On July 1, 2015, California employers of all sizes where required to begin providing employees with at least 24 hours or 3 days of paid sick time off per year. While its aim was fairly simple and straightforward, AB 1522, the “Healthy Workplaces, Healthy Families Act of 2014” left most employers, HR professionals, and even labor law attorneys with many unanswered questions and struggling with how to comply with this complicated and confusing piece of legislation. Less than two weeks later, on July 13, 2015 Governor Brown signed AB 304 into law. Effective immediately, AB 304 was an urgency piece of legislation drafted to clear up confusion about AB 1522. While it did make certain clarifications, it certainly did not address some of the ambiguities in the first law, and in fact has left us with still more unanswered questions.
For details about the original legislation, please see previous Vantaggio’s article, “Healthy Workplaces, Healthy Families Act of 2014 – Paid Sick Days now Mandated in CA.” The following will summarize the major amendments that AB 304 has made to AB 1522.
Who is an Eligible Employee?
AB 1522 mandated that any employee who works in California for 30 or more days within a year is entitled to paid sick days. AB 304 clarified that those 30 days must be worked for the same employer in order for the employee to qualify for paid sick days. Of note, employers are still left with the dilemma that if they hire an on-call, temporary, or seasonal employee, the employer may not be clear if the employee will end up working for them for 30 days in the coming year. Given that paid sick days must begin accruing upon hire, this presents a unique challenge in some employment relationships.
AB 1522 also provided that certain employees are exempt from the entitlement to paid sick days. Those exclusions include providers of certain in-home services, employees of an air carrier flight deck or cabin crew members who receive paid time off equal to the requirements of the new law, union-represented employees covered by a collective bargaining agreement that provides for paid sick time and meets other requirements, and employees in the construction industry covered by a collective bargaining unit that satisfies specific criteria. AB 304 has added to this list of excluded employees, retired annuitants of a public entity.
How do Paid Sick Days Accrue?
One of the most confusing parts of AB 1522 was the methodology that imposed how paid sick days were to be accrued. Upon hire, all eligible employees had to begin accruing paid sick days at the rate of 1 hour for every 30 hours worked. While accruals had to commence upon hire, an employer could make an employee wait until 90 days of employment before being able to use paid sick days. A the rate of 1 hour per 30 hours worked, a full time employee would accrue almost 9 days (69.33 hours) of paid time off in a year. And while unused sick days needed to be allowed to carry over from one year to the next, employers were allowed to cap the employee’s accrual at 48 hours or 6 days and could further limit the employee’s use to 24 hours or 3 days each year. If an employer wanted to avoid having to track the accruals and carryovers described above, the full 24 hours or 3 days of paid sick days could be provided to the employee in a lump sum at the beginning of each year.
AB 304 has given employers the flexibility to use a different method of accrual other than 1 hour per 30 hours worked – as long as the accrual takes place on a regular basis and the employee is able to accrue at least 24 hours of time off by the 120th calendar day of employment. For employers who have plans that allow for accrual based on a specific number of hours per pay period, this is a welcome flexibility. However employers should note that to reach 24 hours by the 120th day of employment, the accrual would actually result in approximately 72 hours of paid time off in a year – slightly more than the 1 in 30 method. As such, employers who amended an existing plan that used a per pay period accrual in order to meet the 1 in 30 requirement may actually need to revise their plan again to get to the new higher accrual requirement.
Further, AB 304 clarified that an employer’s ability to limit and employee’s use of paid sick days to 24 hours per year can be calculated based on an anniversary year, a calendar year, or any other 12-month period.
What if the Company already offers Paid Sick, Vacation, or PTO?
AB 1522 clearly stated that if an employer who already has a paid leave or paid time off policy that met the minimum requirements of the new law, the employer would not be required to offer additional paid sick days. Of note, the employer’s existing plan had to satisfy the accrual, carry over, and use requirements of the new law and provide no less than 24 hours or 3 days of paid sick time off or equivalent paid time off. Again, while seemingly straightforward, this requirement was very challenging for employers who found that almost all existing plans needed some level of amendment in order to comply. The accelerated rate of accrual required by the one hour for 30 hours worked proved to be the most difficult threshold to meet unless the employer already had a very rich vacation or PTO plan in place.
AB 304 created an opportunity for an employer to “grandfather” an existing plan. If the employer had a paid time off plan in place before January 1, 2015 and that plan was not amended as of July 13, 2015, the employer would not need to provide additional paid sick days as long as the existing plan provided that employees accrue no less than 8 hours or 1 day of paid time off within 3 months of employment of each calendar year and no less than 24 hours or 3 days of paid time off within 9 months of employment. Surprisingly, a plan that meets this new requirement could allow for employees to accrue as little as 4 days of time off in a year at a rate that is far less than the 1 hour for 30 hours worked in AB 1522. However, for all employers who in good faith changed their plans to get into compliance by July 1, 2015, this option is not available.
What Happens if the Company Provides Unlimited Paid Time Off?
In recent years, many firms (particularly law firms and medical practices) have implemented unlimited paid time off policies. As long as the employees meet their performance goals, their time off is not tracked and they continue to receive their full salary. After the passage of AB 1522, the California Department of Labor Standards Enforcement (DLSE) took the position that such plans would violate the law due to the fact that employees would not see their available, accrued sick days balance on their paystubs as required by the new law. AB 304 addressed this issue directly and stated that such plans would be found compliant so long as the word “unlimited” appears as their sick days accrual balance on each pay stub.
How are Employees Paid for Paid Sick Days?
Under AB 1522 an employee was required to be paid for paid sick days at the employee’s regular hourly wage. If the employee had different hourly rates of pay, earned commission, was paid via piece rate, or was a salaried, non-exempt employee, the employer had to take the total amount paid to the employee (not including overtime premium pay) in the full pay periods from the prior 90 days and divide by the total hours worked, to determine the hourly rate of pay to be used for paid sick days.
AB 304 allows employers to pay sick time for non-exempt employees either (1) based on the regular rate of pay for the workweek in which the employee uses paid sick days or (2) by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. What this means is that an employee who is paid a straight hourly rate of pay, without commissions, bonuses, or other incentives, can be paid for sick days at that regular hourly rate. AB 304 also clarified that salaried, exempt employees could be paid for paid sick days in the same manner that that employer pays for other forms of paid time off.
What Happens to Paid Sick Days upon Termination of Employment?
AB 1522 established that employees do not have to be paid for unused sick days at the time of termination. However, if the employee returns to the same employer within one year, the previously unused sick time has to be reinstated. A 304 clarifies that if the employee was paid out for the unused sick time at the time of termination, no reinstatement is required.
What are the Paperwork and Recordkeeping Requirements?
Amongst other recordkeeping requirements, AB 1522 requires employers to display the amount of available paid sick time on an employee’s itemized wage statement or in an equivalent document provided to employees on each pay date. AB 304 has delayed this requirement for employers covered by Wage Orders 11 and 12 (broadcasting and motion picture industries) until January 21, 2016.
Additionally, AB 304 clarified that an employer does not need to ask for or record the reason for which an employee uses paid sick days or other paid time off. Of note is that the DLSE provided guidance recently on their interpretation of AB 1522 and claimed that if an employer wanted to use a PTO plan to meet the requirements of the new paid sick days law, the employer would be required to track how much PTO time an employee used for vacation vs. sick time. That guidance pushed many employers away from using a PTO plan to meet the paid sick days mandate as such recordkeeping would be onerous, impractical, and totally inconsistent with how a PTO plan is intended to work. AB 304 is good news for employers on this topic.
What Questions Remain Unanswered?
Many areas of uncertainty raised by AB1522 were not addressed by AB 304. Additionally, over the past several months, the DLSE has published and updated several times FAQs on their website that answered a myriad of questions on AB 1522. They have also been fairly responsive in answering employer’s questions via phone and email. As of the passage of AB 304, the DLSE has placed a warning message on the FAQ page indicating that they are currently working on an update. Employers should be cautious about relying on interpretations provided by the DLSE that predate AB 304.
What should Employers Do?
First of all, if you haven’t done so already, employers need to get into compliance with both new sick leave laws. Of note:
To review the full text of the law, click here: AB 304 – Amended Paid Sick Days Law
To access the DLSE’s website for more information click here: DLSE’s FAQs on Paid Sick Days
If you are feeling overwhelmed, you are not alone! At Vantaggio, we are here to help analyze your current policies and practices and make recommendations about getting into compliance in a way that best meets your company’s specific business needs.
If Vantaggio has drafted your handbook for you in the past, please contact us asap about the much needed 2015 updates. And as always, please call us with any questions.
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