On July 13, 2015, California Governor Jerry Brown signed California Assembly Bill 304 ("AB 304") to enact immediate, significant changes to California's paid sick leave law.
AB 304 was enacted as "urgency" legislation, meaning that it took effect immediately on July 13, 2015. While the Legislature intended AB 304 to benefit employers with respect to many of the changes, California employers have good reason to be frustrated by the timing of the new law. Countless employers invested substantial resources to revamp their sick leave policies to meet the July 1 deadline for full compliance with the original law, only to see employer rights and responsibilities change less than two weeks later.
Here's a summary of what we consider the most significant changes:
New Pay Rate for Sick Leave: The original law required employers to use a special formula to compute the sick leave pay rate for all employees who, within 90 days before taking sick leave, had different hourly rates, were paid by commission, or were paid by piece rate. The new law changes these pay requirements, and specifies different requirements for non-exempt and exempt employees. For non-exempt employees, the employer may pay for sick leave using either of these rates: (a) the "regular rate of pay" (i.e., based upon the technical overtime law definition of the term) for the workweek in which sick time is used, regardless of whether the employee actually worked overtime during that workweek; or, (b) total wages (not including overtime) divided by total hours worked in the full pay periods of the prior 90 days of employment. For exempt employees, the law requires sick time to be calculated in the same manner as the employer calculates wages for other forms of paid leave. Even employers that conscientiously adopted new sick leave polices based on the precise pay rate wording of the original law will need to revise their policies, because it is possible that (in some cases) the applicable pay rate under the new law could be higher. The good news is that the changes to the pay rate should be easier to administer, and in some cases less costly to the employer. Please note that the local sick leave law in San Francisco contains different sick leave pay requirements.
New Accrual Method Permitted: AB 304 authorizes employers to adopt sick leave accrual methods other than 1 hour per every 30 hours worked, provided that the accrual is on a regular basis so that an employee has no less than 24 hours 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. By way of example, AB 304 would appear to allow weekly, bi-weekly, semi-monthly, or monthly accrual arrangements that meet the adjusted minimum requirements. The above-referenced accrual rate extrapolates to approximately 73 hours per year, as compared to the general annualized rate of 69 and 1/3 hours (1 hour per 30 hours of work for full-time employment). AB 304 does not authorize pro-ration of the adjusted minimum accrual requirement for part-time employment. Employers should seriously consider adopting non-hourly accrual methods (e.g., based upon regular payroll periods) to simplify both sick leave administration and related attendance management issues. Please note, however, that the local sick leave laws in San Francisco, Oakland, and Emeryville do not authorize accrual methods other than 1 hour of sick leave per 30 hours of work.
"Unlimited" Sick Leave: The original law requires employers to provide written notice on each regular payroll date of the amount of paid sick time or paid time off available. AB 304 states that if the employer provides unlimited sick time or paid time off, the employer can meet this requirement by indicating "unlimited" on the written notice. We strongly caution employers to consult directly with legal counsel before providing such notice of unlimited sick leave. If an employer's policy provides paid time off subject to business needs and/or management approval, then it may not be considered truly "unlimited," or compliant with the sick leave law. The sick leave law protects employees' rights to use their sick leave regardless of business needs or management approval. Moreover, providing truly unlimited sick leave that employees can use on a legally protected basis can lead to serious attendance management problems. We generally do not regard unlimited plans as good vehicles to use to satisfy the requirements of sick leave laws. Employers with such plans should consider adopting separate plans to provide requisite sick leave.
New Grandfather Protection for Certain Pre-2015 Sick Leave/PTO Plans: AB 304 announces for the first time a type of grandfather protection for certain plans that existed before January 1, 2015. Under this grandfather provision, employers are not required to provide additional paid sick days to employees covered by a paid leave policy or paid time off policy that meets all of these requirements: (a) was in effect prior to January 1, 2015; (b) uses a regular accrual method other than 1 hour of sick leave per 30 hours of work; (c) provides at least 1 day or 8 hours of accrued sick leave or paid time off within 3 months of employment of each calendar year, or each 12-month period; (d) makes the employees eligible to earn at least 3 days or 24 hours of sick leave or paid time off within 9 months of employment; and, (e) allows the time to be used for the same purposes and under the same conditions as sick leave law generally requires. The accrual rates in (c) and (d) would extrapolate to 32 hours per year, much lower than the annualized accrual rate of 1 hour of sick leave per 30 hours of work for full-time employment (69 and 1/3 hours). AB 304 does not authorize pro-ration of these minimum requirements for less than full-time work. AB 304 also does not permit employers to benefit from this new grandfather protection if they lower the amount of paid sick leave or paid time off provided. The grandfather protection would not apply to classes of employees who were ineligible for the sick leave or paid time off prior to January 1, 2015 (e.g., in many cases, temporary employees or part-time employees regularly scheduled to work less than a threshold hours-per-week requirement). Please note that local sick leave laws in San Francisco, Oakland, and Emeryville do not provide any similar form of grandfathered-policy protection. Employers should consult directly with legal counsel to determine whether, and to what extent, they may take advantage of grandfather protection for plans in effect prior to January 1, 2015.
New Usage Cap Year Definition: The original law provided that employers could limit an employee's sick leave usage to 24 hours per year of employment. AB 304 provides that the limitation may be applied on a year of employment, calendar year, or 12-month basis. Please note that local sick leave laws in San Francisco, Oakland, and Emeryville do not allow imposition of a usage cap. In other words, employees must be allowed to use all earned sick leave in those locations.
New Usage Eligibility Requirement for Yearly-Allotment Method: A particularly ambiguous provision of AB 304 appears to allow employers to require 120 calendar days of employment before an employee becomes eligible to use sick leave when the full amount is provided at the beginning of each year of employment, calendar year, or 12-month period. In light of the ambiguity of this provision, consult directly with legal counsel before incorporating it into an employer policy. Please note that local laws in San Francisco and Oakland require sick leave accrual and do not authorize this type of yearly allotment approach. While the local sick leave law in Emeryville appears to allow the yearly-allotment method, it's unclear whether Emeryville would permit the 120 days of employment eligibility requirement for usage of such sick leave.
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