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San Francisco: Incubator for Bad Employment Laws

December 13, 2011

Driving across the San Francisco Bay Bridge still provides one of the most beautiful views of any City I have seen in the United States. However, once off the bridge, you witness business owners besieged by a Frankenstein type laboratory of unfriendly employment laws. There is little doubt in my mind that, but for the view from the bridge, San Francisco would be Barstow, with nary a business in sight due to anti-employer laws. While these awful employment laws are good news for surrounding employer friendly counties, such as San Mateo, Santa Clara, Marin, and Contra Costa, we must remain vigilant to ensure these toxins do not get dumped in the Bay to spread like the plaque they are.

Two Toxins to Contain:

San Francisco’s “Living” Wage

When people talk about a “Living” wage, people naturally react with positive feelings envisioning their fellow citizens needing to be able to earn enough money at their jobs to survive. However, they fail to realize the insidiousness of this repackaging and rebranding of the “minimum” wage. In 2003, 60% of voters passed Proposition L, which required SF to increase the city’s minimum wage every year to reflect inflation. We are now realizing the effects of this bad idea.

As a result of Proposition L, SF’s hourly minimum wage will rise from $9.92 to $10.24 as of January 1, 2012. This is, the first time the minimum wage in any U.S. city has ever exceeded $10 per hour. Employers with employees in San Francisco will need to make sure that they make appropriate adjustments to their payroll systems and practices to account for the increase. This will also likely lead to further increases in the costs of goods and services within the City’s limits.

In the end, this incubation of the “Living” wage is demonstrating the problem with this idea. One of the fallacies of this type of “Living” wage tied to inflation is that it causes a vicious cycle. When wages are forced up, the costs of goods and services go up. The increase in costs show up as inflation. That inflation then forces wages up for the next year. The cycle then replicates itself year after year after year. Unless ended, the minimum wage will continue to march higher and higher. Businesses will then have to raise prices or lose money due to rising labor costs. At some point consumers will say they have had enough and get off this ride.

Changes to S.F.’s Health Care Mandate

San Francisco’s Health Care Security Ordinance requires many employers to spend a specified minimum amount toward certain health care expenses for their employees working in the City and County of San Francisco.

Employers and their group health plans will have additional compliance requirements under key changes to the Ordinance. These changes take effect on January 1, 2012. Employers, particularly those using a health savings account (HSA) plan or a health reimbursement account plan (HRA), must prepare for these new compliance requirements.

The main changes for 2012 are as follows:

  • Employers using an HRA to comply with the Ordinance must file a report with the San Francisco Office of Labor Standards Enforcement (OLSE) the terms of the HRA. The report must include the expenses eligible for reimbursement.
  • Employers must post a notice at their business, informing employees of their rights and the employer’s obligations under the Ordinance. The notice must be available in English, Spanish, and Chinese. In addition, if 5% or more or more of the employees at the business speak another language, the notice must also be made available in that specific language. The OLSE made the notice available on December 1, 2011.
  • Commonly, San Francisco employers have charged their customers a “health care surcharge” to manage this increased cost. Employers that use a surcharge on customers to cover any part of the health care expenditures under the Ordinance must also file an annual report with the OLSE. In addition, if the amount an employer collects from the surcharge exceeds the amount actually spent on health care due to decreased costs or good financial management by the employer, that money cannot be considered additional profit for the employer. This is so, even if all the health care requirements under the Ordinance for the employees’ benefit are met. The Ordinance provides that any surplus must be paid out to the covered employees.
  • A contribution (i.e., employer funded payment) to an HSA or HRA that is not paid irrevocably to a third party will not qualify as a health care expenditure under the Ordinance, unless certain requirements are met:

· the contribution remains available to the employee for reimbursement for at least two years after the employer funds the contribution;

· any unused balance from the 2011 account carries over to the 2012 account;

· the contribution is reasonably calculated to benefit the employee;

· the employee receives a notice within 15 days after the contribution is made providing them with: (i) the date and amount of the contribution; (ii) the name, address and telephone of any third party to whom the contribution was made; (iii) the current balance in the account; (iv) any changes to the account balance since the last account summary was provided; and (v) the applicable expiration dates of the funds in the account.

  • Finally, if an employee voluntarily or involuntarily terminates employment and has an unused balance in his or her account: (i) any balance available for reimbursement must remain available for at least 90 days after termination, and (ii) within three days after termination, the employer must notify the employee of the current account balance and the applicable expiration dates of the funds in the account.

San Francisco’s Health Care Security Ordinance is an unmitigated disaster for Employers, and by extension consumers. It uses union type healthcare contributions as a platform to create another cost of doing business for small and medium size businesses. These costs cut into profitability or get passed onto consumers, creating a vicious cycle.

Conclusion

Businesses in San Francisco must behave of these laws, while businesses in nearby Cities must beware. Contrary to what the City Council and Board of Supervisors may think, no one is just going to open up a business so they have someplace to go each day. There must be some profit to encourage individuals to take on the risks associated with being an Employer. Employers are the lifeblood of any city. They create opportunities for people to live, work, and thrive within beautiful and vibrant environments. However, continuing to place increased burdens on a City’s employers can drain this lifeblood and the community’s vitality. While San Francisco is not going to shut down their laboratory anytime soon, employers throughout California should take note of the drastic effects of these types of “feel good” ordinances.