On July 13, 2015, Governor Brown signed urgency legislation amending California's paid sick leave law, which goes into effect immediately.  The amendments (AB 304) are surprising to some, as California's paid sick leave law -- the Healthy Workplaces Healthy Families Act of 2014 ("HWHFA") -- just went into effect two weeks ago on July 1st.  The amendments are intended to fix many of the holes, uncertainties, and obstacles to implementation contained in the original HWHFA legislation.

What Has Changed?

AB 304 makes several amendments to HWHFA.  Below are the most important amendments, which address when an employee can qualify for paid sick leave with a given employer, how paid sick time can accrue, how leave compensation may be calculated, and updated sick leave notice and recordkeeping requirements.

Which Employees are Subject to This Law?

Under the HWHFA, any employee that works in California for 30 or more days within a year is entitled to accrue and take paid sick days.  AB 304 clarified that an employee must work for the same employer for 30 or more days within a year to be entitled to paid sick leave from that employer.  This amendment reflects HWHFA's original intent and eliminates the possibility of an employee obtaining paid sick leave from one employer based on service performed for a previous employer.

HWHFA provides for four limited exemptions to the definition of an "employee" subject to the HWHFA's coverage.  AB 304 adds a fifth exemption for any public sector employee who is the recipient of a retirement allowance and employed without reinstatement into his or her respective retirement system, which is intended to exclude retired annuitants of a public entity.  AB 304 also expands the exemption for construction industry employees covered by collective bargaining agreements by removing the requirement that they perform work "onsite."

What Sick Time Benefits are Required?

Paid Sick Time Accrual:  AB 304 gives employers more flexibility to determine how employees will accrue paid sick leave by allowing for sick leave accrual on a basis other than per hours worked, as originally required by the law.  The statute's accrual requirements may now be satisfied with any alternative accrual method that complies with either of the following requirements:

  1. An accrual method that provides for the accrual of paid sick leave on a regular basis, such that an employee has no less than 24 hours, or three days, of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period; or
  2. An accrual method that provides an employee with not less than 24 hours, or three days, of paid sick leave available for use by the completion of the employee's 120th calendar day of employment.

For example, a policy that permits employees to accrue paid sick leave per pay period or per month (even though not tied to hours worked) will now be compliant with the HWHFA, provided that the policy satisfies these accrual floors.

Paid Sick Time Annual Vesting:  Previously, under HWHFA, an employer could avoid using a sick time accrual method if it provided 24 hours or 3 days of leave to an employee, in a lump sum, at the beginning of each year.  AB 304 clarified the definition of year under this method includes employment year, calendar year, or another 12-month period.

Reinstating Paid Sick Time:  AB 304 also clarifies the circumstances in which an employer must reinstate the sick days of a previously separated employee.  Under HWHFA, an employer is required to reinstate an employee's previously accrued and unused sick days if the employee separates from employment and is rehired within one year.  AB 304 adds that an employer is not required to reinstate accrued paid time off that was paid out to the employee at the time of separation of employment.

Calculating Sick Pay Compensation:  AB 304 simplifies how paid sick leave compensation may be calculated, and provides the employer with more options for determining such compensation for exempt and non-exempt employees.  Under AB 304, the formula for calculating pay rates in the original law has been eliminated and employers may now calculate paid sick leave compensation using any of the following calculations:

  1. For nonexempt employees:
    • Paid sick leave compensation can be calculated using the same wage rate the employee earns during regular work hours during the workweek in which the employee uses paid sick time; or
    • Paid sick time compensation can be calculated by dividing the employee's total regular wages by the total hours worked in the full pay periods of the prior 90 days of employment.
  2. For exempt employees, paid sick time shall be calculated in the same manner as the employer calculates wages or other forms of paid leave time.

Existing PTO Policies:  AB 304 also provides a base-line statutory floor that employers can compare against their pre-existing accrual paid sick leave or paid time off policies implemented prior to January 1, 2015, which basically provides a "grandfather" exception.  Existing policies prior to January 1, 2015, that have accrual methods other than one hour for each 30 hours worked are permissible if the policy: 

  1. Provides accrual on a regular basis so that employees have no less than eight hours, or one day, of accrued sick leave or paid time off within three months of employment each calendar year or each 12-month period; and
  2. The employee is eligible to earn at least 24 hours, or three days, of sick leave or paid time off within nine months of employment.

Under AB 304, such pre-existing policies that accrue paid time off at a slower rate than required under the HWHFA (whether measured by hours worked, per pay period, per month, or in some other regular basis) will be compliant and "grandfathered" in, provided that the policy satisfies these somewhat slower accrual floors and the uses required by the HWHFA. 

Amending Policies:  If an employer modifies an existing accrual method for its sick leave or paid time off policy implemented before January 1, 2015, the grandfather exception will not apply.  For such modified policies, the employer must comply with one of the accrual methods set forth by the HWHFA, or provide the annual vesting of a full 24 hours or three days of paid leave at the beginning of each year of employment, calendar year, or 12-month period.  

What are the Notice and Recordkeeping Requirements?

Payday Notice:  The original HWHFA required employers to provide employees, on every payday, with written notice of how much sick time each employee had accrued and had available for use.  Under AB 304, if an employer provides unlimited paid sick leave or unlimited paid time off, the employer may satisfy this requirement by simply stating "unlimited" either in the notice or in the employee's itemized wage statement.

AB 304 also delays the implementation of the payday notice requirement to January 21, 2016 for the broadcasting and motion picture industries covered by Wage Orders 11 and 12.

Notably, employers still must provide the new California Labor Code 2810.5 notices to non-exempt employees hired on or after January 1, 2015, and this provisions was left unchanged by AB 304.

Recordkeeping:  AB 304 clarifies that an employer is not obligated to inquire into, record or keep records of the purposes for which an employee uses paid leave or paid time off.  In effect, this amendment permits employees to simply notify the employer of the use of paid sick time off under the policy, without requiring the employer to request further explanation.

Comparison of the HWHFA Before and After AB 304's Amendments

Click here to view table.

What Does This Mean for Employers?

Employers with California workforces should do the following:

Review compensation calculations for calculating sick leave for exempt and non-exempt California employees. This is now easier under AB 304.

Review existing paid sick leave or paid time off policies.  The good news is that for most employers who implemented compliant paid leave policies before July 1, 2015, no changes are likely required to the policy or methods of compliance the employer is already using.  Additionally, employers with pre-2015 sick or PTO policies that have not been modified may be able to keep their existing policies, but they should review their policies to ensure the policies comply with AB 304's "grandfather" requirements.

Implement new paid sick leave or paid time off policies.  For employers who have not yet rolled out paid sick leave policies, AB 304 provides more flexibility in creating a customized paid sick leave policy to fit each employer's business needs and makes compliance with the HWHFA easier for employers.