California Governor Signs Paid Sick Leave Amendment—Effective Immediately

California Governor Brown signed legislation on July 13, 2015 that aims to clarify and improve California’s new paid sick leave law that requires employers to offer employees 3 days or 24 hours of paid sick leave per year as of July 1, 2015. The amendments are effective immediately.

The legislation signed by the governor, Assembly Bill 304, contains several revisions to California’s paid sick leave law—known as the Healthy Workplaces, Healthy Families Act of 2014—that will likely assist employers to comply with the law. They include the following: 

Revised Accrual Basis

The original paid sick leave law required employers to provide sick pay at the rate of at least 1 hour for every 30 hours worked, or alternatively, provide an up front allocation of at least 24 hours. The accrual requirement created one of the biggest headaches for employers. Most employers do not accrue paid time off on a per-hour basis. Rather, employers typically accrue such benefits on a per day, pay month, or other similar basis. 

The amended law recognizes this reality. The law now provides that an employer may use a different accrual method, other than providing 1 hour per every 30 hours worked, provided that the accrual is on a regular basis so that employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment, each calendar year, or each 12-month period.

This change is significant because it means that employers can be relieved of the obligation to track actual hours worked in order to accrue sick pay, so long as the employee accrues 24 hours of leave within the first four months of the year.

Safe Harbor for Pre-Existing Plans

The amended law allows employers to keep certain sick leave and paid time off policies in place so long as they were in existence prior to January 1, 2015. An employer complies with the law if it continues to offer a pre-existing plan that provides paid time off accrual on a regular basis such that an employee has no less than 1 day or 8 hours of accrued sick leave or paid time off within 3 months of each year of employment, and is eligible to earn at least 3 days or 24 hours of paid time off within 9 months. If an employer changes its pre-existing accrual method, then it must comply with the accrual or front-load requirements of the law.

Clarification of the 30-Day Rule

California’s paid sick leave law applies to employees who have worked in California for 30 or more days. The amended law clarifies that the employee must have worked for the same employer for 30 or more days within 1 year from the date of hire to qualify for accrued sick leave.

Itemizing “Unlimited” Sick Leave

The paid sick leave law requires employers to provide the balance of available sick leave or paid time off (PTO) on the employee’s pay stub or other document distributed on pay day. Employers that provide unlimited PTO have been puzzling over how to comply with this requirement. The amended law clarifies that employees may indicate “unlimited” on wage statements.

Calculating Sick Pay Rates When Wage Rates Vary

The original law required employers to pay out sick pay at an employee’s average pay rate in the prior 90 days with regard to employees who are paid different hourly rates, are paid commissions, are paid piece rates, or are non-exempt employees earning a salary. The amended law substantially revises this requirement. Employers now have two options for calculating the sick pay rate for non-exempt employees:

1. The Workweek Method. Employers may adopt the weekly regular rate of pay formula used for calculating overtime compensation. Essentially, employers calculate the average rate of pay by taking total compensation earned during the workweek and dividing by the total hours worked during the workweek. (Note: there are a number of technical issues relating to calculating the regular rate, which are beyond the scope of this article.)
2. The 90-Day Method. Employers may calculate the non-exempt employee rate by dividing the employee’s total wages (excluding overtime premiums) by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

The amended law also provides a new rule for calculating the sick pay rate for exempt employees. Paid sick time for exempt employees is calculated in the same manner as the employer calculates wages for other forms of paid leave time. This amended provision gives employers flexibility in calculating sick pay rates for exempt employees and avoids technical problems associated with calculating rates for exempt outside salespersons.

Reinstatement of Accrued Sick Pay for Returning Employees

The law requires employers to reinstate accrued sick pay balances to employees who return to work within one year of discharge. Employers have been uncertain whether they are relieved of this obligation when the accrued PTO balance is cashed out at the time of discharge. The amended law clarifies that the employer need not reinstate accrued sick pay if it has already been cashed out.

Tracking Reasons for Taking a Sick Day

The law requires employers to keep records documenting the accrual and use of sick pay for three years. Does that mean that an employer that provides PTO must ask the employee whether a paid day off is due to sickness? The amended law clarifies that an employer does not have an obligation to make such an inquiry. The employer need only record the date and amount of PTO used.

Delay of Wage Statement Requirement for Entertainment Industry

The law requires employers to provide the available sick pay balance on each wage statement or other document provided on each pay date. The amended law delays this requirement for employers covered by Wage Order 11 (which covers the broadcasting industry) and Wage Order 12 (which covers the motion picture industry) until January 21, 2016.

Key Takeaways for California Employers

This new legislation brings necessary improvement to California’s paid sick leave law. The new legislation clarifies several of the ambiguous provisions in the original law and also provides more meaningful and practical options to employers, particularly with respect to allowing different accrual methods than the original 1 hour for every 30 hours worked and providing options as to how to calculate the rate of pay for sick leave that is taken. 

The new legislation does not go far enough, however, in clarifying several other significant requirements of the law, including whether the 30-day work requirement for eligibility applies to 30 actual work days or a 30-day period of calendar days. The language of the law strongly indicates that the requirement is referring to actual work days, which makes sense since employees in many industries work for several employers during a year, and these workers may not accrue 30 work days with one employer for several months. However, the California Labor Commissioner, without citing any legal or legislative basis for the interpretation, has informally suggested that the 30-day requirement should to be interpreted as calendar days. 

Employers face significant liability for non-compliance with California’s paid sick leave law. Prudent employers should take affirmative steps to ensure that their policies are consistent with the parts of the new law that are clear, as well as to implement reasonably prudent policies that are defensible against the inevitable legal challenges expected over the law’s remaining ambiguous requirements.