The Health Care Security Ordinance is a local San Francisco law that mandates employers spend or contribute a minimum amount of money towards health care for employees. The spending requirement, called a health care expenditure, must be made quarterly. The San Francisco Office of Labor Standards Enforcement (OLSE) enforces the Ordinance and has the authority to assess penalties for non-compliance.

Applicability

  • Covered Employers. The Ordinance applies to an employer in a calendar quarter if it:
    • employs at least one worker within the geographic boundaries of San Francisco City or County,
    • is required to maintain a San Francisco business registration certificate, and
    • is either a for-profit business with at least 20 total employees or is a non-profit organization with at least 50 total employees.

To determine employer size, all employees – whether full-time or part-time, and whether working inside or outside of San Francisco – must be counted. The employer need not be located in San Francisco for the Ordinance to apply.

  • Covered Employees. An employee who is:
    • entitled to be paid the minimum wage,
    • has been employed for at least 90 days, and
    • performs an average of at least eight hours of work per week within San Francisco is covered by the Ordinance.

However, some employees are exempt. This includes employees who are covered by Medicare or TRICARE and employees who qualify as managers, supervisors, or confidential employees and make at least $97,722 annually (or $46.98 per hour) in 2018. The exemptions may change annually. Exemptions can be found at Covered Employees.

Required Expenditures

  • Calculation. The health care expenditure that an employer must make on behalf of each covered employee is determined quarterly by multiplying the hours payable to the employee by the applicable expenditure rate. In 2018, the expenditure rate for employers with up to 99 employees is $1.89 per hour, and the rate for employers with 100 or more employees is $2.83 per hour. These rates are adjusted annually.  Rates are available from the Office of Labor Standards Enforcement.
  • Making Expenditures. Expenditures must be made on a quarterly basis, within 30 days of the preceding calendar quarter. Employers have several options available for making required expenditures, such as:
    • payments for medical, dental, or vision insurance for the employee and the employee’s spouse, domestic partner, or dependents;
    • payments to the City Option, which will fund a medical reimbursement account for the employee or provide access to health care via Healthy San Francisco; and
    • contributions to a Health Savings Account or other irrevocable reimbursement account.

Payments made for Medicare or workers’ compensation, and contributions towards a revocable account (such as a Health Reimbursement Arrangement or Flexible Spending Account) do not qualify as expenditures. An employer that fails to make the required expenditure may be penalized up to $100 per employee per quarter.

Special Considerations

  • Waivers. A covered employee who participates in the health plan of another employer (for example, a spouse’s or parent’s employer plan) is permitted to voluntarily waive his/her rights to expenditures. The employee must complete the OLSE Employee Voluntary Waiver Form on an annual basis for the waiver to be valid. Once an employee’s waiver is effective, an employer need not make quarterly expenditures on his/her behalf.
  • Multiple Expenditure Methods. Employers are not limited to a single method for making expenditures; rather, an employer can choose any combination of available methods to satisfy the quarterly expenditure requirement. A common strategy is to offer subsidized group health coverage to full-time employees and make payments to the City Option on behalf of non-full-time employees and/or to make up for any short-fall in premiums paid.
  • No-Cost Group Coverage. An employer who offers a group health plan at no cost to employees and that meets or exceeds the spending requirement is not required to make alternative expenditures on behalf of an employee who declines that offer of health coverage.

Additional Requirements

  • Employee Notice. Employers subject to the Ordinance are required to post the official OLSE Notice at any workplace or job site where a covered employee works. Failure to post the Notice can result in a $25 per day, per work-site fine.
  • Recordkeeping. Employers must maintain accurate records for a period of four years from each covered employee’s date of employment. Records that must be retained include itemized pay statements, contact information, and proof of expenditures. Failure to maintain accurate records can result in a $500 quarterly fine.
  • Annual Reporting. By April 30 each year, employers must submit the Annual Reporting Form to the OLSE. The Form, which is completed online, requires summary-level information of the expenditures made in the prior year. A $500 quarterly fine may be assessed in the event the Form is not timely submitted.

The content provided in this overview is for informational purposes only and does not constitute legal advice. For more information, visit http://sfgov.org/olse/health-care-security-ordinance-HCSO