1. Which employers are “Covered Employers”?
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, and
- is a for-profit business with 20 or more persons performing work or 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.
2. Who should be counted in determining employer size?
All persons performing work for compensation for the employer should be counted (not just Covered Employees). This includes:
- persons who work in San Francisco and those who work outside of San Francisco.
- all employees, regardless of their status or classification as seasonal, permanent or temporary, full-time or part-time, contracted (whether employed directly by the employer or through a temporary staffing agency, leasing company, professional employer organization, or other entity) or commissioned.
- owners who perform work for compensation.
- “Compensation” includes money, benefits, or in-kind compensation, such as room and board, etc.
Updated January 6, 2016
3. Are owners covered by the HCSO for the purpose of determining employer size?
Owners who perform work for compensation for the business are considered “persons performing work” and must be counted as such in determining whether the business is a Covered Employer.
4. Does it matter if the employer is based or headquartered outside of San Francisco?
No, the employer is covered by the HCSO – regardless of its location – if it meets the criteria as a Covered Employer.
5. What if the number of persons performing work changes from week to week?
For businesses employing a fluctuating number of persons performing work during a quarter (13 weeks), employer size is based on the weekly average number of persons performing work for compensation during that quarter.
Thus, a business that employs 5 persons during the first 6 weeks of the quarter and 20 persons during the last 7 weeks of the quarter would not be covered because it has employed an average of only 13 persons per week during that quarter:
[(5 persons/week x 6 weeks) + (20 persons/week x 7 weeks)]/13 weeks = 13 persons/week.
6. If an employer operates one business with three separate stores or locations in San Francisco, each with seven employees, is it a Covered Employer?
Yes. For the purpose of calculating employer size, employees performing work in different locations operated by the same employer are employees of that employer. The seven employees at each of the three stores total 21 persons performing work for this employer; thus, it is covered under the HCSO.
7. What if an employer owns and operates three unrelated businesses, such as a book store, a laundromat, and a pizzeria, each with seven employees?
It depends on the ownership structure of the business. Businesses that are a “controlled group of corporations”, as defined in Section 1563(a) of the United States Internal Revenue Code, are considered to be a single employer under the HCSO, and all employees of each entity would be counted to determine the size of the employer. If the businesses are incorporated and not members of a “controlled group of corporations”, as defined in Section 1563(a) of the United States Internal Revenue Code, then each is considered a separate business, and the employees of each separate entity will be counted to determine the size of each employer.
Employees of businesses that are not incorporated are counted as working for one employer if the businesses are under common control. For purposes of the HCSO, “under common control” means either (a) one person (individual, estate, or trust) has at least an 80 percent ownership interest in each of the businesses, or (b) the same two to five persons hold more than a 50 percent ownership interest in each of the businesses.
The same analysis applies if one or more of the businesses is incorporated, but others are not. Note that while some corporations may be excluded from the “controlled group of corporations” analysis for income tax purposes, they are not excluded from the definition of “employer” under L.E.C. Art. 21.1(b)(4).
Updated January 6, 2016
8. Are public sector employers covered by the HCSO?
No. The HCSO applies only to medium and large size businesses or nonprofits that are required to register with the San Francisco Office of theTreasurer & Tax Collector to do business in the City. Public sector employers, such as the City and County of San Francisco, the San Francisco Unified School District, the University of California, or other agencies of the state or federal government are not required to register.
Updated January 6, 2016
9. Are employers who contract with the City and County of San Francisco, including those with existing City contracts, covered by the HCSO?
Yes, City contractors are subject to the HCSO and must comply with its requirements if they meet the definition of a Covered Employer.
Note that the HCSO exempts employees who are covered by the San Francisco Health Care Accountability Ordinance (HCAO); thus, City contractors who are also subject to the HCAO need not make HCSO expenditures for those employees who receive health care benefits under the HCAO (typically those working 20 or more hours per week).
However, this exemption does not change the City contractor’s HCSO obligations with respect to any employees who are not covered by the HCAO. For more information regarding the HCAO, please email HCAO@sfgov.org, call (415) 554-7903, or visit the OLSE’s HCAO web page.
Updated January 6, 2016
10. Are employers who contract with public agencies other than the City and County of San Francisco covered by the HCSO?
Generally, non-City public sector contractors, such as those that contract with the Federal government or the State of California, are covered by the HCSO unless they are “instrumentalities” of the public sector agency, in other words, are performing work that is a core function of the agency. If some, but not all, of a company’s employees are instrumentalities of a public sector agency, the employer is still a Covered Employer, and employees who do not function as instrumentalities of the government agency may be Covered Employees.
Updated January 6, 2016
11. Does the HCSO cover private businesses operating on federal properties within San Francisco?
It depends. The HCSO does not cover private businesses located in “federal enclaves” such as the Presidio, Fort Mason, and the Golden Gate National Recreation Area (GGNRA). Otherwise, private businesses located on federal property that is not a federal enclave generally are subject to the “instrumentality” test discussed in Question 10 above.
Updated January 6, 2016
12. Are temporary staffing agencies or professional employer organizations (PEOs) responsible for making Health Care Expenditures under the HCSO?
Both the client and the temporary staffing agency, professional employer organization (PEO), or similar entity may be considered a Covered Employer under the HCSO, and each Covered Employer shall have an obligation to ensure that the Employer Spending Requirement has been met. Whether such an entity is a Covered Employer depends on whether it is a “joint employer.” Under California law, a person or entity “employs” a worker if the person or entity: (1) exercises control over the worker's wages, hours or working conditions, (2) suffers or permits the worker to work, or (3) engages the worker (i.e., creates a common law employment relationship). (Martinez v. Combs (2010) 49 Cal. 4th 35, 64). If a temp agency or PEO performs any of these functions, then it is considered a “joint employer,” along with the client for whom the employee performs the work. Whether a particular entity satisfies this legal test is a fact-specific inquiry.
If a temp agency or PEO performs any of these functions, then that entity is considered a “joint employer,” along with the client for whom the employee performs the work. If there is a joint-employment relationship:
- Both entities are responsible for the required health care expenditures. Either entity may make the expenditures, but both can be held liable if the expenditures are not made.
- The health care expenditure rate is determined by the size of the larger employer. For example, if a temp agency has 200 employees and the employer at the worksite has only 30, the health care expenditure rate for large employers applies. (See HCSO Admin. Guidance Question D2).
Updated January 6, 2016