HRAs, Healthy San Francisco, and the HCSO Ordinance for 2012-2013


HCSO and What You Need to Know

HCSO San FranciscoSince 2008, the City of San Francisco has imparted the Healthcare Security Ordinance (HCSO), requiring that a large section of the city’s employers (called “covered employers”) make specified health care expenditures (HCEs) on behalf of covered employees.

Because HRAs are an accepted form of paying the required HCEs, Zane Benefits has seen a surge in inquiries for its HRA Administration software. So, we thought we’d cover the topic for interested parties.

What is a "Covered Employer" Under HCSO?

A covered employer is any for-profit business with 20+ employees, or any non-profit company with 50+ employees.

What is a "Covered Employee" Under HCSO?

A covered employee is any person who meets ALL of the following criteria:

  • Works for a Covered Employer
  • Entitled to be paid minimum wage
  • Has been employed for a minimum of 90 days by their Covered Employer
  • Works a minimum of 8 hours per week within the geographic boundaries of San Francisco

What if Only Some Work is Completed Within City Limits?

Regardless of where a company is headquartered, if any employee completes 8 hours or more work per week within San Francisco limits, the employer is obliged to cover the required expenditures. This includes employees who only work in San Francisco for part of their workday, such as pick-ups or deliveries. However, only hours worked within the city limits count toward the HCE Calculation.

What About Different Employee Statuses?

Regardless of whether an employee is full-time, part-time, seasonal or temporary, every employee is factored into the total number of employees that determine the covered employer status. Anyone with a W-2, even seasonal, temporary, and part-time employees are included. For employers with a varying number of employees, the average weekly number of employees for that quarter is used.

Are Any Employees Excepted from HCSO?

Coverage is not required for the following categories of employees:

  • Employees receiving coverage elsewhere
  • Employees earning $84,051 (or $40.41/hour) or more in 2012
  • Managerial, supervisory & confidential employees
  • Those covered by Medicare or TRICARE / CHAMPUS
  • Non-profit employees employed as trainees in a bona fide training program
  • Independent contractors

Note: If an employee already receives healthcare coverage elsewhere, like through a spouse’s coverage or another employer, they must fill out a waiver form each year. Employees have the right to revoke the waiver at any time.

What are the HCSO Health Care Expenditure Requirements for 2012?

Large Businesses (100+ employees)– $2.20 per hour
Medium Businesses
(20-99 employees) – $1.46 per hour
Small Businesses
(1-19 employees) - exempt

What are the HCSO Health Care Expenditure Requirements for 2013?

Large Businesses (100+ employees)– $2.33 per hour
Medium Businesses
(20-99 employees) – $1.55 per hour
Small Businesses
(1-19 employees) - exempt

How Can I Calculate the HCE’s I Need to Pay?

The HCE is calculated by multiplying the total number of hours paid to covered employees by the expenditure rate for that year.

Expenditures are due for every hour a covered employee is paid, including any paid time off. Employers should devise their own methods for keeping track of hours paid, and the healthcare ordinance requires that they keep records for four years to show compliance. There are maximums in place that cap the number of hours – 172 per month and 516 per quarter.

Can I Impose a Surcharge to My Customers to Cover the HCE’s?

HCSO does not explicitly prohibit imposing a surcharge to cover all or part of the expense of the HCE requirement. However, new rules were enacted in the 2011 amendment stating that any amount collected that is greater than the amount spent on employee healthcare must be paid out for health care expenditures.  

How Can an Employer Make the Specified HCSO Health Care Expenditures?

  1. Via existing health benefits plan – An employer’s current plan may already meet or exceed the minimum HCSO requirements.
  2. Use a Health Reimbursement Arrangement (HRA) – contribute on an employee’s behalf using an HRA, HSA or FSA
  3. Cash Reimbursements - Provide cash reimbursements or pay a health care provider directly for expenses incurred by covered employees
  4. Make payments to the City’s Healthy San Francisco plan – When this option is chosen, employers must notify covered employees of payments on a quarterly basis. Payments are due within 30 days of the end of each quarter

Read more about using an HRA to pay for San Francisco's Health Care Ordinance.

Note that the information included here is summative in nature and not meant to be all-inclusive. For more information about the San Francisco Healthcare Ordinance, visit SF Labor Standards Enforcement

The Comprehensive Guide to the Small Business HRA