Issue 2-2016

RECENT UPDATES ON MINIMUM WAGE AND PAID SICK LEAVE LAW IN LOS ANGELES, SAN DIEGO, SAN FRANCISCO, AND SANTA MONICA

In 2016 several municipalities in California have revised their minimum wage standards and/or issued new ordinances regarding paid sick leaves for employees working in such cities.

Employers in California need to pay attention to these local regulations because they may be required to comply even if their locations is outside such municipalities.

This article will briefly explain the main provisions of the new ordinances regarding minimum wage and paid sick leave in the cities of Los Angeles, San Diego, San Francisco, and Santa Monica1.

 

A. Overview of minimum wage and paid sick leave law in California

Before examining the local ordinances, it is necessary to take a look at the situation at state level. In fact, where the single municipalities have not issued specific ordinances, state law will continue to apply. This is important because employers needs to comply with both state and local law and, in case of conflict, the provision more favorable to the employee will apply. Thus, for example, if one municipality establishes a minimum wage higher than the one provide at state level, employers have to recognize the higher minimum wage.

Currently, the minimum wage provide by California law is $10 per hour. It will increase to $10.50 per hour as of January 2017 for employers with more than 26 employees, while for employers with fewer than 25 employees such increase is delayed one year (effective January 1, 2018). The minimum wage is schedule to increase each year up to $15 per hour in 2022 and 2023.

The state of California has its own paid sick leave law2 requiring that most employees may use at least three days (24 hours) of paid sick leave per year, while the total cap on sick leave accrual cannot be less than six days (48 hours).

As explained above, the new local ordinances provide better treatment for workers performing their duties with their boundaries and, thus, employers will have to comply with such regulations even if they are not located therein.

 

B. Los Angeles

The Los Angeles Minimum Wage Ordinance3 apply to all employees who perform at least two hours of work in a particular week within the geographic boundaries of the City of Los Angeles4 . Conversely, if the employer is based in the City, and the telecommuting employee’s workspace is not within the geographical limits, the employee’s time spent working outside of the City does not count towards the City minimum wage or the accrual of City paid sick leave.

For employees whose duties require them to travel through the City, the Ordinance apply only if the employee’s duties require that the employee make any employment-related or commercial stops in the City. In that instance, the clock begins to run from the time the employee enters the City until the employee leaves the City. However, if the employee’s purpose in the City is solely to travel, and the employee’s point of origin and destination occur outside of the City, the employee’s travel time in the City will not count towards the two-hour requirement. In this scenario, time spent refueling, and time spent on personal meal periods or running personal errands, will not count as an employment-related stop.

Minimum Wage

The Ordinance establishes a minimum wage of $10.50 per hour as of July 1, 2016 for employers with more than 26 employees, while it will be effective for employers with fewer than 25 employees as of July 1, 2017.

The minimum wage in Los Angeles is scheduled to increase yearly. However, such increase does not mirror the one established at state level, with the consequence that employers will have to recognize the minimum wage of Los Angeles if any of the employees performs at least two hours of work within the city limits. Table 1 attached helps clarify the situation.

Paid Sick Leave

California law currently entitles employees working 30 or more days in California to accruing paid sick leave at the rate of one hour per every 30 hours worked and carry over accrued sick leave from year to year. Employers may cap the amount of accrued sick leave at 48 hours and may limit the amount of paid sick leave used by an employee in a year to 24 hours. Employers may also provide 24 hours of available paid sick leave up front in any given year to avoid the accrual and carry-over requirements. If the employee is rehired within one year, he or she is entitled to reinstatement of accrued but unused sick leave. Employer is not required to pay out accrued but unused sick leave upon termination.

The Ordinances largely mirrors these requirements, but provide different and increased standards in the areas of accrual cap, use and up front payouts.

Like the statewide law, Los Angeles employers will have discretion to provide the paid sick leave either all up front or at an accrual rate of one hour for every 30 hours worked up to the cap. However, under the Ordinance employers may cap the amount of accrued sick leave at 72 hours and may limit the amount of paid sick leave used by an employee in a year to 48 hours. This almost double the benefits respect to state law.

Front-loading has been a popular method for California employers to provide paid sick leave. Front-loading refers to the practice of providing the minimum amount of paid sick leave benefits to an employee at the beginning of the year, rather than having this time gradually accrue based on the employee’s hours worked, or some periodic basis. Under the Ordinance, an employee’s unused paid sick leave time must be carried over to the following year, up to the minimum cap of 72 hours, regardless of the employer’s method of providing paid sick leave.

For example, let’s assume that Employer utilizes the front-load method, and Employee receives 48 hours of paid sick leave on January 1, 2017. If Employee only uses 40 hours in 2017, he or she does not forfeit the remaining eight hours of his sick leave balance on December 31, 2017. This time is carried over to 2018. Additionally, Employee is still entitled to the 48 hours he or she is scheduled to receive on January 1, 2018; consequently, his or her sick leave balance on January 1, 2018 would be 56 hours (eight hours from his 2017 balance plus the front-loaded 48 hours for 2018). If Employee does not use any paid sick leave in 2017, he or she would have his or her entire balance carried over into 2018 and would be entitled to his or her 2018 allotment of paid sick leave. While this would bring his or her overall balance to 96 hours, Employer has the option of implementing the Ordinance’s minimum accrual cap and reducing his available sick leave balance to 72 hours.

 

C. San Diego

The San Diego Earned Sick Leave and Minimum Wage Ordinance was enacted in San Diego on June 7, 2016.

The Ordinance broadly defines a covered employee as one who performs at least two hours of work within the City of San Diego in one or more calendar weeks of the year and who qualifies as an individual entitled to minimum wage under California minimum wage law.

Minimum Wage

Employees must be paid a minimum wage of $10.50 as of July, 7 2016 (Ordinance’s effective date). Starting January 1, 2017, the minimum wage will increase to $11.50 an hour. Starting January 1, 2019, the minimum wage will increase by an amount corresponding to the prior year’s increase, if any, in the cost of living, as defined by the Consumer Price Index.

Unlike statewide law and Los Angeles ordinance, San Diego ordinance apply to all employers, regardless of the size, with at least one eligible employee working in the city.

Thus, even in the city of San Diego employers need to recognize a higher minimum wage - $11.50 per hour as opposed to $10.50 per hour under California law.

Paid Sick Leave

Most notably, the Ordinance does not set a cap on either the amount of earned sick leave that employees can accrue in a year or the amount of unused earned sick leave that employees can carry over from year to year.

Employers may limit the amount of paid sick leave used by an employee in a year to 40 hours (as opposed to 24 hours as provided under California law). However, accrued but unused sick leave must be carried over to the following benefit year, but there is no cap on the amount of leave that must be carried over.

In the example above, let’s assume that Employee receives 40 hours of paid sick leave on January 1, 2017 and uses only 30 hours. The unused 10 hours are carried over in 2018 and will be added to the 40 hours entitled in 2018, for a total of 50 hours of paid sick leave. If Employee does not use any hours in 2017, the hours of paid sick leave accrued in 2018 would be 80. In each scenario, Employer is not allowed to reduce such amount by putting a cap over the hours accrued.

Enforcement and Penalties

Unlike the Los Angeles ordinance, the San Diego Ordinance provide specific enforcement guidelines.

Employers violating any requirement of the Ordinance may be subject to a civil penalty for each violation up to, but not to exceed, $1,000 per violation.

Employers must provide each employee written or electronic notice of the new requirements at the time of hiring or the law’s effective date, whichever is later, at any workplace or job site where any employee works within the city. The notice must be in English and any other language spoken by at least 5% of the employees at the employees’ job site. Failing to comply with the notice and posting requirements may also subject employers to a civil penalty of $100 for each employee who was not given appropriate notice, up to a maximum of $2,000.

Remedies available on an action for violation of the Ordinance include: (i) payment of wages owed, (ii) an additional amount equal to double back wages withheld as liquidated damages, (iii) damages for the denial of the use of accrued sick leave, (iv) reinstatement or other injunctive relief, and (v) reasonable attorneys’ fees and costs.

 

D. San Francisco

Minimum Wage

As of January 1, 2016, minimum wage in San Francisco is $13 per hour and is scheduled to arrive at $15 per hour by July 1, 2018.

Notably, the city of San Francisco has the minimum wage rate higher than California and the other municipalities and will reach the threshold of $15 per hour earlier.

Paid Sick Leave

On June 7, 2016, San Francisco amended the City’s Paid Sick Leave Ordinance. Like the other ordinances, it applies to employees working for at least two hours within the city boundaries. Instead, the Ordinance defines as “small business” employers for which fewer than ten persons work for compensation during a given week.

The Ordinance almost resemble California law. For employees of small businesses, there shall be a cap of 40 hours of accrued paid sick leave, while for employees of other employers, there shall be a cap of 72 hours of accrued paid sick leave.

The amendments specifically provide that, in its discretion, an employer may provide employees a lump sum of sick leave at the beginning of each year of employment, calendar year, or other 12-month period. This will be treated as an advance on leave to be accrued; accrual temporarily halts and the employee does not continue to accrue until after working the number of hours necessary to have accrued the upfront allocation amount, at which point accrual resumes. The amendments state that this does not prevent an employer, in its discretion, from advancing leave to an employee at other times, and does not limit the amount of leave that may be advanced to an employee. Importantly, an advance must occur per an employer's written policy or, absent an applicable written policy, must be documented in writing to the affected employee. Although front-loading is now specifically allowed by the Ordinance, provided the employer has a policy or documentation regarding the front-loading, employers must still permit carryover of unused sick time as required by the Ordinance.

 

E. Santa Monica

Minimum Wage

The city of Santa Monica has the minimum wage rate set at 10.50 per hour as of July 1, 2016 for employers with more than 26 employees. Minimum wage for employers with fewer than 25 employees resembles the one provide at state level ($10 per hour). The rate is scheduled to increase yearly but on a different scale for large and small employers until reaching the rate of $15 per hour in 2021.

Paid Sick Leave

Santa Monica’s sick leave ordinance, enacted in January 2016, allows employees to accrue up to 72 hours of sick leave, with mandatory accrual and carry-over requirements. The ordinance will not become effective until January 1, 2017. Like the other cities in California, Santa Monica’s sick leave ordinance ultimately will provide employees with more sick leave than required by the recent statewide law. The accrual rate remains the same as California statewide law (1 hour of sick leave for every 30 hours worked).

Effective January 1, 2017, small businesses with 25 or fewer employees may cap accrual at no less than 32 hours of paid sick leave and larger businesses may cap the accrual at no less than 40 hours.

Effective January 1, 2018, the minimum cap on accrual will increase to 40 hours for a small employers and 72 hours for large employers. However, because the statewide cap on accrual must be 48 hours, employers in Santa Monica must still satisfy that statewide accrual requirement (which large employers in Santa Monica will have to increase to 72 hours beginning January 1, 2018).

Finally, an employer may prohibit use (as opposed to accrual) during the first 90 days of employment.

 

F. Conclusions

Local ordinances have an immediate impact on California employers. Given the broad application (at least two hours of work performed within the city limits), it is reasonable that a wide range of employers will be affected, especially those having their employees traveling of performing large part of their duties outside of the headquarter.

  1. Considering that employers must comply with both California law and local ordinances (if applicable) we suggest the following steps:
  2.     Review which employees perform their duties in the interested municipalities;
  3. Review and follow all minimum wage increases for both the state and the municipality.
  4. Review sick leave and/or PTO policies to determine whether they need to be revised and whether the revisions will apply to all California employees, or only those performing their duties in the interested municipalities.
  5. Train supervisors, managers, and human resources professionals to recognize the new requirements, the purposes for which paid sick leave may be used, and who qualifies as a family member under each law.

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Notes

1 This article only covers recent updates in these cities. Other California municipalities like El Cerrito, Emeryville, San Jose’, and Sunnyvale, have also passed their ordinances.

2 California’s Healthy Workplace, Healthy Families Act of 2014 (California Sick Leave Law), effective on July 1, 2015.

3 Adopting both new minimum wage rules and paid sick leave benefits.

4 The Ordinance apply only within the City of Los Angeles, not the entire County of Los Angeles. However, there are areas of Los Angeles commonly referred to by other names that are actually part of the City of Los Angeles. Examples include Century City, San Pedro, Hollywood, and Studio City, among others.