The 2021 San Francisco Health Care Security Ordinance (SF HCSO) expenditure rates were just released. SF HCSO expenditure rates increase annually and vary based on employer size. For 2021, medium-sized covered employers must spend $2.12 per hour payable (up to a maximum of $364.64/month) and large covered employers must spend $3.18 per hour payable (up to a maximum of $546.96/month) on their covered employees’ health care.
The new 2021 rates, as compared to the 2020 rates, are outlined below:
|2021 Rates||2020 Rates|
|Small Employers |
|$2.12/hour (max $364.64/month)||$2.05/hour (max $352.60/month)|
|$3.18/hour (max $546.96/month)||$3.08/hour (max $529.76/month)|
As a reminder, SF HCSO requires Covered Employers to spend a certain amount on Covered Employees’ healthcare. For more information on who qualifies as a Covered Employer, which employees are covered by the ordinance, and other employer obligations under the law, see the FAQs below.
Which employers are Covered Employers subject to SF HCSO?
Employers are subject to the HCSO if they:
- Employ one or more workers within the geographic boundaries of the City and County of San Francisco (including employees who work from home);
- Are a for-profit business with 20 or more employees worldwide or a nonprofit with 50 or more employees worldwide; and
- Are required to obtain a San Francisco Business Registration Certificate.
How do Covered Employers determine employer size?
The employer’s hourly expenditure requirement depends on the employer’s size. When determining employer size, employers should count all employees regardless of their location or classification. This includes seasonal, temporary, full-time, part-time, contracted individuals (even if by a temporary staffing agency), and owners who work for compensation, both inside and outside of San Francisco.
Note: Employers that are part of a control group (see Question 7 linked here for more information) must count employees of all entities to determine their employer size.
Who are Covered Employees?
An employee is covered by the HCSO if they work for a Covered Employer and they:
- Are entitled to be paid the minimum wage;
- Have been employed by their employer for at least 90 calendar days;
- Perform at least 8 hours of work per week within the geographic boundaries of San Francisco; and they
- Do not meet one of the 5 exemption criteria (listed below).
Exemption Criteria (who is NOT a covered employee for HCSO purposes):
- Employees who voluntary waive their right under the SF HCSO because they have other employer coverage and they sign a waiver form;
- Employees who qualify as managers, supervisors and they earn more than the salary exemption amount;
- Employees who are covered by 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; or
- Employees who receive healthcare benefits pursuant to the San Francisco Health Care Accountability Ordinance (HCAO).
Important COVID-19 Consideration: If you are a Covered Employer, please note that your employees working from home in San Francisco more than 8+ hours per week (104 hours during a quarter) will be covered under the Ordinance (even if they used to work at a non-San Francisco worksite).
How much are Covered Employers Required to Spend on Healthcare for Covered Employees?
The minimum healthcare expenditure that a Covered Employer must make for a Covered Employee is determined quarterly by multiplying the total number of “hours payable” the Covered Employee worked by the applicable expenditure rate.
- Example for medium-sized Covered Employers: In 2021, if a Covered Employee worked 500 hours in a quarter, a medium-sized Covered Employer would need to spend at least $1,060 (500 hours x $2.12/hour) on that employee for the quarter.
- Example for large-sized Covered Employers: In 2021, if a Covered Employee worked 500 hours in a quarter, a large-sized Covered Employer would need to spend at least $1,590 (500 hours x $3.18/hour) on that employee for the quarter.
Covered Employees can meet the expenditure requirement by making contributions towards Covered Employees’ healthcare premiums (medical, dental, vision), healthcare savings accounts (HSA), or by contributing to the San Francisco City Option. For additional information, see the HCSO website on qualified expenditures and calculating expenditures.
How can Covered Employers design their healthcare offerings to comply with SF HCSO?
For administrative ease, Covered Employers can design their healthcare contribution strategy to meet the SF HCSO expenditure requirement for Covered Employees enrolling onto their healthcare plans. With this approach, employers do not need to calculate the required expenditure for each Covered Employee each quarter.
- For instance, if a medium-sized Covered Employer contributes 90% of the cost of premiums for a plan that costs $500 per month, or $450 per month, the employer will be meeting the expenditure requirement for any Covered Employees who enroll onto the plan because they are spending more than the required maximum expenditure of $364.64 per month.
100% Employer Paid Plan Option: The HCSO office has previously stated that if an employer pays 100% of the premiums for any combination of medical, dental, and/or vision coverage that also meets the expenditure requirement for a full-time employee (meaning, in 2021, total premiums paid are at least $364.64 for employers with 20-99 employees, or $546.96 for employers with more than 100 employees), they will meet their HCSO expenditure obligation for their Covered Employees and do not need to collect waiver forms from Covered Employees who waive healthcare coverage.
- Example: ABC Corp., a large employer, pays 100% of the medical premium for Plan A at $450/month, dental premium at $50/month, and vision premium at $50/month. ABC Corp. offers the three 100% paid plans to all Covered Employees. ABC Corp. meets the expenditure requirement for all Covered Employees because they spend $550/month on premiums, which is above the $546.96 required spend for large employers in 2021. ABC Corp. also does not need to collect employee HCSO waiver forms.
- This is an interpretation of the law that is held by the HCSO office. This information does not specifically appear in the HCSO regulations and employers may want to confirm this information.
- If any Covered Employees are not being offered the plan, then the employer would still need to collect waiver forms for those employees, or they will owe expenditures.
- The HCSO office has confirmed that HSA contributions do not count toward the “100% employer paid plan” for purposes of determining whether waivers need to be collected from employees (though they will count toward actual expenditures). This is another interpretation of the law that is not stated specifically in the regulations. Employers are invited to confirm this information.
What are Covered Employers’ obligations under SF HCSO?
Covered Employers must:
- Satisfy the employer spending requirement on behalf of all Covered Employees (see question above);
- Make quarterly payments to the San Francisco City Option (if they do not otherwise meet the required expenditure for all Covered Employees);
- Collect annual waiver forms from Covered Employees who waive;
- Maintain records sufficient to establish compliance with the employer spending requirement;
- Post the HCSO poster in all workplaces with Covered Employees (or provide electronically if there is not currently an office location); and
- Submit annual reporting to the San Francisco Office of Labor Standards Enforcement (OLSE) by April 30th (OLSE makes the Annual Reporting Form available each year on April 1st). Please note that April 2020 Reporting was cancelled this year due to COVID-19.
Employer Action Items
Covered employers should be aware of the new SF HCSO rates when determining their healthcare contribution strategies for the 2021 plan year. For more information on HSCO and whether you are a covered employer under the law, please visit the HCSO Website.
Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved