1. Q: Which employers are “Covered Employers”?
A: An employer is covered by the HCSO for any calendar quarter if it meets the following three conditions:
- employs one or more workers within the geographic boundaries of the City and County of San Francisco;
- is required to obtain a valid San Francisco business registration certificate pursuant to Article 12 of the Business and Tax Regulations Code, and
- is a for-profit business with 20 or more persons performing work or a nonprofit organization with 50 or more persons performing work. This includes all persons working for the entity, regardless of whether they are located in San Francisco or outside of the city.
2. Q: Who should be counted in determining employer size?
A: All persons performing work for compensation for the employer should be counted (not just Covered Employees). This includes:
- persons who work in San Francisco and those who work outside of San Francisco.
- all employees, regardless of their status or classification as seasonal, permanent or temporary, full-time or part-time, contracted (whether employed directly by the employer or through a temporary staffing agency, leasing company, professional employer organization, or other entity) or commissioned.
- owners who perform work for compensation.
3. Q: Are owners covered by the HCSO for the purpose of determining employer size?
A: Owners who perform work for compensation for the business are considered “persons performing work” and must be counted as such in determining whether the business is a Covered Employer.
4. Q: Does it matter if the employer is based or headquartered outside of San Francisco?
A: No, the employer is covered by the HCSO – regardless of its location – if it meets the criteria as a Covered Employer.
5. Q: What if the number of persons performing work changes from week to week?
A: For businesses employing a fluctuating number of persons performing work during a quarter (13 weeks), employer size is based on the weekly average number of persons performing work for compensation during that quarter.
Thus, a business that employs 5 persons during the first 6 weeks of the quarter and 20 persons during the last 7 weeks of the quarter would not be covered because it has employed an average of only 13 persons per week during that quarter:
[(5 persons/week x 6 weeks) + (20 persons/week x 7 weeks)]/13 weeks = 13 persons/week.
6. Q: If an employer operates one business with three separate stores or locations in San Francisco, each with seven employees, is it a Covered Employer?
A: Yes. For the purpose of calculating employer size, employees performing work in different locations operated by the same employer are employees of that employer. The seven employees at each of the three stores total 21 persons performing work for this employer; thus, it is covered under the HCSO.
7. Q: What if an employer owns and operates three unrelated businesses, such as a video store, a laundromat, and a pizzeria, each with seven employees?
A: Whether the businesses are covered by the HCSO depends on how those businesses are organized. Businesses that are a "controlled group of corporations" for purposes of income tax filing are considered one employer under the HCSO, and all employees of each entity would be counted to determine the size of the employer. If the three businesses are incorporated and not members of a "controlled group of corporations" for purposes of income tax filing, then each is considered a separate business, and the employees of each separate entity will be counted to determine the size of each employer.
Employees of businesses that are not incorporated are counted as working for one employer if the businesses are under common control. For purposes of the HCSO, “under common control” means either (a) one person (individual, estate, or trust) has at least an 80 percent ownership interest in each of the businesses, or (b) the same two to five persons hold more than a 50 percent ownership interest in each of the businesses.
The same analysis applies if one or more of the businesses is incorporated, but others are not. Note that while some corporations may be excluded from the "controlled group of corporations" analysis for income tax purposes, they are not excluded from the definition of "employer" under Section 14.1(b)(4) of the HCSO.
8. Q: Are public sector employers covered by the HCSO?
A: The HCSO does not cover public sector employers, such as the City and County of San Francisco, the San Francisco Unified School District, or the state or federal government because public sector employers are not required to register with the San Francisco Office of Treasurer & Tax Collector to do business in the City.
9. Q: Are employers who contract with the City, including those with existing contracts, covered by the HCSO?
A: Yes, City contractors are subject to the HCSO and must comply with its requirements if they meet the definition of a Covered Employer.
Note that the HCSO exempts employees who are covered by the Health Care Accountability Ordinance (HCAO); thus, City contractors who are also subject to the HCAO need not make HCSO expenditures for those employees who receive health care benefits under the HCAO (typically those working 20 or more hours per week).
However, this exemption does not change the City contractor’s HCSO obligations with respect to any employees who are not covered by the HCAO. For more information regarding the HCAO, please firstname.lastname@example.org, call (415) 554-4791, or visit the OLSE’s HCAO web page.
10. Q: Are employers who contract with other public agencies covered by the HCSO?
A: Generally, non-City public sector contractors, such as those that contract with the Federal government or the State of California, are covered by the HCSO unless they are “instrumentalities” of the public sector agency, that is, doing work that is a core function of the agency. Whether contractors are "instrumentalities" of a governmental agency is a fact-specific inquiry. If some, but not all, of a company’s employees are instrumentalities of a public sector agency, the employer is still a Covered Employer, and employees who do not function as instrumentalities of the state may be Covered Employees.
11. Q: Does the HCSO cover private businesses located on other public property, such as public property owned by the state or federal government, San Francisco State University, or the San Francisco Unified School District?
A: It depends. The HCSO does not cover private businesses located in “federal enclaves,” such as the Presidio, Fort Mason, and the entire Golden Gate National Recreation Area (GGNRA). However, private businesses located on other public property are generally covered if they are doing work unrelated to the leasing agency. A private café, florist, or gym that is located on state or federal property, for example, would be covered by the HCSO because its services are unrelated to the governmental mission of the leasing agency.
12. Q: Are temporary staffing agencies or professional employer organizations responsible for making Health Care Expenditures under the HCSO?
A: Both the client and the temporary staffing agency, professional employer, or similar entity may be considered a Covered Employer under the HCSO, and each Covered Employer shall have an obligation to ensure that the Employer Spending Requirement has been met.
In the context of a temporary staffing agency, professional employer, or other entity serving the same or similar function, the OLSE will determine whether the entity is an employer under the HCSO by reference to the factors outlined in California Unemployment Insurance Code § 606.5. (California statutes are available here.)
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