Reminder: San Francisco HCSO Upcoming Reporting Deadline

Employers covered by the San Francisco Health Care Security Ordinance (HCSO) are required to submit the 2023 Annual Reporting Form by Friday, May 3, 2024.

The 2023 HCSO Employer Annual Reporting Form will be available on March 26, 2024 on 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.

This annual HCSO reporting requirement was reinstated in 2022 for the 2021 reporting year after being suspended for the 2019 and 2020 reporting years due to the pandemic.

HCSO Background

The HCSO is a San Francisco city law, in place since 2008, establishing several employer health-care-related obligations and enforced by the Office of Labor Standards Enforcement (OSLE). 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 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. Employers must count all employees, regardless of where they live or work, to determine if they are covered under the HCSO.

Covered employees are those employees who have been employed for more than 90 days and who regularly work at least 8 hours per week within the geographic boundaries of San Francisco.

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.

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

• Employees who voluntarily waive their right to have their employers make health care expenditure for their benefit by completing the 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 ($121,372 annually in 2024).
• 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.

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.

Calculating HCSO Health Care Expenditures

The required HCO 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 required heath 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 2024 HCSO expenditure rates based on size and type of employer:

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
• Payments into health savings accounts (HSAs) or other irrevocable reimbursement accounts
• 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

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, as long as that self-funded plan satisfies one of the following:

1. The employer pays premiums and/or fees to a third party to administer the self-funded plan. No portion of those premiums or fees are returned to the employer. The premiums and fees paid for a calendar quarter must satisfy or exceed the required health care expenditure for each covered employee for that quarter.
2. As an alternative, the employer pays claims as they are incurred, and the preceding year’s average hourly expenditures must meet or exceed that year’s expenditure rate for that employer. See below for additional considerations with this alternative option:
3. This alternative option of averaging expenditures is limited to uniform health plans, meaning the plan must have the same benefit design for all covered employees, including co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, and eligibility criteria. The employer has the option of including only covered employees in this calculation, or including all employees participating in the uniform plan, provided that all such employees receive the same health coverage.
4. The average hourly health care expenditure for employees in a uniform health plan is calculated by dividing the total amount of required health care expenditures for employees in the plan by the total number of hours payable to each of the employees in the plan during that quarter.
5. The employer shall receive credit toward the employer spending requirement in the amount of the average actual expenditures per covered employee.

Annual “Top-Off” Allowance for Self-Funded Plans: If an employer with a self-funded plan fails to make the required health care expenditures during a calendar year on a quarterly basis, that employer may “top off” the expenditures and find another way to spend the required amount on behalf of the covered employees by the last day of February of the following calendar year.

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

HCSO Recordkeeping, Notice & Reporting Requirements

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, and any signed voluntary HCSO waiver form.

Covered employers must post the 2024 HCSO Poster in a conspicuous place at all workplaces with covered employees in English, Spanish, Chinese, and other applicable languages spoken by covered employees.

Covered employers are also required to submit an annual reporting form to the OLSE by April 30^th of each year (May 3^rd in 2024), including information on total health care spending and any applicable surcharges that a covered employer imposes on customers to offset HCSO costs.

Employer Actions

Employers covered under the HCSO are advised to take note of the upcoming May 3, 2024 deadline to submit the 2023 Annual Reporting Form online. The 2023 HCSO Employer Annual Reporting Form will be available on March 26, 2024 on this webpage.

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

The HCSO requirements can be confusing and complex. Risk Strategies is here to help. Reach out to your Risk Strategies team members for assistance or contact us directly at benefits@risk-strategies.com.

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