Employer Alert: Final Guidelines Released for Complying with the San Francisco Paid Sick Leave Ordinance

In December 2006, we issued an Employer Alert explaining the requirements of Proposition F, the San Francisco Paid Sick Leave Ordinance (PSLO). Beginning on Feb. 5, 2007, the PSLO requires all employers to provide paid sick leave to virtually every employee who performs work in San Francisco, including part-time and temporary workers hired through agencies. Paid sick leave accrues at the rate of one hour for every 30 hours worked. For employees working for an employer on or before Feb. 5, 2007, paid sick leave began to accrue on that date. For employees hired after Feb. 5, 2007, paid sick leave begins to accrue 90 days after the employee’s first day of work.

On June 4, 2007, the San Francisco Office of Labor Standards Enforcement (OLSE) released final guidelines (“Rules”) for the Paid Sick Leave Ordinance. The Rules complement “frequently asked questions” (FAQs) issued by the OLSE. The eight Rules and their corresponding FAQs are discussed below.

RULE 1: EMPLOYEE NOTIFICATION OF PAID SICK LEAVE USE

May employers require employees to provide advance notification for use of paid sick leave?

An employer may require employees to give reasonable notification of an absence from work for which paid sick leave is or will be used; however, an employee need not explicitly request the use of paid sick leave to have the absence covered by the PSLO. The employer’s notification requirements must not be so onerous that they deter employees from legitimate use of paid sick leave.

For example, an employer may reasonably require advance notification of a pre-scheduled or foreseeable absence from work, such as a doctor’s appointment or an ongoing injury or illness. Policies or practices that require notification as soon as practicable for an unforeseeable absence are generally considered reasonable. It is generally also reasonable for an employer to require notification of an unforeseeable absence two hours, or a time period less than two hours, before the start of the employee’s work shift, recognizing that there are emergency situations during which a two-hour notification requirement would be unreasonable. Advanced notification requirements of greater than two hours are presumptively unreasonable, absent demonstration of a compelling justification for the longer advance notice requirement.

RULE 2: EMPLOYER VERIFICATION OF PAID SICK LEAVE USE

May employers require a doctor’s note or other verification of an employee’s use of paid sick leave?

Yes, an employer may take reasonable measures to verify or document that an employee’s use of paid sick leave is lawful.

For example, while abiding by applicable federal, state and local medical privacy laws, after an employee has used paid sick leave, the employer may confirm that the employee’s use of paid sick leave was for a proper reason and for a permitted person.

Employers may require a doctor’s note or other medical documentation for paid sick leave of more than three consecutive work days (whether full or partial days). Requiring such verification for paid sick leave of three or fewer consecutive work days is deemed unreasonable. In a case of suspected sick leave abuse, an employer may reasonably review the employee’s sick leave use with heightened scrutiny.

An employer may require a doctor’s note or other documentation for the use of paid sick leave to attend a medical appointment, or if there is a clear instance or pattern of sick leave abuse, even if the use of paid sick leave was for three consecutive work days or less.

RULE 3: OTHER EMPLOYER REQUIREMENTS PERTAINING TO THE AMOUNT OF PAID SICK LEAVE TAKEN

Can an employer require its employees to use paid sick leave in one hour increments?

Yes, but an employer may also allow employees to use paid sick leave in less than one-hour increments.

Can an employer require an employee to take off a full day to use accrued paid sick leave?

Generally, a requirement that an employee take off more hours than requested to receive medical care, treatment, or diagnosis would be unreasonable. However, an employer may require an employee to use more hours of paid sick leave than the employee needs or requests if the employer can verify that it had to pay for a replacement employee for the longer period of time.

RULE 4: BREAKS-IN-SERVICE

When do employees begin to accrue paid sick leave?

All employees working for an employer on or before Feb. 5, 2007, began to accrue paid sick leave on that date. Employees hired after Feb. 5, 2007, begin accruing paid sick leave 90 calendar days after their first day of work.

Are employers required to pay employees for unused paid sick leave when they quit, retire, or are fired?

No. However, if employers use Paid Time Off (PTO) or vacation pay to comply with the PSLO, they need to comply with other applicable laws that require the payout of PTO or vacation pay upon separation from employment.

An employee who worked for an employer before Feb. 5, 2007, was separated from employment before that date and is rehired after Feb. 5, 2007, must complete the 90-day eligibility period before accruing paid sick leave. For employees who began work after Feb. 5, 2007, were separated from employment before becoming eligible to accrue paid sick leave and are rehired by the same employer within one year of separation, the earlier period of employment counts towards the 90-day eligibility period. An employee who separates from employment after beginning to accrue paid sick leave and is rehired within one year is not subject to the 90-day eligibility period, but the employer is not required to reinstate the employee’s previously accrued paid sick leave hours.

RULE 5: RATE OF PAY – PIECE RATE AND COMMISSIONED EMPLOYEES

What is the sick leave rate of pay for employees who are paid an annual salary rather than an hourly wage?

The sick leave rate of pay for employees who are paid an hourly wage is the employee’s hourly wage. However, when an employee is paid an annual salary rather than an hourly wage, the sick leave rate of pay is determined as follows: first, divide the annual salary by 52 to get the weekly salary. Then, divide the weekly salary by the number of hours the employee is regularly scheduled to work to determine the hourly pay rate. For employees who are not exempt from the overtime requirements of the federal Fair Labor Standards Act and California law, the weekly salary must be divided by 40 or fewer hours, even if the non-exempt employee regularly works more than 40 hours per week. For exempt employees, the weekly salary should be divided by 40 hours, unless there is evidence that the exempt employee’s regular work week is less than 40 hours. In such instances, the weekly salary should be divided by the number of hours worked during a regular work week.

Should tips be included when calculating the sick leave rate of pay for tipped employees?

No. The sick leave rate of pay is based only on compensation paid by the employer.

When must employees be paid for sick leave?

Generally, sick leave must be paid no later than the payday for the next regular payroll period after the sick leave was taken by the employee. However, if the employer has a reasonable verification requirement, it is not obligated to pay sick leave until the employee has complied with the verification requirement.

What is the sick leave rate of pay for employees paid by a piece rate or commission?

For those employees, the sick leave rate of pay is calculated by dividing the employee’s total earnings in base wages and commissions or piece rates for the prior calendar year by the total hours worked as a commissioned or piece rate employee during the prior calendar year. If the employee does not have a prior calendar year’s work history, divide the employee’s total earnings in base wages and commissions or piece rate since the employee’s date of hire by the total hours worked as a commissioned or piece rate employee since that date. For commissioned or piece rate employees who are exempt, base the sick leave rate of pay on a 40-hour work week absent evidence that the employee’s regular work week is less than 40 hours. Alternatively, employers who keep records of hours worked by exempt employees may calculate the employee’s sick leave rate of pay based on actual hours worked.

In these calculations, the employer is not required to pay a sick leave rate of pay greater than two times the San Francisco minimum wage.

RULE 6: ALTERNATIVE AND LIMITED SAN FRANCISCO WORK SCHEDULES

If an employer is based outside of San Francisco but has employees who perform work in San Francisco, do the employees accrue paid sick leave for hours worked in San Francisco?

Yes. All employees who work in San Francisco, including on a part-time or temporary basis, accrue paid sick leave for those hours worked in the city, regardless of where their employer is located. However, employees who work in San Francisco on an occasional basis or only to attend or present at conventions or conferences are not covered by the ordinance if they do so for fewer than 56 hours within a calendar year.

Employees who live in San Francisco and perform work for an employer from home, including telecommuting, are covered by the PSLO for all hours that they perform work from home, so long as they perform 56 or more hours of work in San Francisco within a calendar year.

Employees who work outside of San Francisco and who travel through San Francisco, but do not stop in the city as a purpose of their work, are not covered by the PSLO. However, employees who travel through San Francisco, and stop in San Francisco as a purpose of their work (e.g., to make pickups or deliveries), are covered by the PSLO for all hours worked in San Francisco, including travel within the city to and from the work site, so long as the employee performs 56 or more hours of work in San Francisco within a calendar year.

RULE 7: SMALL BUSINESS DEFINITION: FLUCTUATING BUSINESS SIZE

How does an employer determine whether it qualifies as a small business (less than 10 employees) if its number of employees fluctuates throughout the year?

A “small business” is an employer for which fewer than 10 persons, including part-time and temporary employees, work for compensation during a given week. Under the PSLO, small businesses in San Francisco may cap the accrual of sick leave hours at 40 hours of paid sick leave per employee, while employers with 10 or more employees may cap sick leave accrual at 72 hours per employee. (When an employee uses some of the capped sick leave, the employee resumes accruing sick leave, up to the cap.) In situations in which the number of employees fluctuates above and below 10 per week over the course of a year, the OLSE calculates business size for the current calendar year based upon the average number of persons who worked for compensation per week during the preceding calendar year. For new employers, the OLSE calculates business size for the current calendar year based upon the average number of persons per week who worked for compensation for the first 90 days after its first employee began work.

RULE 8: ACCRUAL OF PAID SICK LEAVE – EXEMPT EMPLOYEES

Does sick leave accrue on overtime hours worked?

Paid sick leave accrues on all hours worked, including overtime hours worked, for non-exempt employees. However, paid sick leave accrues for exempt employees based on a 40-hour work week, absent evidence that the exempt employee’s regular work week is less than 40 hours. If there is evidence that the exempt employee’s regular work week is less than 40 hours, paid sick leave accrues based upon that regular work week.

EMPLOYERS’ TO DO LIST:

What steps should employers take right now?

It is critical that employers re-evaluate their current sick leave policies and how they classify their employees to be certain that they comply with the PSLO and its Rules.

• Review policies regarding notification and verification of paid sick leave use.
• Determine whether current policies provide the required accrual rates for new hires and employees with breaks in service.
• Calculate the proper sick leave rate of pay for employees who are paid an annual salary, rather than an hourly wage.
• Determine when current policies require that employees be paid for sick leave.
• Calculate the proper sick leave rate of pay for employees who are paid in whole or part by a piece rate or commission.
• If your company is based outside of San Francisco, determine whether you have employees who work in San Francisco on a part-time or temporary basis who are covered by the PSLO.
• Determine whether your business qualifies as a “small business.”
• Determine which employees accrue sick leave hours for overtime hours worked.