Voters in San Diego and San Francisco recently approved paid sick leave changes that will impact employers in those California cities.

San Diego

As we reported in Tax Alert 2016-832, San Diego's paid sick leave and minimum wage ordinance passed in 2014, but was on hold until voters favorably decided its fate on June 7, 2016 (see Proposition I on page 107 of the ballot measures). The measure passed with more than 62% of the vote.

With the ordinance approved by voters, the increase in the minimum wage and paid sick leave requirements will go into effect after the election results are officially certified and approved by the city council.

Under the sick leave part of the ordinance, an employer must allow employees to accrue one hour of paid sick leave for every 30 hours worked and employees will be able to use the accrued sick leave after a 90-day waiting period. Employers may limit use of the leave to 40 hours in a 12-month period, but accrual cannot be capped and unused leave must be carried over. Upon an employee's separation, employers do not have to pay unused leave, but must maintain it for six months in case the employee returns.

An employee is defined as "any person who, in one or more calendar weeks of the year, performs at least two hours of work within the geographic boundaries of the City for an employer, and who qualifies for the payment of minimum wage under the State of California minimum wage law. Employees do not include independent contractors as defined by the California Labor Code, or people who have been issued a special license by the state to be employed at less than minimum wage, certain youth employees in publicly subsidized summer or short-term employment programs, and certain counselors at organized, outdoor camps."

Leave can be used if an employee is physically or mentally unable to work due to illness, injury, or a medical condition; for "safe time" (time away from work necessary to handle certain matters related to domestic violence, sexual assault, or stalking, when the employee or a specified family member is a victim); for medical appointments; and to care for or assist certain family members with an illness, injury, or medical condition.

The San Diego ordinance differs from California state law in that while the state allows an employer to limit an employee's use of paid sick leave to 24 hours per year (with an accrual cap of 48 hours), while a San Diego employee's use of accrued sick leave is limited to 40 hours in a benefit year, but employers must allow employees to continue to accrue sick leave hours with no cap.

Once certified and approved, the San Diego ordinance also increases the minimum wage to $10.50 an hour. Beginning January 1, 2017, the minimum wage will increase to $11.50, and beginning January 1, 2019, will increase by an amount corresponding to the prior year's increase in inflation. If the state minimum wage is at any time greater than the San Diego minimum wage, the state minimum wage will apply.

As we reported in Tax Alert 2016-629, the California state minimum wage, currently at $10 an hour, will increase to $10.50 effective January 1, 2017 and $11 effective January 1, 2018 for businesses with 26 or more employees, and then increase by $1 each January 1 until it reaches $15 in 2022. (For businesses with 25 or fewer employees, the bill delays the increases by one year, increasing the minimum wage from $10 to $10.50 effective January 1, 2018 and $11 effective January 1, 2019, and then by $1 each year until it reaches $15 in 2023.)

San Francisco

San Francisco has had a paid sick leave ordinance since 2007. On June 7, 2016, voters approved changes to the ordinance that, effective January 1, 2017, seek to bring the city's ordinance more in line with the state's paid sick leave law.

Currently, the ordinance provides for the following:

— An employee accrues one hour of paid sick leave for every 30 hours worked. The San Francisco ordinance differs from California state law in that while the state allows an employer to limit an employee's use of paid sick leave to 24 hours per year, a San Francisco employee's use of accrued sick leave is only limited by the amount that he or she has accrued.

— The employee may not start using paid sick leave until 90 days after the start of employment.

— The cap on accrual is 40 hours for small businesses having fewer than 10 workers and 72 hours for other businesses. California state law provides for a cap of 48 hours, regardless of the size of the employer.

— The accrual cap is not an annual cap. Whenever an employee's accrued leave drops below the cap due to usage, the employee begins again to accrue; this is referred to as a "floating" cap.

Effective January 1, 2017, according to the legislative digest of Proposition E as approved by the voters, the following changes to the San Francisco paid sick leave ordinance (PSLO) are made:

— Uses of paid sick leave: Permissible uses of paid sick leave include (1) purposes defined by California state law related to domestic violence, sexual assault, or stalking suffered by the employee, and (2) purposes related to bone marrow donation or organ donation.

— Persons for whom paid sick leave may be used: A "parent" for whom paid sick leave may be used includes a person who (1) stood in loco parentis when the employee was a minor child, or (2) is a biological, adoptive, or foster parent, stepparent, or guardian of the employee's spouse or registered domestic partner.

— Start date for accrual and use of paid sick leave: Employees (1) begin to accrue paid sick leave on the first day of employment rather than 90 days thereafter, and (2) may start using accrued paid sick leave on the 90th day of employment.

— Upfront allocation or "advance" of paid sick leave: If an employer provides an employee with an upfront allocation of paid sick leave, the City will treat such allocation as an "advance" on paid sick leave to be accrued under the PSLO.

— Separation and re-hire within one year: If a separated employee is rehired within one year, the employer must reinstate the employee's unused paid sick leave.

— Notice on wage statement: Employers must provide written notice of the amount of sick leave accrued under the PSLO that is available to the employee on the same wage statement or written notice that is required of them by California state law.

— Calculation of paid sick leave wage rate: Employers must calculate the rate of pay for paid sick leave using the formulas provided by California state law, except the rate cannot be less than the minimum wage rate required by the City Minimum Wage Ordinance.

— Increments for use of paid sick leave: Employers may not require employees to use paid sick leave in increments of more than one hour, unless in particular circumstances the City authorizes a larger increment that does not violate California state law.

— Timing for payment of paid sick leave: Employers must provide payment for sick leave no later than the next pay check after the leave was taken.

— Workplace notice: The City must combine into one document the workplace notice required by the PSLO with the workplace poster required by state Law, if the combined workplace notice is approved by the state.

See more information.

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