How the New Paid Sick Leave Law is Impacting CA Small Business

If you have employees or plan to hire, you should be familiar with The Healthy Workplaces, Healthy Families Act of 2014 (AB 1522) that became law in January and went into effect July 1, 2015. This law, informally known as the Paid Sick Leave Law, has a disproportionate impact on small businesses. The law’s biggest impact will be on businesses with part-time and seasonal workers as it stipulates that any employee who works 30 or more days within a year is entitled to paid sick leave. To help small business owner’s know what is required of them, I’ve gone through the details of the law and highlighted the most important provisions and requirements.

The Paid Sick Leave Law stipulates; an employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the beginning of employment, is entitled to paid sick leave. Employees, including part-time and temporary employees, will earn at least one hour of paid leave for every 30 hours worked. Accrual begins on the first day of employment or July 1, 2015, whichever is later. There are 6 basic steps to compliance for employers.

1. Display a poster on paid sick leave where employees can read it easily. Document the policy and share with staff.
2. Provide written notice to individual employees at the time of hire with paid sick leave information.
3. Provide for accrual of one hour of sick leave for 30 hours of work for each eligible employee to use.
4. Allow eligible employees to use accrued paid sick leave upon request or notification.
5. Show how many hours of sick leave an employee has available. This must be on a pay stub or a document issued the same day as a paycheck.
6. Keep records showing how many hours have been earned and used for three years.

As employers started to comply with the new law, a number of grey areas and uncertainties were uncovered. As a result, AB 304 was developed and signed into law on July 15. AB 304 provides many clarifications to address specific employer situations and clear up areas that were vague in the original law. These are highlighted below.

• Exclusions: Public Agency Retired Annuitants are excluded from the definition of “employee”. This was unclear in the original law.
• Clarification: The Paid Sick Leave Law applies to an employee who works in California “For the Same Employer” for 30 or more days within a year.
• Accrual method alternatives: In addition to the standard 1 hour of paid sick leave for every 30 hours worked accrual method, AB 304 now adds two additional alternative accrual methods that are not necessarily tied to hours worked, but yet accrued on a regular basis (e.g., per week, per pay period, per month). Alternative accrual methods;
  • Must be 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.
  • Must not be less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of his or her 120th calendar day of employment.”

Note: there has been very little analysis on the use of these alternative accrual methods and caution should be used to ensure the requirements of the law are being met.

• Clarification: Providing the “Full Amount of Leave” under the Frontloading or Lump-Sum Method means employers must provide 3 days or 24 hours at the beginning of each year, calendar year, year of Employment, or 12-month basis.
• Modification: Requirements for existing paid sick leave and PTO policies to comply with the Paid Sick Leave Law were modified as follows. Existing policies meet requirements of the new law if;
  • The existing sick leave/PTO policy satisfy the accrual, carry over, and use requirements of the Paid Sick Leave Law
  • In cases where the accrual method is different than one hour per 30 hours worked the policy may be grandfathered in if;
    • It provides at least one day or eight hours of paid sick leave/PTO within three months of employment and the employee was eligible to earn at least three days or 24 hours of paid sick leave/PTO within nine months of employment.
    • Any changes to a grandfathered paid sick leave/PTO policy that lowers employee accruals will lose the grandfathered status and all other AB 1522 accrual requirements will then apply going forward

Note: The application of this new “grandfathered paid sick leave/PTO policy” clause will depend on the specific terms and conditions of any paid sick leave/PTO policies in effect prior to January 1, 2015. It is recommended that you work with legal counsel to review its applicability.

• Clarification: An employer who provides a more generous paid sick leave benefit to its employees is not necessarily required to reinstate all unused sick leave accruals upon rehire. Employers would only have to reinstate up to the accrual cap of 6 days or 48 hours of unused accrued paid sick leave for an employee who is rehired within 12 months of a separation of employment.
• Addition: An employer with an unlimited paid sick leave or PTO policy is allowed to simply indicate the leave balance as “unlimited” on an itemized wage statement or written notice provided to the employee each pay period.
• Clarification: How to calculate the rate of pay for paid sick leave provided to employees.
  • For nonexempt employees, Section 246(k) was amended to now provide two methods to choose from in calculating paid sick time:
    • Calculate in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time. (more appropriate for nonexempt employees who are paid a regular hourly wage)
    • Calculate by dividing the employee’s total wages, not including overtime pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. (more appropriate for nonexempt employees who have varying rates of pay, are paid on a salaried basis, or are paid on a piecemeal or commission basis)
  • For overtime exempt employees paid sick leave wages should be calculated in the same manner as wages for other forms of paid leave time.
• Clarification: Provides that an employer is not obligated to inquire into or record the purpose for which an employee uses paid sick leave or PTO.