Reminder: San Francisco HCSO Upcoming Reporting Deadline

Written by Erica Honig, J.D., Senior Compliance Director, Employee Benefits | Mar 17, 2025 7:23:04 PM

Employers covered by the San Francisco Health Care Security Ordinance (HCSO) are required to submit the 2024 HCSO Annual Reporting Form by Friday, May 2, 2025.

The 2024 HCSO Employer Annual Reporting Form will be available on April 1, 2025, at this webpage. Covered employers who fail to make a timely submission of the HCSO Annual Reporting Form may be subject to a penalty of $500 per quarter.

HCSO Background

The HCSO is a San Francisco city law, in place since 2008, establishing several employer healthcare-related obligations and enforced by the Office of Labor Standards Enforcement (OLSE). The HCSO requires all covered employers in San Francisco to spend a minimum amount of money, called a health care expenditure, on a quarterly basis toward their covered employees’ healthcare costs.

Covered employers: Under the HCSO, covered employers are those:

For-profit businesses with 20 or more employees and non-profit businesses with 50 or more employees who have employees working 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 the Business and Tax Regulations Code, and
Employs one or more workers within San Francisco.

Employers must count all individuals working for the entity, regardless of whether they are located in San Francisco or outside of the city, to determine if they are considered a covered employer under the HCSO.

Covered employees: Under the HCSO, covered employees are those employees who work for a covered employer (defined above) and:

Are entitled to be paid the minimum wage
Have been employed by his or her employer for at least 90 calendar days
Perform at least 8 hours of work per week within the geographic boundaries of San Francisco
Do not meet one of the five exemption criteria detailed directly below

Exempt Employees: The HCSO exempts the following employees from employer spending requirements:

Employees may voluntarily waive their right to have their employers make health care expenditure for their benefit by completing the employee voluntary waiver form, certifying that they are receiving health benefits through another employer, including an employer of their spouse, domestic partner, or parent.
Employees who qualify as managers, supervisors, or confidential employees and earn more than the applicable salary exemption amount of $125,405 per year or $60.29 per hour in 2025.
Employees who are eligible for Medicare or TRICARE.
Employees who are employed by a non-profit corporation for up to one year as trainees in a bona fide training program consistent with federal law.
Employees who receive health care benefits under the San Francisco Health Care Accountability Ordinance.

Who qualifies as an exempt “manager, supervisor, or confidential employee”?

Under the HCSO, these employees are defined as follows:

Managerial employee: an employee who has authority to formulate, determine, and effectuate employer policies by expressing and making operative the decisions of the employer and who has discretion in the performance of his/her job independent of the employer's established policies.
Supervisory employee: an employee who has authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend any such action, if the exercise of this authority or responsibility is not of a merely routine or clerical nature, but requires the use of independent judgment.
Confidential employee: an employee who acts in a confidential capacity to formulate, determine, and effectuate management policies with regard to labor relations, or regularly substitutes for employees having such duties.

Remote Employees: As a result of the San Francisco City public health order on June 11, 2021, which removed the remote work recommendation for employers, employees working remotely outside of San Francisco are not covered under the HCSO employer spending requirements.

Owners: The HCSO confirms that owners are not considered covered employees under the HCSO because they are not entitled to payment of the minimum wage and businesses are not required to make health care expenditures on behalf of owners. However, owners who perform work for compensation must be counted for the purpose of determining employer size as a covered employer under the HCSO.

Calculating HCSO Health Care Expenditures

The required HCSO health care expenditures are based on hours payable, which includes both:

hours for which a person is paid wages for work performed within San Francisco and
hours for which a person is entitled to be paid wages, including, but not limited to, paid vacation hours, paid holidays, paid parental leave, paid time off, and paid sick leave hours.

The minimum health care expenditure for each covered employee is calculated quarterly by multiplying the total number of hours payable to the employee in the quarter (capped at 172 hours per month or 516 hours in a single quarter) by the applicable expenditure rate.

Refer to the table below for the 2025 HCSO expenditure rates based on size and type of employer:

Employer Size	Number of Workers	2025 Expenditure Rate	2024 Expenditure Rate
Large	All employers w/ 100+ workers	$3.85 per hour payable	$3.51 per hour payable
Medium	Businesses w/ 20-99 workers Nonprofits w/ 50-99 workers	$2.56 per hour payable	$2.34 per hour payable
Small	Businesses w/ 0-19 workers Nonprofits w/ 0-49 workers	Exempt	Exempt

Making Health Care Expenditures

Covered employers can comply with the HCSO by making health care expenditures for their covered employees under the following options:

Payments for medical, prescription, dental, and/or vision insurance premiums,
Payments made by self-funded group health plans,
Employer contributions into health savings accounts (HSAs) or other irrevocable reimbursement accounts (excluding employer contributions to a Flexible Spending Account or FSA)
Payments made to a union trust fund, counting only the part contributed for healthcare,
Payments to the San Francisco City Option (common option for those covered employees who waive employer-sponsored health plan coverage). Employers who make payments to the City Option program on behalf of a covered employee are required to provide the employee with a one-time Health Care Payment Confirmation notice and are encouraged to post the City Option poster, both of which can be accessed here,
Payments to covered employees to reimburse them for out-of-pocket health care costs.

Note that the following do not qualify as health care expenditures under the HCSO:

Payments made directly or indirectly for workers’ compensation or Medicare benefits
Increasing hourly wages, or otherwise giving employees extra money in their paychecks

Click here for more information on making health care expenditures under the HCSO.

Self-Funded Group Health Plans

Covered employers may comply with the HCSO by providing a self-funded group health plan to some or all of its covered employees under certain conditions. Generally, if a self-funded health plan 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 fell 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.

Click here for additional HCSO resources for self-funded health plans.

Health Care Surcharges

Some San Francisco businesses elect to impose a surcharge, such as an extra fee or cost, on the goods or services they sell to customers to completely or partially cover the expense of complying with the HCSO.

The HCSO does not require or prohibit businesses from imposing surcharges. However, employers that choose to impose these surcharges must comply with specific requirements found here.

HCSO Recordkeeping, Notice & Annual Reporting

Recordkeeping: Covered employers are required to maintain sufficient records for four years from each covered employee’s employment dates, including itemized pay statements,^[1] records of health care expenditures for each covered employee demonstrating compliance with the HCSO (including calculations and proof of quarterly payments, as applicable), and documentation supporting an exemption from HCSO (including a signed voluntary HCSO waiver form).

Posting: Covered employers must post the 2025 HCSO Poster in a conspicuous place at all workplaces with covered employees in English, Spanish, Chinese, and any other language spoken by at least 5% of the employees at the workplace. For employees working in a location that is not controlled by the employer (for example, employees working from home or outsourced to a third party), the employer must ensure that each employee is provided a copy of the HCSO posting.

Annual Reporting: Covered employers are also required to submit an annual reporting form to the OLSE by April 30th of each year (May 2nd in 2025), including information on total health care spending and any applicable surcharges that a covered employer imposes on customers to offset HCSO costs.

Penalties

Refer to the table below outlining the administrative penalties for failing to comply with HCSO requirements:

HCSO Violation	Maximum Administrative Penalty
Failure to make the required minimum Health Care Expenditures within five business days of the quarterly due date (30 days after the conclusion of each quarter)	$100 for each employee for each quarter that the violation occurred.
Failure to submit the Annual Reporting Form	$500 for each quarter that the violation occurs
Retaliation* against employees *Retaliation against employees includes disciplining, discharging, demoting, suspending, or taking any other adverse action against an employee for exercising their rights under the HCSO, including refusing to sign the employee voluntary waiver form.	$100 for each person who is the target of the prohibited action for each day the violation occurs.
Refusing to allow OLSE access to employer records	$25 for each worker whose records are not provided for each day the violation occurs
Failure to maintain or retain accurate and complete records	$500.00 for each quarter that the violation occurs
Failure to post the Official HCSO Notice	$25 per day for each workplace or job site where the Notice is not posted

Employer Next Steps

Employers covered under the HCSO should be aware of the upcoming May 2, 2025 deadline to submit the 2024 Annual Reporting Form online, which will be available starting on April 1, 2025 here.

Click here for OLSE-released HCSO administrative guidance with additional information to comply with the HCSO.

Risk Strategies’ team of experienced professionals can help covered employers navigate the complex HCSO requirements. Contact your Risk Strategies team members for assistance or contact us directly here.

[1] In compliance with California Labor Code Section 226.

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