San Francisco Employers Beware of the Upcoming 2012 Changes

By Allison Yau
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Business owners with employees working in San Francisco, take note: effective January 1, 2012, the San Francisco minimum wage and Health Care Security Ordinance (“HCSO”) Expenditure Rate will increase from their respective 2011 rates. New HCSO regulations will also be implemented at that time.


The San Francisco Health Care Security Ordinance (“HCSO”) requires that covered employers (employers with more than 20 employees and non-profit organizations with 50 or more employees) spend a minimum amount on health care benefits for each of their covered employees. Generally, covered employees are those who work at least eight hours per week in San Francisco and have been employed for more than 90 days. The HCSO Expenditure Rate indicates the minimum amount that an employer must spend for each hour worked by each covered employee. Available options to employers seeking to comply with the HCSO include providing medical, dental, and/or vision insurance; reimbursing employees for their health expenses; various types of medical spending accounts; and the “City Option,” which offers the Healthy San Francisco program (provides affordable health care to uninsured San Francisco residents) and the Medical Reimbursement Account program (allows employees to use their employer’s HCSO contributions toward reimbursements for out of pocket medical expenses).

Minimum Wage Will Be $10.24 Per Hour

The new 2012 minimum wage for all employees performing work in San Francisco, minor or adult, will be $10.24 per hour. This includes temporary and part-time employees who work two or more hours per week. The City of San Francisco adjusts the minimum wage every year to accommodate increases in the regional consumer price index, which “is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services” in a particular region. (United States Department of Labor, Bureau of Labor Statistics). The new 2012 Minimum Wage poster, which must be posted in a visible area for employees to easily read, can be found at: http://sfgsa.org/modules/showdocument.aspx?documentid=8171

HCSO Expenditure Rates Will Be $2.20 or $1.46 Per Hour

The mandated HCSO Expenditure Rates will increase in 2012 for both large and medium sized employers. Large-sized employers (employers with 100 or more employees), will be required to spend $2.20 for each hour worked by each covered employee. Medium-sized employers (employers with 20-99 employees), will be required to spend $1.46 for each hour worked by each covered employee.  Small-sized employers (employers with less than 19 employees), are exempt from this provision.

New HCSO Regulations

The new HCSO regulations include new posting requirements, as well as changes to requirements for reimbursement accounts (“HRAs”) and requirements for businesses imposing a surcharge on customers to cover the costs of the HCSO spending.  First, all covered employers must post at every workplace or jobsite the Official Notice from the Office of Labor Standards Enforcement (“OLSE”) regarding the HCSO. This notice can be found at: http://sfgsa.org/modules/showdocument.aspx?documentid=8221

Second, for businesses which utilize HRAs to satisfy, in whole or in part, the HCSO spending requirement, the following criteria must be met for those contributions to count as health care expenditures:
1. Any HRA funds available at the end of 2011 must roll-over to 2012;
2. The contributions must be reasonably calculated to benefit the employee;
3. The contributions must remain available to the employee for a minimum of twenty-four months from the date of the contribution;
4. The employee must receive a written summary of the contribution within 15 days of the date of the contribution; and
5. Upon separation, employees must be provided with a written summary of their account within 3 days, and the funds must remain available for a minimum of 90 days.

Third, for employers imposing a surcharge on customers to cover, in whole or in part, the costs of the HCSO expenditure requirement, they:
1. […] will be required to report two pieces of data to the OLSE during the annual reporting process: 1) the amount of money collected from the surcharge for employee health care and 2) the amount of money spent on employee health care.
2. If the amount collected from the surcharge is greater than the amount spent on employee health care, [those employers] must irrevocably pay or designate an amount equal to that difference for health care expenditures for [their] employees.

If you are a business owner with employees working in San Francisco, these new updates are especially important for compliance with San Francisco Labor Laws in the New Year. For more information on this topic, feel free to contact Ronnie Gipson at (415) 692-6523 or by email at Gipson@higagipsonllp.com.