Keenan Briefings

Designed to provide information quickly and effectively about issues that matter to you.


Navigating San Francisco’s Health Care Security Ordinance

May 16, 2024

The San Francisco Health Care Security Ordinance (HCSO) requires most San Francisco employers to spend a minimum amount on health care for employees working in San Francisco and to report on such expenditures to the Office of Labor Standards Enforcement (OLSE) annually. The specific details, including instructions and an extensive FAQ, can be found here.

Covered Employers include employers (including out-of-state employers) that:

  • Employ at least one worker within the geographic boundaries of the City and County of San Francisco;
  • Are required to obtain a San Francisco business registration certificate; and
  • Have at least 20 employees nationwide for for-profit businesses, or at least 50 employees nationwide for non-profit businesses. The count is determined based on the weekly average each quarter.

For purposes of determining employer size, all employees (“Workers”) performing work for compensation for the employer should be counted including full-time, part-time, seasonal, temporary, contracted, and commissioned employees. Owners who perform work for compensation should also be counted. “Compensation” includes money, benefits, or in-kind compensation (e.g., room and board, etc.). Public sector employers are not covered employers.

“Covered Employees” are different than “Workers.” Workers are used to determine employer size. Employers are only required to make health care expenditures for Covered Employees. “Covered Employees” include those employees who:

  • Are entitled to be paid minimum wage; and
  • Have been employed for at least 90 days and regularly work at least eight hours per week in San Francisco.

Note that due to an ordinance passed in 2021, employees working remotely outside of San Francisco may need to be counted in the event that the City places a public health restriction in place that encourages telecommuting from a location outside of San Francisco. Presently, only employees working in San Francisco, whether on-site or remotely, are Covered Employees.

The following are not Covered Employees:

  • Owners and independent contractors;
  • Managers, supervisors or confidential employees who earn an annual salary of at least $121,372 or an hourly salary of at least $58.35 in 2024 (or $114,141 and $54.88 in 2023);
  • Employees who are eligible for Medicare or TRICARE;
  • Employees employed by a non-profit corporation for up to one year as trainees in a bona fide training program consistent with federal law;
  • Employees who receive health care benefits pursuant to the San Francisco Health care Accountability Ordinance (HCAO); and
  • Employees who voluntarily waive due to coverage under another Covered Employer (must be the Covered Employee’s employer or the employer of the Covered
  • Employee’s spouse, domestic partner, parent, or guardian). OLSE’s Employee Voluntary Waiver Form can be found here.



To comply with the HCSO, Covered Employers must make required health care expenditures on behalf of Covered Employees on a quarterly basis at a specific rate.



Covered Employers must spend minimum amounts on health care quarterly for all Covered Employees, including part-time employees and employees who waive the employer’s benefits (unless they are provided coverage by another Covered Employer and sign a waiver form). For part-time Covered Employees who are not offered the employer’s regular benefits, or for Covered Employees who waive the employer’s regular benefits, the employer must satisfy minimum spending amounts on health care in some other manner.

Required health care expenditures must be made each quarter, within 30 days of the end of the preceding quarter. The required health care expenditure (or minimum spending amount) is based on hours payable and the applicable HCSO expenditure rate, which is updated annually and differs depending on employer size. For 2023 and 2024, the HCSO expenditure rates are as follows:

Employer Size

Number of Workers

2023 Expenditure Rate

2024 Expenditure Rate


All employers w/ 100+ workers

$3.40 per hour payable

$3.51 per hour payable


Businesses w/ 20-99 workers
Nonprofits w/ 50-99 workers

$2.27 per hour payable

$2.34 per hour payable


Businesses w/ 0-19 workers

Nonprofits w/ 0-49 workers



Hours payable include hours paid for work performed within San Francisco and hours paid for vacation, PTO, sick leave, etc. (not to exceed 172 hours/month).

Health care expenditures are generally defined as amounts actually paid for health care services (e.g., §213 medical expenses) for Covered Employees or their spouses or dependents. Employers choose how to make the required health care expenditures for their Covered Employees. Common health care expenditures include:

  • Payments for health, dental, and/or vision coverage (including COBRA premiums);
  • Payments to the SF City Option; and
  • Contributions to a health savings account (HSA).

An employer may choose more than one option to satisfy its obligations, but simply increasing hourly wages is not an option. There are different rules for calculating the required minimum health care expenditure depending on what type of expenditure the employer makes.

NOTE: Contributions to a health FSA do not count as a health care expenditure for this purpose because the funds are only available through the end of the plan year (and otherwise revert back to the employer). Contributions made available via an HRA may only count as a health care expenditure if the amounts cannot be revoked or forfeited for a minimum of 24 months (so long as the Covered Employee remains employed).



Employer contributions toward premiums for health, dental and/or vision coverage count toward the required health care expenditures. However, if the employer contributions fall short of the required health care expenditure, the employer must find additional ways to make up the difference. The employer may do so by further reducing the employees’ share of the premiums for the existing plan, choosing a more generous plan with higher premiums, complementing the existing plan with a HSA or HRA, making payments to the SF City Option (discussed below), or making other expenditures that qualify as health care expenditures.



For self-funded health plans in which the employer pays claims as they are incurred, employers look at the annual spending and make an hourly calculation as follows:

Total Annual Employer Spending / Total Payable Hours = Average Hourly Expenditure Rate

  • Employers should assume monthly maximum payable hours of 172, so annual maximum payable hours are 2,064 for full-time employees and 1,032 for part-time employees. Employers can do the calculation for all employees in the plan nationwide or just for Covered Employees.
  • Employers should count all claims paid (not claims incurred) for the applicable period. Claims paid for dependents enrolled in the plan may be included if they are paid by the employer. Any refunds the employer receives, along with any employee contributions, are not included in the annual spending total.

If an employer’s average hourly expenditure rate falls short of the required health care expenditure, it must make “top-off” payments for employees enrolled in those plans. The top-off payment must be made by the end of February following the year in which the expenditure fell short (i.e., by end of February 2025 for any expenditures made in 2024 that fall short of the minimum). It’s also important to note that if an employer receives a refund of any kind after it has completed its February calculations, it must do a second round of top-off payments.

Some helpful calculation examples (for both average expenditures and any required top-off payments) are included in instructions found here.



“Uniform coverage” refers to plans (i.e., an HMO or PPO) with a uniform design without differences in eligibility requirements and cost-sharing requirements. For uniform coverage offered to Covered Employees, the employer will be deemed to comply with the required healthcare expenditure if the average hourly expenditure rate per employee meets or exceeds the minimum expenditure rate. If the expenditure rate fails to meet or exceed the minimum expenditure rate, the employer must spend the difference (or shortfall) within 30 days of the end of the quarter. For this purpose, employers should calculate the average hourly expenditure rate as follows:

Total health care expenditures for covered employees / Total number of hours payable for covered employees

  • Employers may include only Covered Employees in this calculation or may include all employees participating in the uniform plan if all such employees receive the same health coverage or product.
  • An employer that offers an HMO and a PPO must separately calculate the average hourly expenditures for each plan. Similarly, an employer that offers two HMO options may not average the expenditures between the two HMOs unless the benefit design for both HMOs is exactly the same.



Covered Employers must submit an annual report to the Office of Labor Standards Enforcement (OLSE) each year. The reporting form for 2023 was due on Friday May 3, 2024. Covered Employers who fail to submit the Annual Reporting Form (ARF) by the deadline may be subject to a penalty of $500 per quarter. Please review the 2023 ARF instructions and form for more details.



Covered Employers must post a specific HCSO poster in all workplaces with Covered Employees.



Covered Employers must keep, for a period of four years from each Covered Employee’s dates of employment, sufficient records to document compliance with the HCSO. These record requirements are detailed here.



Finally, the SF City Option is an alternative payment option for Covered Employers that permits them to make irrevocable contributions to the SF City Option on behalf of Covered Employees to meet the required health care expenditure. Covered Employees then receive enrollment in a SF Medical Reimbursement Account (SF MRA) that can be used for eligible health care expenses incurred by the employee, spouse/domestic partner, and dependents.

Upon contributing to the SF City Option, employers must provide their employees with a one-time Employee Health Care Payment Confirmation to notify employees of their employer’s contribution.

Keenan is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Clients are advised to consult with their own attorney for a determination of their legal rights, responsibilities, and liabilities, including the interpretation of any statute or regulation, or its application to the clients’ business activities.