2024 San Francisco HCSO Expenditure Rates Released

The San Francisco Healthcare Security Ordinance (HCSO) requires covered employers to spend a minimum amount set by law on healthcare for each employee who works 8+ hours each week in San Francisco.
 

2024 Expenditure Rates

Following are the required expenditure rates, effective January 1, 2024.

There is an exemption for certain managerial, supervisory, and confidential employees who earn more than $121,372 per year or $58.35 per hour for 2024. These employees are considered exempt, and the HCSO expenditure requirements do not apply to them.

* Total hours for which a healthcare expenditure is required are capped at 172 per employee per month.
 

SF HCSO Primer

For those who might want a refresher!

Covered Employers

An employer need not be physically located in San Francisco to be a covered employer. HCSO applies to all employers that must obtain a San Francisco business registration certificate and meet one of the following criteria:

• Private Employers: Private employers who employ 20+ employees where any single employee works at least 8 hours per week in San Francisco.
• Non-Profit Employers: Non-profit employers who employ 50+ employees where any single employee works at least 8 hours in San Francisco.

Employer size counts are based on the average number of employees per week who perform work for compensation during an applicable quarter (not just those employees working in San Francisco).
 

Covered Employees

A covered employee is any person who meets all of the following four criteria:

1. Works for a covered employer
2. Is entitled to be paid minimum wage
3. Has been employed by the employer for at least 90 days
4. Performs at least eight hours of work per week in San Francisco.

The definition of employee under the ordinance includes all employees, even if they are temporary, part-time, commissioned, or contracted (unless they are a legitimate independent contractor).

Work performed by an employee who lives in San Francisco and works from home is considered work performed within San Francisco.

Employees who travel through San Francisco while carrying out their job duties are not considered to have performed work in San Francisco; however, if an employee's job requires him or her to make stops in San Francisco (e.g., deliveries), the employee is considered to have performed work in San Francisco. For these employees, hours worked include travel within the geographic boundaries of San Francisco.
 

Exempt Employees

There is an exemption for certain managerial, supervisory, and confidential employees who earn more than the compensation thresholds outlined below. These employees are considered exempt, and the HCSO expenditure requirements do not apply to them, regardless of whether they meet the "work in San Francisco" requirements.
 

Employees covered by Medicare or TRICARE may also be excluded if the employer maintains documentation of employee eligibility.
 

Creditable Expenditures

Fully Insured Plans: Employers can count toward their required HCSO expenditures any premium payments for healthcare coverage (for employee and/or dependent coverage). This includes medical, dental, and vision plans, as well as EAP plans that qualify as health coverage. In addition, payments to the SF City Option also qualify.

Self-Funded Plans: Employers may not use COBRA premium rates to calculate required health care expenditures. For self-funded plans in which the employer pays claims as they are incurred, the employer may calculate the health care expenditures on an annual basis. If the employer's annual spend falls short of the HCSO expenditure rate, the employer must make "top-off" payments for employees enrolled in these plans by the end of February of the following year. There are very specific requirements on how to calculate premiums for self-funded plans. Refer to the OLSE documentation on Calculations for Self-Funded Plans for more information.

HSA Contributions: Employer contributions to an employee's HSAs qualify.

HRA Funding: The rules for HRA funding require that contributions be irrevocable in order to qualify. This results in "traditional" HRAs rarely qualifying as healthcare expenditures. Employer contributions must meet both of the following conditions to qualify:

• Employer contributions must be irrevocable. This means that no portion of the contribution may ever be recovered by the employer, even if an employee terminates.
• Employer contributions must be paid into a separate account on the employee's behalf within 30 days of the end of each quarter.

Most typical HRAs do not pass either of these criteria. Thus, few (if any) will qualify as health care expenditures for HCSO purposes.
 

Employee Waivers

Employers may ask employees who have other employer-provided coverage to waive the expenditure. However, such employees are not required to waive the expenditure (and in many circumstances, it does not behoove them to do so).

If an employee elects to waive, they must do so using the authorized HCSO voluntary waiver form. The waiver form must be signed each year, cannot be retroactive, and is revocable at any time.

If an employee with other coverage does not sign the voluntary waiver, the employer must still make the required health care expenditure on their behalf and may be liable for noncompliance penalties if expenditures are not made.
 

Insufficient Health Care Expenditures

If health care expenditures fall short of the required amount, employers have 30 days after the end of the calendar quarter to remit the difference to the SF City Option program. These payments fund a Medical Reimbursement Account (MRA) in the employee's name.
 

Reporting Requirements

The SF HCSO requires that employers submit the employer Annual Report Form (ARF) by April 30th each year. The report must be submitted to the Office of Labor Standards Enforcement (OLSE), the organization with oversight over the HCSO ordinance.

The purpose of the Annual Report Form is to provide OLSE with a snapshot of each employer's compliance with this ordinance. The penalty for failing to submit the form by the deadline is $500 per quarter.
 

Reporting Details

The reporting requirement includes basic business data as well as data to clarify Covered Employer status. In addition, the following data points are requested:

• Number of individuals employed in each quarter of 2022
• Number of employees covered by HCSO in each quarter
• Employer's total spending on healthcare
• Types of healthcare coverage the employer offered to employees.

The Annual Report Form must be completed online. OLSE provides robust assistance material online, including instructions for completing the ARF, form previews, and a video guide to completing the Annual Reporting Form Resource Guide.
 

Expenditure Requirements

Following are the required expenditure rates required for covered employees:
 

* Total hours for which a healthcare expenditure is required are capped at 172 per employee per month.

 

Resources

Administrative Guidance for SF HCSO

San Francisco Business Registration Certificate

HCSO Voluntary Waiver Form

SF City Option Program

HCSO Annual Report Form Resource Guide

HCSO Self-Funded Premium Calculations