United States: California State Legislature Gives Employers Prescription(Rx) For New Sick Leave Law

On Monday, July 13, 2015, California Governor Jerry Brown signed a much anticipated "fix it" bill that amends the Healthy Workplaces, Healthy Families Act of 2014, clarifying the requirements of California's sick leave law.

The fixes bring welcome clarity and revisions to key provisions that, for most employers, will make the law easier to administer. Yes, it's two weeks late—the intent was for the bill to pass before the July 1 deadline for employers to implement the bulk of the original law's requirements. But the delay was due in large part to several revisions that the legislature made in hopes of getting it right this time. And thanks to an urgency provision, the amendments go into effect immediately. The full text of the amendment (AB 304) is available here, but we've highlighted a few key provisions below. You should also visit our prior blogs on this subject here to make sure you're keeping up with the feverish pace of things.

  • Calculating rate of pay: This was the one we were all waiting for, particularly those of you with employees who are paid by commission, piece rate, or some other varying rate of pay. Previously, the law required that you calculate the rate of pay by dividing the employee's total wages by the employee's total hours worked in the full pay periods of the prior 90 days of employment. This meant that, for employees with varying rates of pay, the amount paid for each sick leave day could vary every single time. And if you have employees in San Francisco or Oakland, you'd have to make two calculations every time and figure out which one was the most favorable to the employee on that day. Rest easy, the amendments resolve a lot of that headache. (Drumroll, please...)
    • For nonexempt employees, employers have two options:
      1. Calculate it the same as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek. The "regular rate" is the same base rate you use when calculating overtime (overtime is 1.5x the regular rate). This essentially aligns with the San Francisco and Oakland ordinances where the sick leave pay rate is "the employee's hourly wage."
      2. You could alternatively divide the employee's total wages, not including overtime premium pay, by the employee's total hours worked in the full pay periods of the prior 90 days of employment. So if you were one of the employers who figured out how to program this calculation into your systems before July—"A" for effort!—you can keep things as they are, but you don't have to. (Hint: most employers prefer option 1.)
    • For exempt employees, employers can now calculate the rate of pay in the same manner as they calculate wages for other forms of paid leave. Halleluiah! But if you have employees in San Francisco and Oakland, don't sigh with relief too quickly. The San Francisco and Oakland ordinances are more specific and require calculating the rate as follows: Divide the annual salary by 52 to get the weekly salary. Then divide the weekly salary by 40 hours to get the hourly rate (unless the employee's regular workweek is less than 40, in which case the weekly salary should be divided by the number of hours worked during a regular work week). If this method leads to different results for you, you should use the method that is most generous to the employee.
  • Eligibility: The prior version of the sick leave law stated that employees are not eligible for sick leave unless they work in California for 30 or more days within a year. The new amendments clarify that the 30 days can be calculated based on work performed "for the same employer."
  • Accrual rate: Employers now have a much more robust set of options for determining how sick leave accrues. The original law required that employees accrue one hour of sick leave for every 30 hours worked. Now, employers are permitted to choose whichever accrual method works best for them, provided that (1) the accrual is on a regular basis and (2) the employee will have 24 hours of accrued sick leave available by the 120th calendar day of employment or each calendar year, or in each 12-month period. This clarification is particularly helpful for employers who want to rely on existing PTO policies where PTO accrues at a different rate than what was required previously (i.e., something other than one-hour-for-every-thirty). Of course, if you have employees in San Francisco, Oakland, or Emeryville, you'll still have to comply with the accrual methods in those ordinances.
  • Providing sick leave up front: The new amendments clarify that if an employer chooses to front load an employee's three days of sick leave, they are not required to give the three days on the first day of employment. Rather, the law is satisfied if the employer provides not less than three days (24 hours) of leave that is available to the employee by the end of the 120th calendar day of employment. But again, be mindful of the San Francisco and Oakland ordinances, where front loading is not really an option (see our discussion on that here), and sick leave begins to accrue on the 90th day.
  • Defining when the year begins: The original law permitted an employer to limit an employee's use of paid sick days to 24 hours or 3 days in each year of employment. This seemed to contradict the provision stating that an existing paid leave policy or PTO policy was sufficient if it provided no less than 24 hours or 3 days of paid sick leave for each year of employment or calendar year or 12-month basis. The new amendments clarify that employers can limit an employee's use of paid sick days to 24 hours or 3 days in each year of employment, a calendar year, or a 12-month period.
  • Pre-existing policies and whether they comply: And now some good news for the early adopters. Employers who had a sick leave or PTO policy for certain classes in place before the law went into effect on January 1, 2015 can hold onto their old policy, provided that the accrual is on a regular basis so the employee (including those hired into that class after January 1, 2015) has no less than one day or eight hours of accrued sick leave or PTO within 3 months of employment of each calendar year, or each 12-month period, and the employee could earn at least three days or 24 hours of sick leave/PTO within nine months of employment.
  • Paystub notification for "unlimited" sick leave/paid time off: If an employer provides unlimited sick leave or paid time off, the law clarifies that you can satisfy the notice requirements by indicating "unlimited" on the notice or the employee's itemized wage statement. But this begs the question: is your policy really "unlimited"? For instance, would you continue to pay an employee through a three-month FMLA leave? If it's not truly "unlimited," it's risky to say "unlimited" on the paystub or notice without further explanation.
  • Tracking the reasons for time off: Some interpreted the original law as suggesting that even if you use your existing paid time off plan to comply, you still have to keep records that reflect whether the time taken is used for sick or vacation. The new amendments clarify that employers have no obligation to inquire into or record the employee's reason for using sick leave or PTO. That said, there are still good reasons to track when an employee wants to designate a PTO day as sick leave (as we discussed here) to mitigate the risk of inadvertently taking adverse action, and to maintain evidence that you are complying with the law.
  • Reinstatement upon rehire: The law generally requires employers to reinstate accrued but unused sick leave to employees whom they have rehired within one year of termination. The amendments confirm that if you choose to pay out the unused sick leave at termination in the first place, there's nothing left to reinstate if and when you rehire the employee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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