The Office of Labor Standards Enforcement (OLSE) recently released updates relating to the San Francisco’s Health Care Security Ordinance (HCSO).   As background, the HCSO applies to businesses operating within the City of San Francisco who employ 20 or more employees per week and nonprofit employers who employ 50 or more employees.

The HCSO requires these employers to spend a minimum amount on health care benefits for each of their employees who work, on average, 8 or more hours per week in San Francisco and have been employed for more than 90 days.  For 2017, the applicable health care expenditure rate for large businesses (100 or more employees) will be $2.64 per hour; the rate for businesses with 20-99 employees and nonprofits employing 50-99 employees will be $1.76 per hour (see San Francisco HCSO Expenditure Rates for 2017, Benefit Beat, 9/12/16)). 

Phase-out of Revocable Expenditures

In 2014, the San Francisco Board of Supervisors amended the Ordinance providing for a gradual elimination of the use of revocable expenditures for compliance with the employer spending requirement, effectively eliminating the use of them by 2017. Thus, only irrevocable expenditures, i.e., those monies which cannot be retained, recovered or returned to the employer may be used toward the expenditure.  Said another way, beginning January 1, 2017, only money actually spent on employee health care can be counted toward compliance with the HCSO.  Employers have until January 30, 2017 to make the required health care expenditures for the fourth quarter of 2016.  Note, this is the last quarter for which a revocable 20% of expenditures is permissible. 

According to OLSE, health reimbursement arrangements (HRA) including excepted benefit HRAs and integrated HRAs, are considered revocable expenditures since an employer would have the option to recover any unused funds at some point. For an allocation of funds to a reimbursement arrangement to be counted toward the spending requirement, the funds must be actually paid over to a third party trustee who has control over these funds in perpetuity, or until the employee exhausts the funds through submitting claims.  The employer cannot have access or control over these funds and no possibility of ever recovering them.

Updated Workplace Poster

The OLSE has prepared an updated workplace posting for use beginning in 2017.  The posting can be accessed here.

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