivors.

⁵Non-profit businesses with fewer than 50 employees per week are not covered by the ordinance.

⁶If expenditures are made on behalf of an employee into a City program, special notice to the employee is required.

⁷Note that even if an employee is terminated during the quarter, the required expenditures must be made to or on behalf of that employee for that quarter based on the number of eligible "hours paid" to the employee.