August 14, 2014
San Francisco's Office of Labor Standards Enforcement (OLSE) recently released the 2015 contribution rates applicable to the San Francisco Health Care Security Ordinance (HCSO), and announced certain changes to the HCSO, including a requirement that makes health care contributions irrevocable, beginning with contributions made to satisfy the health care spending requirement for quarters beginning on or after October 1, 2014 (payable beginning in January 2015).
Overview of the HCSO
The HCSO first became effective January 9, 2008, and generally requires employers subject to the ordinance (Covered Employers) to make a minimum health care contribution on behalf of its "covered employees." Covered Employers are employers with 20 or more employees (50 or more for nonprofit organizations), considering all members of the employer's controlled group, regardless of physical location, as long as they employ workers within the boundaries of the City and County of San Francisco (the City) during a quarter. For-profit entities are also required to obtain a valid San Francisco business registration certificate. Covered employees are generally those employees subject to the City's minimum wage ordinance, who have worked for the employer for a minimum of 90 days and who perform at least eight (8) hours of work per week within the geographic boundaries of the City.
2015 Contribution Rates
The OLSE recently announced the 2015 HCSO employer health care expenditure rates as reflected in the following table:
|Number of Employees||2015 Expenditure Rate||2014 Expenditure Rate|
|All entities with 100 or more employees||$2.48 per hour payable||$2.44 per hour payable|
|For-profit entities with between 20-99 employees||$1.65 per hour payable||$1.63 per hour payable|
|Nonprofit organizations with between 50-99 employees||$1.65 per hour payable||$1.63 per hour payable|
|For-profits with less than 20 employees||Exempt||Exempt|
|Nonprofits with less than 50 employees||Exempt||Exempt|
Irrevocable Contributions Requirement
The HCSO was amended to include a requirement that all contributions made by a Covered Employer to satisfy its heath care spending requirement under the ordinance cannot be retained by, nor recovered by, or returned to a Covered Employer, effective with contributions payable, beginning January 2015, representing hours worked during quarters beginning on or after October 1, 2014. This requirement will be phased-in over a three-year period, as follows:
Impact to Covered Employers
The new requirement impacts Covered Employers who use health reimbursement accounts (HRAs) to comply with the HCSO health care spending requirement. HRAs are typically designed such that unused balances following an employee's termination are forfeited to the employer. Now, as a result of this amendment, this option is significantly restricted, and by 2017, this option will not be available altogether.
That said, this change in the ordinance may have minimal impact for most employers. Since 2014, the use of stand-alone HRAs as an acceptable vehicle for a Covered Employer to use to satisfy the HCSO health care spending requirement has been severely restricted. From a practical perspective, they are generally only available for use with respect to covered employees working no more than an average of 20 hours per week. Furthermore, coverage must be provided solely for the reimbursement of HIPAA excepted benefits (e.g., dental or vision-only coverage) and, in addition to other requirements, the HRA must have been in existence by the end of the first quarter of 2014 and funds must remain available to the employee for 24 months after the date of the contribution before forfeiting back to the employer.
For additional information, please contact your Burnham Benefits Consultant, Burnham Benefits at 949-833-2983, or email@example.com.