1. How much is a Covered Employer required to spend on health care for its Covered Employees?
The minimum Health Care Expenditure for each Covered Employee is determined quarterly by multiplying the total number of Hours Payable to the employee in the quarter by the applicable Health Care Expenditure Rate.
There are two Health Care Expenditure Rates: one for medium-size employers (those with 20-99 persons performing work) and another for large employers (those with 100 or more persons performing work). The rates increase annually.
The two rates for the current and past years are as follows:
HCSO Health Care Expenditure Rates:
2024
Medium-Sized Employers: $2.34/hour
Large Employers: $3.51/hour
2023
Medium-Sized Employers: $2.27/hour
Large Employers: $3.40/hour
2022
Medium-Sized Employers: $2.20/hour
Large Employers: $3.30/hour
2021
Medium-Sized Employers: $2.12/hour
Large Employers: $3.18/hour
Updated January 5, 2024
2. Which Health Care Expenditure rate applies in the context of a joint employment arrangement, such as a temporary staffing agency?
When the employee is jointly employed by a client and another agency, such as in the context of a temporary staffing, leasing, professional employer, or other entity serving the same or similar function, the applicable Health Care Expenditure rate will be determined by the size of the larger employer. (See question B.12 for the definition of “Joint Employment.”)
Updated January 6, 2016
3. When do Health Care Expenditures have to be made?
Health Care Expenditures must be made each quarter, within 30 days of the end of the preceding quarter. The first quarter of the year is defined as the period from January 1 through March 31; the second quarter, from April 1 through June 30; the third quarter, from July 1 through September 30; and the fourth quarter, from October 1 through December 31.
4. How do I calculate the minimum Health Care Expenditure for a new Covered Employee?
For a new Covered Employee, the quarterly minimum Health Care Expenditure is calculated by multiplying the total number of “Hours Payable” to that employee from the first day of the calendar month following 90 calendar days after his or her first day of work through the end of that quarter.
An employee whose first day of work is January 15, 2013 will become covered by the HCSO on May 1, 2013. Thus, the required quarterly minimum Health Care Expenditure is calculated by multiplying all Hours Payable to that employee from May 1, 2013 through June 30, 2013.
5. What are Hours Payable?
Hours Payable includes both the hours for which a person is paid wages for work performed within San Francisco and the hours for which a person is entitled to be paid wages, including, but not limited to, paid vacation hours, paid time off, and paid sick leave hours, but not exceeding 172 hours in a single month. “Hours Payable in a quarter” refers to when the payment is earned, rather than when it is actually paid out to the employee.
Note that Hours Payable is the figure used to calculate the expenditure required for each Covered Employee, but “hours worked” (see Section C Q3) is used to determine whether an employee is covered by the HCSO.
Updated January 6, 2016
6. Do hours worked by employees outside of the San Francisco count for purposes of calculating expenditures?
No. Under the HCSO, Hours Payable includes only those hours during which the employee is working within the geographic boundaries of the City and County of San Francisco.
For Covered Employees who perform some work outside of San Francisco, Hours Payable that are not hours actually worked (e.g., paid vacation hours, paid time off, and paid sick leave hours) should be calculated on a pro rata basis.
Updated January 6, 2016
7. Do Hours Payable include overtime hours? How are Hours Payable calculated for employees exempt from overtime law?
For employees who are not exempt from the overtime provisions of the federal Fair Labor Standards Act (FLSA) and California law, the Health Care Expenditures are calculated based on all hours worked, including overtime hours worked. Keep in mind that Hours Payable for each employee is capped at 172 hours per month.
For employees who are exempt from the overtime provisions of the FLSA and California law, OLSE will assume that the minimum Health Care Expenditures should be calculated based upon a 40-hour work week, capped at 172 hours per month, unless there is evidence that the exempt employee’s regular work week is less than 40 hours. In instances where there is evidence that the exempt employee's regular work week is less than 40 hours, that figure shall be used in calculating the minimum Health Care Expenditures.
Updated January 6, 2016
8. Must minimum Health Care Expenditures be calculated separately for each employee?
Yes, subject to certain exceptions described below in Questions 9 and 10. The employer must make minimum Health Care Expenditures to or on behalf of each Covered Employee. Payments to or on behalf of one Covered Employee that exceed the required minimum Health Care Expenditure for that employee will not be considered in determining whether an employer has met its total required minimum Health Care Expenditures for all employees.
Note the exceptions that apply to plans providing uniform coverage to Covered Employees and self-funded plans.
9. How does an employer that provides uniform coverage to its Covered Employees determine if its expenditures meet or exceed the minimum Health Care Expenditure rate?
A Covered Employer that provides uniform health care coverage (i.e., an HMO or PPO) to some or all of its Covered Employees will be deemed to comply with the spending requirement of the HCSO as to those employees who receive uniform coverage if the average hourly expenditure rate per employee meets or exceeds the expenditure rate required under the HCSO.
Employers shall calculate the average hourly expenditure rate by (a) dividing the total monthly premium paid for all employees covered by the uniform plan by the total number of employees covered by that plan, then (b) dividing that number by 172 hours paid (“hours paid” per employee is capped at 172 hours in a single month).
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 or product.
The option of averaging expenditures is limited to plans with a uniform design, i.e., the plans must have a uniform benefit design offered to all employees (same co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, eligibility criteria). An employer that offers an HMO and a PPO may average hourly expenditures for all of the employees covered by the HMO, and must calculate a separate hourly average expenditure for those covered by the PPO. Similarly, an employer that offers two HMO options may not average the expenditures between the two HMOs unless the benefit design for both HMOs is exactly the same.
Amounts paid for dependent coverage may be counted towards the minimum Health Care Expenditure required under the HCSO. Accordingly, contributions for employees with dependents can be averaged with contributions for employees without dependents.
If the Covered Employer’s expenditure rate fails to meet or exceed the minimum expenditure rate set forth by the HCSO, that employer must spend the difference (or shortfall) within 30 days of the end of the quarter.
Updated March 3, 2020
10. How does an employer with a self-funded plan determine if its expenditures meet or exceed the required Health Care Expenditure rate?
Please note that new HCSO Rules took effect on October 29, 2017 that affect how employers calculate expenditures made for self-insured plans. Please see the Rules here. OLSE will begin enforcing the new requirements for calendar year 2018.
OLSE can offer the following clarity regarding the language of Rule 5.9(b). The Rule states that
“A Covered Employer may comply with the HCSO by providing a self-funded or self-insured uniform health plan to some or all of its Covered Employees, so long as that plan satisfies one of the following conditions... (b) The employer pays claims as they are incurred, and the preceding year’s average hourly expenditures meet or exceeds that year’s expenditure rate for that employer.” (emphasis added).
OLSE interprets Rule 5.9(b) to mean that a self-funded or self-insured uniform health plan may comply when the employer pays claims as they are incurred, and that calendar year’s average hourly expenditures meet or exceed that calendar year’s expenditure rate for that employer.
For example, in early 2020, when an employer is assessing the cost of its 2019 health plan, the employer must determine whether the 2019 average hourly expenditures meet or exceed the 2019 expenditure rate.
Updated December 19, 2019
11. What if the health insurance premiums that I currently pay for my employee do not reach the minimum amount required by the HCSO?
Employers must make the full expenditure required by law; thus, if the monthly premium paid by the employer does not meet the minimum expenditure amount, it must make up the shortfall. It is up to the employer to decide how to make up the shortfall; it may do so by reducing the employees’ share of the premiums for the existing plan, choosing a more generous plan with higher premiums, complementing the existing plan with a health spending or medical reimbursement account, making payments to the SF City Option (which will then be used to set up a Medical Reimbursement Account for the Covered Employee), or making other expenditures that qualify as Health Care Expenditures according to the HCSO.
12. What if the premiums I pay for my employees’ medical, dental, and/or vision insurance are greater than the minimum amount required by law?
Covered Employers that are spending at or above the required Health Care Expenditure rates have no further spending obligations under the HCSO.
13. What if I am already paying my employees health and welfare benefits pursuant to a Prevailing Wage or Public Works Contract, or other Collective Bargaining Agreement?
If the health and welfare benefit payments required under your contract are at or above the expenditure rate required under the HCSO, you will have no further spending obligations under the HCSO. However, payment of the prevailing wage fringe benefit requirement in cash (as part of the Covered Employee’s paycheck or otherwise) shall not satisfy the Employer Spending Requirement of the HCSO because the employer must ensure that the Health Care Expenditure is spent on Health Care Services for the Covered Employee.
Note that any portion of the health and welfare benefit payment that is for life insurance, death benefits, or disability payments shall not count towards the employer’s minimum expenditure because such payments do not constitute Health Care Services under the Ordinance.
14. May I deduct the Health Care Expenditures from my employee’s paycheck?
No, the minimum Health Care Expenditure must be paid by the employer; thus, a deduction from the employee’s earned wages for deposit in the employee’s health savings or flexible spending account, for example, do not satisfy the employer’s Employer Spending Requirement. Likewise, an employee’s contribution towards his/her health insurance premium will not be credited towards the employer’s minimum Health Care Expenditure.