5/26/2021 Update: The 2020 SF HCSO reporting requirement has been waived. READ MORE HERE
The San Francisco Health Care Security Ordinance (SF HCSO) requires covered employers to make a minimum health care expenditure on a quarterly basis on behalf of all covered employees. While the ordinance has been in place for many years (since 2008), many employers are still out-of-compliance or unsure how the rules apply. With the annual reporting requirement being due next month (April 30), now is a good time remind employers of their full obligation under the SF HCSO.
Employers are subject if they have 20+ employees (50+ for non-profits), with 1 or more working in the geographic boundary of San Francisco, and required to obtain a San Francisco business registration certificate. Small employers 0-19 (0-49 non-profit) are exempt.
Tip: The headcount for determining your company size under HCSO – both for determining applicability and expenditure rate – includes ALL employees, regardless of status, classification, or contract status. That means even temp or contract employees that are 1099 or through an agency still count!
Employees working an average of 8 or more hours per week in San Francisco and entitled to be paid minimum wage. There is a waiting period of 90 days.
Tip: Look at the exemption criteria closely. The manager/supervisor exemption is coupled with the salary exemption amount, meaning the two are not separate. An employee needs to make more than the salary exemption (2020: $102,754 annually) AND be considered a manager/supervisor/confidential employee per HCSO.
Calculating Expenditure Rate (Updated for 2021)
Rates are based on employer size and are calculated per hour payable to covered employees. A medium size employer is 20-99 employees (50-99 non-profit) with a rate of $2.05 per hour for 2020 and $2.12 per hour for 2021, while a large employer is 100+ employees with a rate of $3.08 for 2020 and $3.18 per hour for 2021. The reporting due on April 30 is for the 2020 plan year.
Tip: Hours worked include both paid and entitled, like PTO. Maximum hours for the calculation are capped at 172 a month.
For full-time, benefit eligible employees, average costs for medical, dental, and vision can be used. For most employers, the minimum expenditure is easily reached. A large employer would need to spend approximately $534 per month in 2020 on an exempt or 40-hour non-exempt employee. Most medical, dental, and vision premiums, when combined, exceed that amount. Remember that employee contribution amounts cannot be included in the calculation. For non-benefit eligible employees, the expenditure would be made quarterly. The simplest method for making an expenditure is via the San Francisco City Option. The quarterly expenditure option does not apply to employees enrolled in a self-funded plan. The calculation for a self-funded plan is done after the close of the plan year and any top off contributions would be due by the end of February of the following year.
Tip: Being benefit eligible does not immediately mean that HCSO requirements are met and expenditures do not need to be made. If a benefit-eligible employee waives the employer’s company sponsored health plan, the employer is still required to make a minimum expenditure on behalf of that employee. That means paying into the City Option, similar to non-benefit eligible employees. The exception is if the employee voluntarily signs the HCSO Waiver Form. You may NOT coerce an employee to sign the form and the form language dissuades one from signing it! Due diligence would mean sending the form to a waived employee and if the employee chooses not to sign, be sure to make the quarterly expenditure.
Quarterly expenditures are due 30 days following the end of the quarter. First quarter expenditures are due April 30th. Annual Reporting to HCSO of covered employees and expenditures made are also due April 30th and is completed online. The online form will be posted to the OLSE HCSO website no later than April 1, so mark your calendars.
There are penalties for non-compliance – up to $100 per employee per quarter for failure to make expenditures and up to $500 per quarter if the annual reporting is not submitted. There are other penalties as well for retaliation, failure to provide records to OLSE, and failure to post the required notice. However, while there is no guarantee, the OLSE generally does not fine an employer that has been out-of-compliance that now comes into compliance. The bigger risk is if an employee complains as that is generally when the OLSE would act and penalize for non-compliance.
Consistent with the Emergency Proclamation by the SF Mayor, the employer requirement to submit the 2019 Annual Reporting Form for the Health Care Security Ordinance and the Fair Chance Ordinance was cancelled. There has been no additional relief for the 2020 reporting due April 30th of 2021.
Remember that the definition of a covered employee under HCSO hinges on where work is performed. Given the work from home orders starting in March of 2020 employers will need to count and confirm expenditures for employees who live in San Francisco if they previously worked at a job site outside of the city boundaries.