By: HUB’s EB Compliance Team
The San Francisco Office of Labor Standards Enforcement recently released its updated contribution requirement rates for 2025. The required 2025 health care expenditure rates are as follows:
| Employer Size | Number of Workers | 2024 Expenditure Rate | 2025 Expenditure Rate |
|---|---|---|---|
| Large | All employers w/100+ workers | $3.51 per hour payable | $3.85 per hour payable |
| Medium | Businesses w/20-99 workers Nonprofits w/50-99 workers |
$2.34 per hour payable | $2.56 per hour payable |
| Small | Businesses w/0-19 workers Nonprofits w/0-49 workers |
Exempt | Exempt |
Who is subject to the Health Care Security Ordinance (“HCSO”)?
The Ordinance applies to any employer that has one or more employees working on average 8 hours per week (a minimum of 104 hours per calendar quarter) within the City/County limits of San Francisco (a “covered employer”). Covered employer status applies even if all the employer’s other workers are located outside of San Francisco (e.g., an employer has an employee who lives in San Francisco and works from home or employees who normally conduct business in San Francisco even if the employer does not have an office in San Francisco).
How does this apply to remote workers?
With more employees working from home or following a hybrid schedule, covered employers should review their records to determine if the number of employees working in San Francisco has changed from prior years. Given the changes to employee demographics because of the pandemic, it’s increasingly likely that employees who previously worked in San Francisco are now working somewhere else that may not be within the boundaries of the Ordinance (work from home and live outside of San Francisco or work from a location outside of San Francisco). Conversely, employers could also become subject to the HCSO if they have employees who telework and live in San Francisco or works a hybrid schedule (in and out of the City/County boundaries); visit clients or provide services to companies located in San Francisco. Due to these changing dynamics, the employer may be subject to the HCSO's new health care expenditure requirements.
Even if a covered employer only owes contributions for employees working in San Francisco (or working remotely in the city/county boundaries) the employer must also determine whether it is a “Small,” “Medium,” or “Large” employer under the Ordinance and the healthcare expenditure rate that applies to them based on their size. The expenditure rates are based on the number of workers the employer has worldwide, including workers of a parent or sister company.
Who is a covered employee?
A “covered employee” under the Ordinance is an employee who (1) works on average eight hours or more per week in San Francisco (or works remotely as described above), subject to working a 104-hour minimum per calendar quarter, and (2) has been employed for a continuous 90-day period without experiencing a “break in service.” A “break in service” must be longer than a year and does not include a leave of absence that an employee is legally allowed to take, such as jury duty.
The Ordinance excludes the following employees from the definition of a “covered employee”:
- A Managerial, Supervisorial, Confidential Employee who, for 2025, earns an annual salary of at least $125,405 or is paid an hourly rate of $60.29 or higher.
- Employees who voluntarily waive employer-sponsored coverage and complete the Employee Voluntary Waiver Form.
- Employees receiving coverage from Medicare or TRICARE.
- Employees 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 pursuant to the San Francisco Health Care Accountability Ordinance (HCAO), which applies to entities that contract with or lease property from San Francisco.
How can employers meet their HCSO Expenditure requirement?
Covered employers can meet their healthcare expenditure requirements via any of the following options (or a combination thereof):
- Payments to a third party (insurance carrier or third-party administrator) to provide health care services for the covered employee, such as payments for medical, dental, vision, prescription, EAP, critical illness, hospital confinement, cancer insurance, or payments to a health care provider
- Contributions made to the employees’ Health Savings Accounts, Medical Savings Accounts, or other irrevocable reimbursement accounts, to reimburse the employee for costs incurred in the purchase of health care services (note that an employer may not designate contributions made to an FSA as a health care expenditure under the Ordinance);and
- Contributions to a “City Option” Medical Reimbursement Account or to the Healthy San Francisco program in the employee’s name/for the employee’s use.
Any of the above expenditures made on behalf of a covered employee’s spouse, domestic partner, children, or other dependents also count toward the expenditure requirement.
The employer should also be able to “prove” that the above-listed contributions meet the required health care expenditure requirement of the HCSO (i.e., via payroll/HRIS records). Employers that sponsor self-insured or level-funded plans that experience a decrease in claims costs may determine that they will have a shortfall in health care expenditures for the calendar year, as HCSO compliance is determined on a calendar year basis regardless of the employer’s plan year. If that is the case, such employers must make “top-off” payments to the City no later than February 28th of the subsequent calendar year.
Are there notice or reporting requirements?
A covered employer must post a notice of the Ordinance’s coverage and expenditure requirements in a conspicuous manner in any workplace where a covered employee regularly works.
Additionally, annually (by April 30th of each year), a covered employer must submit an Annual Reporting Form to the San Francisco Office of Labor Standards Enforcement (OLSE).
If the employer pursues the City Option, they must report to OLSE quarterly the required health care expenditure due and submit payment for said expenditures. The employer must also notify employees that the employer has made a healthcare contribution on their behalf to the City. The notice is due to employees no later than 15 days after making the contribution to the City. Further information regarding this ordinance can be found here at the San Francisco OLSE website.
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Later developments may result in this information becoming outdated or incorrect, and Hub International is not obliged to update it. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.