On July 13, 2015, Governor Brown signed Assembly Bill 304 – an amendment to California’s recently effective (as of July 1, 2015), statewide sick-leave law, known as the California Healthy Workplaces, Healthy Families Act of 2014 (the Act). The Amendment is effective immediately. It adds significant new compliance options for employers, in addition to clarifying various ambiguities in the original Act. Below, we highlight the Amendment’s most important changes for employers.

Additional Accrual Options

The Amendment adds a third sick-leave accrual option for all employers: employers may accrue an employee’s sick-leave entitlement on a regular basis as long as it results in the employee earning at least 24 hours of sick leave by his or her 120th day of employment (or other 12-month accrual period).

  • Before the Amendment, employers were only permitted to accrue employee sick leave either (1) at an hourly rate (one hour for every 30 hours worked), or (2) granting a full 24 hours all at once at the start of the 12-month accrual period (i.e., frontloading)

Although the two pre-Amendment accrual options are still available to employers, the new, third option obviates employers’ need to tie sick-leave accrual to hours worked; sick leave can instead be tied to pay periods or other easy-to-measure benchmarks. The new accrual option will be particularly helpful for employers that wish to combine sick-leave policies with new Paid Time Off (PTO) policies, as most employers do not have PTO accrue on an hourly basis. For employers that had PTO policies in effect before January 1, 2015, the Amendment also allows for a fourth accrual option: such employers may continue existing PTO accrual methods as long as: (1) the accrual occurs on a regular basis; (2) the accrual results in each employee earning no less than one day (or eight hours) of sick leave or PTO within each three-month period of employment; and (3) employees are eligible to earn at least three days (or 24 hours) of sick leave or PTO within each nine-month period of employment. Note, however, that if an employer changes its accrual method under a pre-existing PTO policy (other than changes that merely increase the employee’s accrual amount or rate), it must then use one of the other accrual options going forward.

Flexibility in Calculating Sick-Leave Pay Rate

The Amendment also offers employers more flexibility in calculating the hourly rates to be paid employees for the time they take as paid sick leave under the Act.

For non-exempt employees, the Amendment permits an employer to calculate an employee’s sick-leave pay rate for each workweek in which sick leave is taken in the same manner that the employer would calculate the employee’s regular hourly pay rate (e.g., for purposes of calculating the employee’s overtime pay rate). This calculation method may be used regardless of whether the employee actually works any overtime hours in the workweek at issue.

  • Before the Amendment, the Act required that a non-exempt employee’s sick-leave pay rate be calculated by dividing (1) the total wages (not including overtime premium pay) paid to the employee during the 90 days preceding the week involving sick leave, by (2) the total number of hours the employee worked during those 90 days. This method was unwieldy as it could result in commissioned employees having two different regular rates, one for overtime purposes and one for sick-leave purposes.

For exempt employees, the Amendment provides that an employer calculate sick-leave pay rates the same way it calculates wages for other forms of paid leave.

“Unlimited” Policies

The Amendment provides that if an employer has an unlimited PTO or sick-leave plan, the employer may state “unlimited” on each employee’s wage statement instead of specifying the amount of each employee’s accrued sick leave on each such statement. The Amendment is particularly significant in this regard, because it represents the first time a California governmental entity has expressly condoned employers’ maintaining unlimited sick-leave policies. Before, the California Division of Labor Standards Enforcement had effectively prohibited such unlimited policies by requiring that employers track each employee’s incremental sick-leave accrual on the wage statement for each pay period.

Clarification of Ambiguous Act Provisions

Finally, the Amendment offers clarification on several provisions that were ambiguously worded in the original Act.

  • The Amendment specifies that to be eligible for paid sick leave under the Act, an employee must have worked in California for 30 or more days “for the same employer.” (Before the Amendment, the Act was unclear as to whether an employee’s work for multiple California employers could be used to meet the 30-day eligibility requirement.)
  • The Amendment makes clear that although the Act generally requires that employers reinstate any unused, accrued sick-leave time for employees who separate from the employer but are then rehired within a year, such reinstatement is not required if the employer opted to pay the employee for such accrued sick or PTO time upon the original separation. (The Act does not require employers to make such a payout.)
  • The Amendment clarifies that employers only must keep a record that sick leave or PTO was taken on a particular day; the employer is not required to specify the underlying purpose for the sick leave or PTO. (As discussed in our prior post, employers also should not ask employees about the purpose or reason for their taking sick leave, nor require that employees provide documentation for sick leave, absent specific circumstances.)

In addition to the above, employers should be on the lookout for further administrative guidance on the Amendment, as well as the various compliance traps that still exist under the Act (see our prior blog post). We recommend that employers pay particular attention to local sick-leave ordinances that impose even more requirements than those in the statewide Act, as they are popping up in cities across California (such as those currently effective in San Francisco, Oakland, and Emeryville). California employers need to be constantly vigilant to ensure that their sick leave and related PTO policies are fully compliant with all applicable laws and ordinances in this rapidly changing legal landscape.