The San Francisco Health Care Security Ordinance (SF HCSO) requires covered employers to make a minimum healthcare expenditure on a quarterly basis on behalf of all covered employees. While the ordinance has been in place for many years (since 2008), it has taken on a new dynamic due to the increased popularity of remote work. The annual reporting requirement is due next month (May 1 since April 30 falls on a Sunday), so now is a good time to be reminded of the requirements under the SF HCSO.
Covered Employers
Generally, employers are subject if they have 20+ employees with one or more working in the geographic boundary of San Francisco. In addition, employers are required to obtain a San Francisco business registration certificate. The threshold for non-profits is 50+ employees. Small employers with 0-19 employees (0-49 for non-profits) 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!
Covered Employees
Employees working an average of eight (8) or more hours per week within the San Francisco city limits 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 (2023: $114,141 annually) AND be considered a manager/supervisor/confidential employee per HCSO.
Reminder: Remember that the definition of a covered employee under HCSO hinges on where work is performed. Given the move to remote work, you will need to count and confirm expenditures for employees who live/work in San Francisco.
Calculating Expenditure Rate (Updated for 2022-2023)
Rates are based on employer size and are calculated based on the per hour rate payable to covered employees.
Medium Employer
- Size Threshold: 20-99 (50-99 for non-profits)
- 2022 HCSO Rate: $2.20 per hour
- 2023 HCSO Rate: $2.27 per hour
Large Employer
- Size Threshold: 100+
- 2022 HCSO Rate: $3.30 per hour
- 2023 HCSO Rate: $3.40 per hour
The reporting due on May 1 is for the 2022 plan year.
Tip: Hours worked include both paid hours and entitled hours. Specifically, PTO hours that an employee is entitled to must be included in the hours worked calculation. Maximum hours for the calculation are capped at 172 per month.
Making Expenditures
For full-time, benefit-eligible employees, average costs for medical, dental, and vision can be used in determining the employer's contribution to health care. Most employers will easily reach the minimum expenditure for employees who are provided health insurance benefits. A large employer would need to spend approximately $568 per month in 2022 or $585 per month in 2023 for an exempt or 40-hour non-exempt employee. Most medical, dental, and vision premiums, when combined, exceed that amount. Remember that employee contributions cannot be included in the calculation (only the employer contribution may be counted).
For non-benefit-eligible employees, the expenditure must be made quarterly. The simplest method for making an expenditure is via the San Francisco City Option, and most employers use this option for non-benefited employees.
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-sponsored health plan, the employer is still required to make a minimum expenditure on behalf of that employee. That means employers must pay into the City Option for employees that have waived (similar to non-benefit eligible employees) UNLESS the employee voluntarily signs an HCSO Waiver Form. Employers are prohibited from coercing employees to sign the form and the form language dissuades individuals from signing it. Due diligence would mean sending the Waiver Form to any employees who waived coverage, and. if the employee chooses not to sign, make the required quarterly expenditure.
Due Dates - Regular
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. Submission is completed online. The online form will be posted to the OLSE HCSO website no later than April 1.
Penalties
There are no insignificant penalties for non-compliance. The penalties are 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 also 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 an employer for non-compliance.
