The 2026 San Francisco HCSO Expenditure Rates

Executive Summary
The San Francisco Office of Labor Standards Enforcement (OLSE) has released the 2026 Health Care Security Ordinance (HCSO) required employer health care expenditure rates for employees working in San Francisco. HCSO covered employers generally must make health care expenditures on a quarterly basis for those employees for whom the employer contribution to the health plan is not already sufficient—including employees who have declined coverage or are not eligible for the employer’s health plan—by contributing to the City Option.

2026 HCSO Required Health Care Expenditure Rates:

• 100+ Employees Worldwide: $4.11 per hour payable (26-cent increase)

• 20+ Employees (50+ Nonprofit) Worldwide: $2.74 per hour payable (18-cent increase)

Table of Required HCSO Health Care Expenditures

Covered Employers Required to Satisfy the Required Health Care Expenditures
“Covered employers” subject to the HCSO health care expenditure requirement are defined as employers that:

• Employ one or more workers within the geographic boundaries of the City and County of San Francisco (generally those individuals with zip codes beginning with 941xx);

• Are required to obtain a valid San Francisco business registration certificate pursuant to Article 12 of the Business and Tax Regulations Code; and

• Employ 20 or more persons worldwide (for profit) or a nonprofit organization that employs 50 or more persons worldwide.

In addition, covered employers must:

• Maintain records to establish their compliance with the spending requirement;

• Post the HCSO Poster in the workplaces of the covered employees; and

• Complete the Annual Reporting Form generally due April 30 of the following year.

For more details: Newfront San Francisco Health Care Security Ordinance (HCSO) Guide

Covered Employees for Which Employers Required to Make Health Care Expenditures
Covered employers must make the required HCSO health care expenditures for “covered employees,” defined as employees who:

• Are entitled to be paid the minimum wage;

• Have been employed by the employer for at least 90 calendar days*;

• Have performed at least 8 hours of work in San Francisco; and

• Do not meet any of the exemption criteria below.

*The HCSO does not apply to properly classified independent contractors reported via Form 1099 (i.e., workers who are properly not classified as Form W-2 common law employees). FAQ guidance provides that employers can delay calculating hours payable for health care expenditures until the first day of the calendar month following 90 calendar days after the employee’s first day of work.

Employees Which are Exempt from the HCSO Health Care Expenditure Requirements
There are five categories of HCSO exempt employees:

• Employees who sign the HCSO Voluntary Waiver Form.

• Employees who qualify as managers, supervisors or confidential employees AND earn more than the applicable salary exemption amount of $128,861 (or $61.95 hourly) in 2026.

• Employees who are documented to be eligible for Medicare or TRICARE.

• Employees who are employed by a non-profit corporation as a trainee in a bona fide training program.

• Employees who receive health care benefits pursuant to the San Francisco Health Care Accountability Ordinance (HCAO)

No health care expenditure is required for any of the exempt categories of employees.

Why the HCSO Quarterly Expenditure Requirement Matters
The HCSO is an employer health care spending requirement. It requires covered employers to spend (not merely offer to spend) at least the HCSO required hourly amount for each covered employee up to the 172 hours payable per month maximum, unless one of the above exemptions apply.

Any premium payments an employer makes for an employee’s medical, dental or vision coverage, as well as employer contributions made to an employee’s Health Savings Account (HSA), count toward the required HCSO expenditure. Self-funded health plans have additional calculation procedures. Employer contributions to Health Reimbursement Arrangements (HRAs) are typically not irrevocable and therefore do not qualify.

Employers subject to the HCSO generally must make quarterly contributions to the City Option for covered employees if the employer is not satisfying the required hourly health expenditure through the group health plan. The City Option contributions typically will be directed to funding a SF medical reimbursement account on behalf of the employee.

Employers making City Option contributions must make payment within 30 days after the end of each calendar quarter via the Employer Portal. Failure to make the required contributions comes with a potential OLSE administrative penalty of $100 for each employee for each quarter that the violation occurs.

• For more details: SF HCSO City Option Contributions

Common Situations Where Employers Must Contribute to the City Option
In most situations, employees who enroll in the major medical plan will receive sufficient employer contributions to satisfy the SF HCSO hourly healthcare expenditure requirements. However, where the employee declines to enroll in the plan for any reason and has not completed a valid SF HCSO waiver form for the year, the employer will generally need to satisfy the SF HCSO hourly healthcare expenditure requirement through contributions to the City Option.

• For more details: The SF HCSO and Employees Who Waive the Health Plan

The requirement to make quarterly City Option contributions for an employee is most often caused by:

• An employee (who is not a manager/supervisor with compensation in excess of the applicable exemption threshold) waiving the employer’s health plan without agreeing to complete the voluntary SF HCSO waiver;

• An employee not receiving sufficient employer contributions for the health plan to meet the hourly expenditure requirement; or

• An employee who is covered by the HCSO (8 hours/week threshold) but not eligible for the employer’s health plan (typically 30 hours/week threshold).

The SF HCSO Free Plan Rule
Employers are not required to make quarterly contributions to the City Option for employees who waive free coverage if the following conditions apply:

1. The plan offered to the employee requires no premium contributions from the employee for at least one tier;

2. That free plan tier is a fully insured medical plan option; and

3. That free plan tier premium amount satisfies the minimum HCSO expenditure requirement at the time it is offered to the employee.

FAQ guidance provides that employers should retain documentation verifying the cost of the free plan, that it was offered to the employee at no cost, and that the employee waived the plan.

Remote and Hybrid Employees Working in San Francisco
While employers are not required to make expenditures for any employees who work outside of the geographic boundaries of San Francisco, covered employers still are required to make health care expenditures for any remote employees who live in San Francisco and work from home. For any employees who are working on a hybrid or “drop-in” inconsistent basis in San Francisco, employers should institute procedures to track hours worked in the City to correctly calculate the required spend.

• For more details: SF HCSO Compliance in the Work-From-Home Era

HCSO Employer Annual Reporting Form Reminder
Employers are required to complete an HCSO Employer Annual Reporting Form (ARF) each year by the end of the following April (often extended into early May). The ARF website generally opens in March and includes the report covered employers must complete, instructions, previews, and educational video overviews.

• For more details: SF HCSO Employer Annual Reporting Form

More SF HCSO Information
For more information on all the HCSO requirements directly from the City, check out the San Francisco OLSE’s official HCSO website.

For more information on the HCSO from the Newfront team, see our Newfront San Francisco Health Care Security Ordinance (HCSO) Guide.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).