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October 9, 2017

Updates: San Francisco’s Health Care Security Ordinance (HCSO) (article)

The San Francisco Office of Labor Standards Enforcement released final administrative rules relating to the Health Care Security Ordinance (HCSO), together with the 2018 expenditure rates. 

 

Several changes to the HCSO have been made over the years. In an effort to consolidate these changes, final implementation rules were issued on September 29, 2017. The rules take effect on October 29, 2017.  In large part, these regulations clarify matters that have evolved over the years such as who qualifies as employee, who is deemed to be an employer for purposes of the HCSO, including some clarifications relating to control groups and joint employers. 

 

As background, the HCSO requires covered employers to contribute to the health care costs of its covered employees, either through private means, or through the City’s Option program known as “Healthy San Francisco”. An employer is subject to the HCSO for any calendar quarter if it meets the following three conditions:

  1. Employs one or more workers within the geographic boundaries of the City and County of San Francisco;
  2. Is required to obtain a valid San Francisco business registration certificate; and
  3. Is a for-profit business with 20 or more persons, or a nonprofit organization with 50 or more persons performing work in the geographic boundaries of San Francisco.

For purposes of determining employer size, all persons performing work for compensation for the employer should be counted. This includes:

  • Persons who work in San Francisco and those who work outside of San Francisco.
  • All employees, regardless of their status or classification as seasonal, permanent or temporary, full-time or part-time, contracted (whether employed directly by the employer or through a temporary staffing agency, leasing company, professional employer organization, or other entity) or commissioned.
  • Owners who perform work for compensation.

An employee is covered by the HCSO if the individual works for a covered employer, is entitled to be paid the minimum wage, has been employed by the employer for at least 90 calendar days, and performs at least 8 hours of work per week within the geographic boundaries of San Francisco.

 

Each quarter, covered employers are required to make health care expenditures to or on behalf of their covered employees. The required minimum health care expenditure is calculated by multiplying the total number of “hours paid” to that employee by the applicable expenditure rate, which for 2017 and 2018 are:

 

Employer Size

Number of Employees

2017 Expenditure Rate

2018 Expenditure Rate

Large

All employers with 100+ employees

$2.64 per hour payable

 

$2.83 per hour payable

 

Medium

  • Businesses with 20-99 employees
  • Nonprofits with 50-99 employees

$1.76 per hour payable

$1.89 per hour payable

Small

  • Businesses with <19 employees
  • Nonprofits with <49 employees

Exempt

Exempt

 

Types of Expenditures.  Beginning in 2017, all health care expenditures must be made irrevocably.  An irrevocable health care expenditure is an expenditure that has not been retained by and cannot at any time be recovered by or returned to the employer. This means that the employer cannot recover any portion of the funds, even if the employee leaves the job or if the business ceases to operate.  A few examples of irrevocable expenditures as clarified in the final rules include:

  • Payments to a third party to provide health care services for a covered employee, such as health, dental, or vision insurance premiums;
  • Expenditures made by self-insured and/or self-funded insurance programs;
  • Expenditures made to a union trust fund, counting only the part contributed for healthcare;
  • Irrevocable contributions to medical reimbursement accounts, such as a health savings account;
  • Costs incurred in the direct delivery of health care services for a covered employee; and
  • Payments on behalf of a covered employee to the City Option.

Following are some additional clarifications relating to health care expenditures contained in the final rules:

  • Allotment of health care expenditures when an individual is on paid parental leave.  Specifically, the rules provide a means to calculate any supplemental compensation received by an individual under the City’s Paid Parental Leave Ordinance and the California Paid Family Leave law as it corresponds to the percentage of the employee’s normal gross weekly wages.
  • Financial incentives to “opt out” of employer health benefits do not count as health care expenditures.
  • Should an employee decline to participate in an employer’s health plan, even if it meets the spending requirement but requires employee contributions, the covered employer would not be deemed to have satisfied its obligation to make the required health care expenditures.
  • An employer subject to the employer shared responsibility provisions under the Affordable Care Act (employs 50 or more employees), could be at risk for excise tax penalties imposed by the IRS if it fails to offer minimum essential coverage to its full time employees at an affordable rate. Should an employer be required to pay such tax, the payments would not constitute health care expenditures under the HCSO.

Additional Employer Obligations.  Covered employers have several mandatory reporting and disclosure obligations, as well as workplace posting and record keeping requirements.  Often overlooked is the annual reporting of health care expenditures that must be filed with the San Francisco Office of Labor Standards Enforcement by April 30th of the year following the reporting year.  Failure to complete this form could result in a $500 per quarter/per penalty violation and other corrective action.

The final regulations clarify that records relating to payroll documentation, health care expenditures and related employment records be kept for a minimum of four years, as well as increase the amount of potential penalties for failure to do so.  Penalties have also increased for failure to make the required health care expenditures.

 

Additional information about the HCSO, including required reporting forms, waivers of coverage, workplace postings and other information is available on the dedicated HCSO webpage.

 


The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. 

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