On July 13, 2015, California Governor Jerry Brown signed into law urgency legislation amending the Healthy Workplaces, Healthy Families Act of 2014, which generally requires employers to provide paid sick leave to almost all California employees. Our prior client advisories regarding this law can be found here and here. The law generated a multitude of questions due, in no small part, to its lack of clarity. The new amendments are effective immediately. They provide important clarifications and changes that should help employers comply with the law. Nonetheless, some ambiguities and open questions remain. The following is a summary of the key changes.
Clarification to Eligibility Requirements
With certain exceptions, California’s paid sick leave law applies only to employees who, on or after July 1, 2015, work more than 30 days in California within a year of commencing employment. Previously, it was unclear whether this 30-day requirement meant that an employee could work any 30 days in California, and whether the work needed to be for the same employer. The amendment makes clear that an employee must work 30 days for the same employer within a year of commencing employment to be entitled to paid sick days under the law.
Revision to Accrual Methods
Under the law, employees are entitled to earn, at least, 1 hour of paid sick leave time for every 30 hours worked, up to a cap of 48 hours. However, because employers are entitled to cap sick leave usage at 24 hours or 3 days per year, the original law provided that employers could satisfy the accrual requirement by granting that amount of paid sick leave up front. The amendments clarify that employers who use this front-loading method can grant this amount of leave at the beginning of each calendar year, each year of employment, or any other 12-month period, and that it need not be available to new hires until the 120th day of employment.
The amendments also create an additional method to satisfy the accrual requirements. Employers can use an accrual method different from the 1 hour for every 30 hours worked formula provided (i) the accrual is on a regular basis (e.g., a week or a month, or each pay period) and (ii) the accrual rate results in employees having no less than 24 hours of accrued sick leave (or paid time off) by the 120th calendar day of employment, or every calendar year or 12-month period. For example, employers who provide paid time off that accrues on a weekly or monthly basis (regardless of hours worked) would now be allowed to continue to use that method provided the accrual rate is no less than 1.4 hours per week.
Safe Harbor for Pre-Existing Plans
Under the amended law, employers with paid sick leave or paid time off plans that were in existence before Jan. 1, 2015, are entitled to maintain such plans under certain circumstances. Specifically, the pre-existing plan must have provided for accrual of sick leave (or paid time off) on a regular basis and at such a rate that employees covered by the plan have no less than 1 day or 8 hours of accrued sick leave (or paid time off) within 3 months of employment or each calendar year or each 12-month period, and at least 3 days or 24 hours of accrued sick leave (or paid time off) within 9 months of employment. Employers are not prohibited from increasing the accrual amount or rate for employees under such pre-existing plans. But if an employer makes any other modification to the accrual rate under their pre-existing plan, they will lose the safe harbor and must comply with the accrual or up-front methods otherwise specified under the law. It bears emphasis that other aspects of the sick leave law, such as employees’ right to use accrued sick leave to care for designated family members, must be implemented regardless of the “safe harbor” for pre-existing accrual methods.
Use of Sick Leave
Under the law, employers can limit the use of paid sick leave to 24 hours or 3 days per year. It was originally unclear what was meant by a “year.” The amendments confirm that “year” means each year of employment, each calendar year, or a continuous12-month period.
Calculating Sick Pay
In another welcome reprieve, the amendments provide an alternative to the “90-day look back” method for calculating sick leave pay for both nonexempt and exempt employees. Under the prior law, the rate of pay was at the employee’s hourly wage rate, but if in the 90 days before taking leave the employee had different hourly rates, was paid commissions or a piece rate, or was a non-exempt salaried employee, then the employer had to look back at all wages earned and hours worked to calculate sick leave pay. Needless to say, this created a lot of confusion.
With the amendments, employers may also calculate sick leave pay for non-exempt employees in the same manner as they would calculate the regular rate of pay for overtime purposes for the workweek in which the employee uses paid sick leave, which is also referred to as the “weighted average” method. Alternatively, employers still can calculate sick leave pay for a nonexempt employee by dividing the employee’s total wages (not including overtime) by the total hours worked in the full pay periods of the prior 90 days of employment. For exempt employees, sick leave pay is to be calculated as the employer calculates other forms of paid leave time, such as vacation.
Under the law, employers must reinstate accrued, but unused, sick leave time to employees who terminate but are rehired within one year from their date of separation. The amendments clarify that employers need not reinstate any accrued sick leave time that was paid out at the time of termination, which may occur, for example, when paid sick time and vacation time are combined into a single paid time off bank that is required to be paid out at termination.
Record Keeping Requirements
The law establishes certain obligations with respect to maintaining records of accrued and used paid sick days. The amendments clarify that employers are not obligated to maintain records regarding the purposes for which an employee uses paid sick leave or paid time off.
Unlimited PTO Policies
Under existing law, employers are required to provide on each payday written notice to employees of the amount of paid sick leave they have available. This can be done either on the itemized wage statement or in a separate writing provided to the employee on pay day. This requirement created ambiguity for employers who provide unlimited paid time off as a number of employers now do for exempt employees. The amendments clarify that if an employer has an unlimited paid sick leave or paid time off policy, it may satisfy its reporting obligation by indicating on the wage statement or separate writing that the available time is “unlimited.”
Although the amendments provide some important clarification and critical changes, a number of open and unanswered questions remain. For example:
- Is the 30-day eligibility requirement a reference to work days or calendar days?
- Does the reference to “3 days or 24 hours” mean that an employer must provide the greater of 3 days or 24 hours? For example, part-time employees who work less than 8 hours per day still would be entitled to 24 hours (more than 3 days) of leave under such a reading, while employees who work 10-hour days would be entitled to 30 hours (3 days) of leave. In their existing FAQ’s, the Division of Labor Standards Enforcement (“DLSE”) seems to take this view of the statute.
- With respect to the new safe harbor provision, would employers who have already updated their policies in order to comply with the law before it was amended be allowed to revert to their old plans’ accrual method?
The DLSE is currently updating its FAQs, so we hope to have more guidance shortly. Given the complexity of the law, however, prudent employers should continue to seek guidance from counsel to ensure they are in compliance.