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For small business owners in San Francisco, navigating the intersection of municipal law and employee benefits is a high-stakes balancing act. The San Francisco Health Care Security Ordinance (HCSO) is a unique local mandate that requires employers to spend a minimum amount on health care for their employees [1].
Unlike federal requirements under the Affordable Care Act (ACA), which generally apply to businesses with 50 or more full-time employees, the HCSO casts a much wider net. For a small business owner, failing to understand these nuances can lead to significant financial penalties and administrative headaches.
Table of Contents
- Determining if Your Business is a “Covered Employer”
- Calculating the Mandatory Expenditure
- Administrative Burdens: Reporting and Record-Keeping
- Common Traps for Small Business Owners
- Summary of Key Takeaways
- Sources
Determining if Your Business is a “Covered Employer”
The first step for any entrepreneur is determining if the ordinance applies to them. Under the HCSO, you are considered a “Covered Employer” if you meet the following three criteria:
- Staff Size: You employ 20 or more persons (for-profit) or 50 or more persons (non-profit) globally. It is a common misconception that only San Francisco-based staff count; the Office of Labor Standards Enforcement (OLSE) stipulates that your total headcount nationwide—including part-time, seasonal, and temporary workers—determines your size [3].
- Location: You are required to maintain a San Francisco business registration certificate.
- San Francisco Presence: You have at least one employee working within the geographic boundaries of the City and County of San Francisco.
While the HCSO is a critical local requirement, it is only one part of a robust risk management strategy. For example, ensuring you have 5 Essential Types of Insurance for Small Businesses can protect your company from other liabilities while you focus on health care compliance.
Yes. To determine if you meet the 20-person threshold (or 50 for non-profits), you must count your total headcount nationwide, including part-time, seasonal, and temporary workers, even if they do not work in San Francisco.
A business is covered if it is required to have a San Francisco business registration certificate and has at least one employee working within the geographic boundaries of the City and County of San Francisco.
Calculating the Mandatory Expenditure
If you are a covered employer, you must make a “Health Care Expenditure” for every “Covered Employee.” A covered employee is someone who has been employed for at least 90 days, regularly works at least eight hours per week in San Francisco, and is entitled to be paid the minimum wage [2].
The expenditure is calculated based on “hours paid,” which includes not just hours worked, but also paid vacation, sick leave, and PTO, capped at 172 hours per month. For 2024, the rates are:
Large Employers (100+ employees): $3.51 per hour paid.
Medium Employers (20-99 employees): $2.34 per hour paid [1].
Compliance Options for Small Businesses
Small business owners typically fulfill this requirement through one of three methods: 1. Payments for Health Insurance: Paying premiums for medical, dental, or vision insurance. 2. Contributions to the City Option: If you do not provide traditional insurance, or if your insurance premiums don’t hit the minimum hourly rate, you can pay the difference into the SF City Option. This funds a Medical Reimbursement Account (MRA) for the employee. 3. HSA/HRA Contributions: Contributing to health savings or reimbursement accounts.
| Employer Size | 2024 Hourly Rate | Employee Eligibility |
|---|---|---|
| Medium (20-99 Employees) | $2.34 / hour | 90 days tenure |
| Large (100+ Employees) | $3.51 / hour | 8+ hours/week in SF |
| Exempt Managers | N/A | Earning >$121,372/year |
A covered employee is anyone who has worked for you for at least 90 days, performs at least eight hours of work per week within San Francisco, and is entitled to the minimum wage.
Hours paid include all hours worked as well as paid time off for vacation, sick leave, or PTO. However, these hours are capped at 172 hours per month for the purpose of calculating your required contribution.
For 2024, medium-sized employers with 20 to 99 employees are required to spend $2.34 per hour paid on health care for each covered employee.
Administrative Burdens: Reporting and Record-Keeping
The HCSO is not a “set it and forget it” policy. Owners must adhere to strict quarterly deadlines and annual reporting.
Quarterly Deadlines: Health care expenditures must be made within 30 days of the end of each calendar quarter (April 30, July 30, October 30, and January 30).
Annual Reporting: Every April, covered employers must submit an Annual Reporting Form to the OLSE. This report summarizes your expenditures for the previous year. Detailed guidance on this process can be found in our article on San Francisco Health Care Security Ordinance: Filing Annual Reports.
Notice Posting: You are required to post the HCSO Official Notice in a conspicuous place at every workplace where covered employees are active.
Expenditures must be made quarterly, within 30 days following the end of each calendar quarter: April 30, July 30, October 30, and January 30.
Yes, covered employers must submit an Annual Reporting Form to the Office of Labor Standards Enforcement (OLSE) every April to summarize expenditures from the previous year.
Employers are required to post the HCSO Official Notice in a visible location at every workplace where covered employees are stationed.
Common Traps for Small Business Owners
Community discussions on platforms like Reddit often highlight the “hidden” complexities of the HCSO. Many owners express frustration over the “Manager/Supervisor Exemption.” In 2024, managers are only exempt from the HCSO if they earn more than $121,372 annually [3]. If you have a manager earning $90,000, you are still required to make the per-hour expenditure for them.
Another frequent pitfall is the Voluntary Waiver. An employee can waive their right to the employer expenditure, but only if they prove they are receiving health care through another employer (e.g., a spouse’s plan). Owners must use the exact OLSE Waiver Form; a custom-written note from an employee is legally insufficient and will not protect you during an audit [1].
No. In 2024, managers are only exempt if they earn more than $121,372 annually. If their salary is below this threshold, the employer must still make the required hourly health care expenditures for them.
You must use the official OLSE Employee Voluntary Waiver Form, and the employee must prove they have health coverage through another employer. Custom notes or unofficial waivers are not legally valid and will not protect you during an audit.
Summary of Key Takeaways
The HCSO is a mandatory financial obligation that requires careful quarterly tracking. For small businesses, compliance is about more than just providing insurance; it’s about meeting a specific hourly spend.
Action Plan for Owners:
- Audit Your Headcount: Count all employees nationwide to see if you hit the 20-person (for-profit) threshold.
- Check Salary Thresholds: Ensure you are making expenditures for any managers earning less than $121,372 (2024 rate).
- Calculate the Gap: Compare your monthly insurance premium costs against the required hourly rate ($2.34 or $3.51). If your premiums are lower, pay the difference into the SF City Option by the quarterly deadline.
- Standardize Waivers: Only accept the official San Francisco Employee Voluntary Waiver Form and renew it annually.
- Mark Your Calendar: Set reminders for quarterly payments and the April annual reporting deadline.
By staying proactive with these local mandates and maintaining broader protections like cyber liability insurance, you can ensure your San Francisco business remains compliant and resilient in a complex regulatory environment.
| Category | Key Requirement |
|---|---|
| Headcount | Include all employees globally (20+ for-profit / 50+ non-profit). |
| Expenditure | Pay required hourly rate (capped at 172 hours/month) for SF staff. |
| Reporting | Submit Annual Reporting Form every April and pay quarterly. |
| Documentation | Keep SF City Official Notice posted and use OLSE waiver forms only. |
Start by auditing your global headcount to see if you reach the 20-employee threshold. If you do, verify which of your San Francisco employees meet the 90-day and 8-hour-per-week criteria for coverage.
If your insurance premiums do not meet the minimum hourly spend ($2.34 or $3.51), you must pay the difference into the SF City Option to fund a Medical Reimbursement Account for the employee.