What if employees choose not to participate in the health plan offered?

A Covered Employer that establishes or maintains a health insurance program that requires contributions by a Covered Employee must do more than offer the Covered Employee an opportunity to participate in such a program. If the employee declines to participate in such a program, the employer must satisfy its Employer Spending Requirement in some other manner.

What if my employees have other insurance? Am I still required to make Health Care Expenditures for those employees?

Covered Employees who already have health care benefits through another employer may voluntarily waive their right to Health Care Expenditures under the HCSO by signing the OLSE’s Employee Voluntary Waiver Form. An employer will not be required to make Health Care Expenditures for employees that choose to sign this form. If an employee who is receiving health care benefits from another employer chooses not to sign the waiver, the employer must make the minimum Health Care Expenditures for that employee.

Keep in mind that the waiver will not be valid unless the health care benefits are provided either by another employer of the Covered Employee or by the employer of that Covered Employee’s spouse, domestic partner, parent, or guardian. If a Covered Employee has health care benefits that are not provided by another employer (i. e., the employee is purchasing it themselves or receiving Medi-Cal), the employee may not sign a waiver and the employer is still required to make the minimum Health Care Expenditures for that employee.

How does an employer that provides uniform coverage to its Covered Employees determine if its expenditures meet or exceed the minimum Health Care Expenditure rate?

A Covered Employer that provides uniform health care coverage (i.e., an HMO or PPO) to some or all of its Covered Employees will be deemed to comply with the spending requirement of the HCSO as to those employees if the average hourly expenditure rate per employee meets or exceeds the expenditure rate required under the HCSO. If the Covered Employer’s expenditure rate fails to meet or exceed the minimum expenditure rate, the employer must spend the difference (or shortfall) within 30 days of the end of the calendar quarter.

Employers shall calculate the average hourly expenditure rate by (a) dividing the total monthly premium paid for all employees covered by the uniform plan by the total number of employees covered by that plan, then (b) dividing that number by 172 hours paid (hours paid per employee is capped at 172 hours in a single month).

The option of averaging expenditures is limited to plans with a uniform design, i.e., the plans must have a uniform benefit design offered to all employees (same co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, eligibility criteria). An employer that offers an HMO and a PPO may average hourly expenditures for all of the employees covered by the HMO, and calculate a separate average hourly expenditure for those covered by the PPO. Similarly, an employer that offers two HMO options may not average the expenditures between the two HMOs unless the benefit design for both HMOs is exactly the same.

The employer has the option of including only Covered Employees in this calculation, or including all employees participating in the uniform plan, provided that all such employees receive the same health coverage or product.

Amounts paid for dependent coverage may be counted towards the minimum Health Care Expenditure required under the HCSO. Accordingly, contributions for employees with dependents can be averaged with contributions for employees without dependents. However, if differences in the employer’s contribution levels are based on other criteria, i.e., number of hours worked, status as union/nonunion, salary, waiting periods, or work site/location, the expenditures cannot be averaged.

Does the HCSO require employers that already provide health insurance to their employees to spend more money on their employees?

It depends. The premiums that a Covered Employer pays for medical insurance for its Covered Employees count toward its required Health Care Expenditures, so if that amount meets the minimum required expenditure under the HCSO, the Covered Employer will have no further obligations.

However, if the monthly premium paid by the employer does not meet the minimum expenditure amount, it must make up the shortfall. The employer could choose a health insurance plan that provides more comprehensive benefits; increase its contribution towards the health care premiums while decreasing the portion paid by the employee; or add dental and vision benefits. The employer could also complement the existing plan with a health spending or medical reimbursement account; make payments to the City Option; or make other expenditures that qualify as Health Care Expenditures according to the HCSO.

Which employers are “Covered Employers”?

An employer is covered by the HCSO for any calendar quarter if it meets the following three conditions, regardless if it’s located outside of San Francisco:

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 performing work or a nonprofit organization with 50 or more persons performing work. This includes all persons working for the entity, regardless of whether they are located in San Francisco or outside of the City.

What are some examples of Health Care Expenditures that meet the requirements of the HCSO?

1. Payments to a third party to provide health care services for the Covered Employee, such as payments for medical, dental, or vision insurance, or payments to a health care provider;
2. Payments on behalf of the Covered Employee to the City Option;
3. Contributions on behalf of the Covered Employee to a reimbursement program (subject to certain limitations regarding irrevocable expenditures);
4. Payments to the Covered Employee to reimburse the employee for costs incurred in the purchase of Health Care Services (subject to certain ACA limitations);
5. Costs incurred by the employer in the direct delivery of health care services for the Covered Employee.
6. Any of the above made on behalf of a Covered Employee’s spouse, domestic partners, children, or other dependents.

Payments made directly or indirectly for workers’ compensation or Medicare benefits do not qualify as Health Care Expenditures. Increasing hourly wages, or otherwise giving employees extra money in their paychecks, also do not qualify as a Health Care Expenditure.

An employer may choose more than one option to satisfy its obligations. An employer may, for example, pay for health insurance for its full-time employees while making contributions to the City Option for its part-time employees.

Do hours payable include overtime hours? How are hours payable calculated for employees exempt from overtime law?

For employees who are not exempt from the overtime provisions of the federal Fair Labor Standards Act (FLSA) and California law, the Health Care Expenditures are calculated based on all hours worked, including overtime hours worked. Keep in mind that hours payable for each employee is capped at 172 hours per month.

For employees who are exempt from the overtime provisions of the FLSA and California law, the minimum Health Care Expenditures should be calculated based upon a 40-hour work week, capped at 172 hours per month, unless there is evidence that the exempt employee’s regular work week is less than 40 hours. In instances where there is evidence that the exempt employee’s regular work week is less than 40 hours, that figure shall be used in calculating the minimum Health Care Expenditures.

Do hours worked by employees outside of San Francisco count for purposes of calculating expenditures?

No. Under the HCSO, hours payable includes only those hours during which the employee is working within the geographic boundaries of the City and County of San Francisco.

For Covered Employees who perform some work outside of San Francisco, hours payable that are not hours actually worked (e.g., paid vacation, paid time off, and paid sick leave) should be calculated on a pro rata basis.

How much is a Covered Employer required to spend on health care for its Covered Employees?

The minimum Health Care Expenditure for each Covered Employee is determined quarterly by multiplying the total number of hours payable to the employee in the quarter by the applicable Health Care Expenditure rate.

Hours payable includes both the hours for which a person is paid wages for work performed within San Francisco and the hours for which a person is entitled to be paid wages, including, but not limited to, paid vacation, paid time off, and paid sick leave, but not exceeding 172 hours in a single month. Hours payable in a quarter refers to when the payment is earned, rather than when it is actually paid out to the employee.

The employer must make minimum Health Care Expenditures to or on behalf of each Covered Employee. Payments to or on behalf of one Covered Employee that exceed the required minimum Health Care Expenditure for that employee will not be considered in determining whether an employer has met its total required minimum Health Care Expenditures for all employees. There is an exception for employers that provide uniform coverage.

Note that “hours payable” is the figure used to calculate the expenditure required for each Covered Employee, but “hours worked” is used to determine whether an employee is covered by the HCSO.

What if the number of hours that an employee works in San Francisco changes over the quarter?

An employee who regularly works eight or more hours per week in San Francisco is covered by the HCSO. For example: an employee who regularly works one eight-hour day per week for the month of January is a covered employee for that month, even if she does not work during the last two months of the quarter.

For employees whose work hours in San Francisco fluctuate, the employer may average the employee’s hours over the 13 weeks in the quarter. Covered Employers are only required to make Health Care Expenditures during those quarters in which the employee works an average of eight or more hours per week in San Francisco.

For an employee who is terminated before the end of the quarter, the employer would calculate the average by dividing the total number of hours worked during that quarter by the number of weeks employed during that quarter.

Note that “hours worked” is relevant to determining whether an employee is covered by the HCSO, but “hours payable” is the figure used to calculate the minimum expenditure for each Covered Employee.