Governor Gavin Newsom signed S.B. 525 into law adding new minimum wage requirements to Sections 1182.14 and 1182.15 of the California Labor Code. These new sections establish five comprehensive minimum wage schedules for “covered health care employees”, which includes contracted and subcontracted employees. Effective June 1, 2024, “covered health care facilities” will be required to implement the applicable minimum wage schedule, depending on the nature of the employer, as set forth by the law. In general, the law preempts any local ordinances setting wages for healthcare workers. To determine the law’s applicability, health care providers across California must consider (1) whether they meet the definition of a “covered health care facility” and, if so, (2) who within their workforce meets the definition of a “covered health care employee”.

Covered Health Care Facilities

The law applies to virtually all healthcare facilities in California. “Covered health care facilities” is defined under Section 1182.14(b)(3)(A) as including, but not limited to, the following:

• Facilities or work sites that are part of an integrated health care delivery system;
• Licensed hospitals (general acute care and/or psychiatric), including a distinct part of any such hospitals;
• Special hospitals (providing inpatient and outpatient dentistry and maternity care);
• Licensed skilled nursing facilities if owned, operated, or controlled by a hospital or integrated health care delivery system or health care system;
• A patient’s home when health care services are delivered by an entity owned or operated by a hospital (acute or psychiatric)
• Licensed home health agencies;
• Clinics, including rehabilitation clinics, specialty care clinics, dialysis clinics, and psychological clinics;
• Licensed residential care facilities for the elderly if affiliated with an acute provider or owned, operated, or controlled by a hospital (general acute care or psychiatric) or parent entity of hospital (general acute care or psychiatric);
• Psychiatric health facilities;
• Mental health rehabilitation centers;
• Licensed community clinics, except an intermittent clinic exempt from licensure or clinic operating by the state or any of its political subdivisions;
• Rural health clinics;
• Urgent care clinics;
• Ambulatory surgical centers;
• Physician groups;
• Mental health rehabilitation centers;
• Outpatient clinics of hospitals;
• Ambulatory Surgical Centers (ASCs);
• Physician groups that include 25 or more physicians;
• County correctional facilities that provide health care services;
• County mental health facilities.

Certain health care facilities are expressly exempted by the law. Under Section 1182.14(b)(3)(B), a “covered health care facility” does not include a hospital owned, controlled, or operated by the State Department of State Hospitals and tribal clinics exempt from licensures or an outpatient setting conducted, maintained, or operated by a federally recognized Indian tribe, tribal organization, or urban Indian organization. Small physician practices with less than 25 physicians are also exempt.

Covered Health Care Employees

The law applies to a wide breadth of health care employees, including employees of a “health care facility employer,” regardless of formal job title, who provide patient care, health care services, or services supporting provision of health care which includes, but is not limited to, nurses, physicians, caregivers, medical residents, interns, fellows, patient care technicians, janitors, housekeeping staff, groundskeepers, guards, clerical workers, non-managerial administrative workers, food services workers, gift shop workers, technical and ancillary services workers, medical coding and billing personnel, schedulers, call center workers, warehouse workers, and laundry workers.

“Covered health care employee” is defined to include a contracted or subcontracted employee if all of the following apply: (1) the employee’s employer contracts with the health care facility employer, or with a contractor or subcontractor to the health care facility employer, to provide health care services, or services supporting the provision of health care; and (2) the health care facility employer directly (or indirectly through an agent) exercises control over the employee’s wages, hours or working conditions. This definition casts a wide net and likely includes the employees of many practice management companies and administrative services entities that provide or make available support staff to heath care providers that meet the definition of a “covered health care facility.”

The law expressly applies to all employees performing contracted or subcontracted work primarily on the premises of a health care facility to provide health care services or services supporting the provision of health care. The language regarding contractors or subcontractors’ employees that work primarily on premises of a healthcare facility was added late in the legislation’s cycle and adds ambiguity and confusion under what conditions a contractor or subcontractor triggers coverage under the law. 

Certain employees are expressly exempted under Section 1182.14(b)(2)(C), including outside salespersons, public sector workers whose primary duties are not health care services, delivery or waste collection workers (provided the worker is not an employee of any person that owns, controls, or operates a covered health care facility), and medical transportation service workers (provided the worker is not an employee of any person that owns, controls, or operates a covered health care facility). 

Minimum Wage Requirements Effective June 1, 2024

The law establishes the following minimum wage schedules for covered health care employees:

Employer	Phase 1	Phase 2	Phase 3
(1) covered health care facilities with 10,000 or more full time employees or (2) covered health care facilities part of an integrated health care delivery system or health care system with 10,000 or more full-time employees; (3) covered health care facility employer that is a dialysis clinic under (b) of Section 1204 of the Health and Safety Code, or a person that owns, controls, or operates a dialysis clinic; or (4) covered health facility that is owned, affiliated, or operated by a county with a population greater that five million as of January 1, 2023:	Effective June 1, 2024: $23 per hour	Effective June 1, 2025: $24 per hour	Effective June 1, 2026: $25 per hour
(1) any hospital with a high governmental payor mix; (2) an independent hospital with an elevated governmental payor mix; (3) a rural independent covered health care facility; or (4) a covered health care facility that is owned, affiliated, or operated by a county with a population less than 250,000 as of January 1, 2023:	Effective June 1, 2024 to May 31, 2033: $18 per hour, with 3.5% increases annually.	Effective June 1, 2033 (and until adjusted): $25 per hour	(intentionally blank)
(1) clinics defined in Section 1206(h) of the Health and Safety Code not operated or affiliated with a clinic defined in Section 1206(b) of the Health and Safety Code; or (2) a community clinic licensed under Section 1204(a) of the Health and Safety Code and any associated intermittent clinic exempt form licensure; or (3) a rural health clinic that is not license-exempt; or (4) urgent care clinics owned and affiliated with such community clinic or rural health clinic:	Effective June 1, 2024 to May 21, 2026: $21 per hour	Effective June 1, 2026 to May 31, 2027: $22 per hour	Effective June 1, 2027 (and until adjusted): $25 per hour
All other health care facility employers not discussed above:	Effective June 1, 2024: $21 per hour	Effective June 1, 2026: $23 per hour	Effective June 1, 2028 (and until adjusted): $25 per hour

The above schedules do not apply to health care facilities that are county owned, affiliated, or operated until January 1, 2025.

For exempt covered health care employees paid on a salary basis, a covered employee’s monthly salary equivalent shall be no less than 150 percent of the applicable healthcare worker minimum wage or 200 percent of the minimum wage under the Labor Code section 1182.12, whichever is greater for full-time employment in order to qualify as exempt from payment of minimum wage and overtime requirements under state law. 

Waiver Program

The law establishes a waiver process for pausing or altering the scheduled increases for health care facility’s that can show that the rate would raise doubt about its ability to continue as a going concern. By March 1, 2024, the law requires the Department of Industrial Relations, in collaboration with the State Department of Health Care Services and the Department of Health Care Access and Information, to develop a waiver program that would allow a covered health care facility to apply for and receive a temporary pause or alternative phase in schedule of the minimum wage requirements. In order to obtain a waiver, the covered health care facility shall submit evidence including documentation regarding the facility’s financial condition, as well as the condition of any parent or affiliated entity, and evidence of actual or potential direct financial impact of compliance with the minimum wage requirements. 

Enforcement

The law creates a private right of action for any covered employees to enforce the above minimum wage requirements for health care employees through a civil action by the same means with same available relief for violations of any other state minimum wage requirement. Moreover, a covered employee may enforce the law through filing an administrative wage claim and the Labor Commissioner is authorized by the law to enforce the minimum wage requirements for health care employees.

Conclusion

In light of the new minimum wage requirements, California health care employers and contractors and subcontractors with health care employees should evaluate the healthcare facility category which may apply to determine the relevant minimum wage schedule, review their employees’ payroll records to ensure compliance, and implement a compliance plan to the extent changes are needed prior to effective date of June 1, 2024.