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SF HCSO Compliance in the Work-From-Home Era

Question: How do the San Francisco Health Care Security Ordinance (HCSO) rules apply when most or all of a company's employees are working from home?

Short Answer: San Francisco employers will not have to make the required HCSO health care expenditures for employees who exclusively work from home outside of San Francisco.

General Rule: HCSO Remains in Effect

Although the San Francisco Office of Labor Standards Enforcement (OLSE) cancelled the 2019 employer Annual Reporting Form that would have been due in April 2020, the OLSE has been clear that all other HCSO requirements remain in effect. This includes the requirement for covered employers to make the required quarterly hourly health care expenditures for HCSO covered employees.

Employers subject to the SF HCSO must make quarterly contributions to the City Option for covered employees if the employer is not satisfying the required hourly health expenditure (and no exemption applies) through the group health plan. Payments are due within 30 days after the end of each calendar quarter.

The requirement to make City Option contributions is most commonly caused by an employee (who is not a manager/supervisor with compensation in excess of the applicable exemption threshold) waiving the employers health plan, but not completing the voluntary SF HCSO waiver. The process requires the employer to make quarterly payments to the City Option via the Employer Portal.

  • For more details generally on the HCSO, see our ABD 2020 San Francisco Health Care Security Ordinance (HCSO) Guide.
  • For more details on the cancellation of the 2019 Annual Reporting Form, see our ABD Compliance Alert: Aprils 2019 HCSO Reporting for 2019 Cancelled.
  • For more details on the employer process to make contributions to the City Option, see our previous post: SF HCSO City Option Contributions.
  • For more details on when City Option contributions are required for waived employees, see our previous post: SF HCSO and Employees Who Waive the Health Plan.

HCSO Covered Employers: 20+ Employees Worldwide

An employer is subject to the HCSO for any given calendar quarter if it meets all of the following three conditions:

  • Has at least one employee working in San Francisco;
  • Is required to obtain a valid San Francisco business registration certificate; and
  • Has at least 20 employees worldwide (or 50 employees if a non-profit organization).

Employers that were previously subject to the HCSO under this standard are likely to remain covered employers even if most or all employees are now temporarily working from home.

HCSO Covered Employees: 8+ Hours of Work Per Week in San Francisco

Employers are required to make the required health care expenditures whether through the employer-share of the premium to the group health plan and/or to the City Option for HCSO covered employees.

Employees are HCSO covered employees for the calendar quarter if they work for a covered employer and meet all of the following four conditions:

  • Are entitled to be paid the minimum wage;
  • Have been employed by the covered employer for at least 90 calendar days;
  • Perform at least 8 hours of work per week in San Francisco; and
  • Do not meet any of the exemptions.

The main exemptions that would apply are employees who sign the HCSO employee voluntary waiver form, and employees who are managers or supervisors earning more than the applicable exemption threshold. See our previous post for more details: SF HCSO and Employees Who Waive the Health Plan.

Where the employers San Francisco offices are closed or mostly closed, this could greatly reduce the amount of employees who are HCSO covered employees for any given calendar quarter. To be a covered employee subject to the HCSO, the employee would need to work an average at least 8 hours per week in SF over the quarter.

Employees who are working from a home office outside of San Francisco (or any other non-SF place) exclusively during the quarter will not be an HCSO covered employee for the quarter because they will not have worked at least 8 hours per week in SF. That means the employer will not be responsible for satisfying the required health care expenditures for that employee because the HCSO will not apply to the employee in the calendar quarter.

Note that employees who are working from a home office in San Francisco will still be covered employees for the quarter. Hours worked from a home office in San Francisco are no different from an HCSO perspective than hours worked in a traditional San Francisco office.

HCSO Hours Payable: Determining the Required Health Care Expenditures

For employees who are subject to the HCSO as a covered employee (and for whom no exemption applies), the employer must make the required health care expenditure based on the total number of hours payable to the employee in the quarter multiplied by the applicable health care expenditure rate.

The 2020 health care expenditure rate is $3.08/hour for large employers (100+ worldwide employees) and $2.05/hour for mid-sized employers (20-99 employees worldwide, 50-99 employees for non-profits).

Hours payable refers to hours of paid wages (including PTO, vacation, and sick leave) for work performed within San Francisco. In other words, employers only count as hours payable any hours worked in San Francisco at an SF office, an SF residence (home office), or any other SF location.

If employees are working from home, and their home is not within the geographic boundaries of the City and County of San Francisco, those hours would not qualify as hours payable for purposes of calculating the required health care expenditure.

And again, the hours payable analysis is relevant only for determining how much health care expenditures are required for an HCSO covered employee. Employees exclusively working from home who do not live in San Francisco will likely have no hours worked in San Francisco, which means that they will not be a covered employee under the HCSO for those quarters. That means the employer does not even need to calculate a required health care expenditure amount for the employee because the HCSO will not apply to the employee.

Summary: The New HCSO Work-From-Home Landscape

Employers with San Francisco employees will have the following upsides from an HCSO perspective for the period however long it may last that employees are predominantly working from home:

  • Employees who work exclusively from home (or any other place) outside of San Francisco for a calendar quarter will not be a HCSO covered employee because they will not be performing at least 8 hours or work per week in San Francisco; and
  • When San Francisco offices re-open and employees work in San Francisco on a reduced basis, only those hours payable for work performed in San Francisco will count toward the required HCSO health care expenditures.

Both of these factors in the new work-from-home era could significantly reduce the required HCSO health care expenditures for employers.

Regulations

San Francisco HCSO FAQ Covered Employers:

https://sfgov.org/olse/b-covered-employers

  1. Q: Which employers are Covered Employers?

A: An employer is covered by the HCSO for any calendar quarter if it meets the following three conditions:

  • employs one or more workers within the geographic boundaries of the City and County of San Francisco;
  • is required to obtain a valid San Francisco business registration certificate pursuant to Article 12 of the Business and Tax Regulations Code,
  • is a for-profit business with 20 or more persons performing work 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.

San Francisco HCSO FAQ Covered Employees:

https://sfgov.org/olse/c-covered-employees

  1. Q: Is an employer required to make minimum Health Care Expenditures for all of its employees?

A: Covered Employers are only required to make Health Care Expenditures to or on behalf of their Covered Employees.

2 Q: Which employees are Covered Employees?

A: An employee is covered by the HCSO if s/he works for a Covered Employer and:

  • is entitled to be paid the minimum wage,
  • has been employed by his or her employer for at least 90 calendar days,
  • performs at least 8 hours of work per week within the geographic boundaries of San Francisco, and
  • does not meet one of the five exemption criteria discussed below
  1. Q: What if the number of hours that an employee works in San Francisco changes over the quarter?

A: 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 below eight hours per week, 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 example, an employee who works an irregular schedule ranging from 5 to 11 hours per week during the quarter may be covered if the average of hours worked per week is 8 or more.

For an employee who is terminated before the end of the quarter, 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 paid is the figure used to calculate the minimum expenditure for each Covered Employee, as described in Section E.

San Francisco HCSO FAQ Calculating Health Care Expenditures:

https://sfgov.org/olse/d-calculating-health-care-expenditures

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

A: 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.

There are two Health Care Expenditure Rates: one for medium-size employers (those with 20-99 persons performing work) and another for large employers (those with 100 or more persons performing work). The rates increase annually.

  1. Q: What are Hours Payable?

A: Hours Payable includes both the hours for which a person is paid wages for work performed within San Francisco the hours for which a person is entitled to be paid wages, including, but not limited to, paid vacation hours, paid time off, and paid sick leave hours, 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.

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.O.

  1. Q: Do hours worked by employees outside of the San Francisco count for purposes of calculating expenditures?

A: 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 hours, paid time off, and paid sick leave hours) should be calculated on a pro rata basis.


About the author

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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