Amendments Shed Light on New Sick Leave Law

By Lisa Lawson and Scott Lawson

July 23, 2015

On July 13, 2015, California Governor Jerry Brown signed into law emergency legislation amending the Healthy Workplaces, Healthy Families Act (commonly referred to as the California Sick Leave Law). The new legislation clarifies several muddled provisions that left employers scratching their heads over how to implement the new Sick Leave Law, which requires them to provide employees with a minimum of three paid sick days per year effective July 1, 2015.

The following are some of the highlights of the amendments.

Narrows Definition of Covered Employees

The California Sick Leave Law applies to any employer with at least one employee in California. The statute covers any employee who has worked in California for 30 days. The original statute did not specify whether that thirty-day count begins anew when an employee changes employers or is met once a given employee simply works a total of 30 days in California—regardless of the number of employers. The amendments clarify that, in order to be entitled to the protections of the statute, an employee must work for the same employer for 30 days. Thus, employees must re-qualify for sick leave each time they change employers. Employers should take note that although an employee is not eligible for sick leave until he or she has worked for an employer for 30 days, sick leave begins to accrue on the employee’s first day of work.

Adds New Accrual Methods

The Sick Leave Law provides that employees accrue sick leave at the rate of one hour of sick leave for every 30 hours worked. This “one-for-thirty” accrual rate is the statutory default and, under the default accrual method, accrued sick leave must be carried over from year to year (although employers may cap an employee’s accrual at 48 hours). The original statute gave employers two alternative means of complying the law: (1) employers could follow a PTO policy that was at least as generous as the Sick Leave Law in terms of accrual, carry over, and permitted use requirements; or (2) employers could provide employees with three days or 24 hours of sick leave up front for each calendar year, year of employment, or other 12-month period. Employers choosing the “lump sum” method did not have to carry over sick leave into the following year. Under the amendments, both of these alternatives remain valid.

In addition to the “compliant PTO policy” and lump-sum alternatives, the amendments set forth two new alternative accrual methods that employers may use and still be compliant. First, employers may eschew the technical one-for-thirty accrual rate in favor of any accrual method they choose, so long as the accrual is on a regular basis and employees earn at least 24 hours of sick leave or paid time off by the 120th calendar day of employment or within each calendar year or 12-month period. This change in the law is good news for employers whose existing PTO or sick leave policies provide for the accrual of PTO or sick leave on a per-pay-period basis. Such policies are now clearly lawful, provided the amount of PTO or sick leave given to employees meets the minimum requirements of the statute.

Second, the amendments add a new lump-sum alternative that applies specifically to new employees. Under the statute, as amended, employers may comply with the law by providing new employees with “not 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.” The language of this new section is ambiguous and is difficult to harmonize with another section of the statute that entitles employees to use sick leave “beginning on the 90th day of employment.” Employers planning to rely on this section should consult legal counsel before doing so.

Grandfathers Some Pre-Existing PTO Policies

In addition to the new accrual methods, the amendments also provide for grandfathering of certain accrual methods used by employers prior to January 1, 2015, so long as those accrual methods meet certain minimum requirements. To qualify, the pre-existing policy must provide for accrual of sick leave or paid time off on a regular basis so that an employee is given no less than (1) one day or eight hours of accrued sick leave or paid time off within three months of employment, a calendar year, or each 12-month period, and (2) three days or 24 hours of sick leave within nine months of employment. This change in the law is cold comfort to employers who already rewrote their policies in an effort to become compliant before the law’s effective date of July 1, 2015.

Amends Method for Calculating Rate of Pay for Sick Leave

One of the most important changes in the law for employers with commissioned employees (and other employees whose rate of pay fluctuates) is the amendment to the method by which employers must calculate the rate of pay for sick leave. The original law required that, for employees who are paid on a commission or piece-rate basis, or who have different hourly rates, employers calculate their sick leave rate of pay by dividing the employee’s total wages (not including overtime pay) by the total number of hours worked by the employee during the full pay periods in the preceding 90 days of employment. This formula was at odds with the formula for calculating such employees’ regular rate of pay under state and federal wage and hour laws. The amendments now allow employers to calculate the sick-pay rate using the same formula they use to calculate the regular rate of pay. This change is a welcome revision for employers whose payroll software has already been programed to calculate employees’ regular rates of pay for purposes of overtime pay calculations. The new law still gives employers the option of using the original 90-day look-back formula if they so choose. For exempt employees, the amendments clarify that paid sick time is calculated using the same formula the employer uses to calculate other forms of paid leave (such as paid time off or vacation pay).

Clarifies Record Keeping and Pay Stubs Rules

The original statute required employers to keep records of the amount of sick leave accrued and taken by employees. It also mandated that, each pay period, employers provide written notice to employees of the amount of their accrued sick leave, either through paystubs or other written notice. These record-keeping requirements posed problems for employers who have “unlimited” PTO policies or who do not track the reasons for an employee’s absence. The amendments clarify that employers who have such policies do not need to inquire into or record the purpose for which an employee uses paid sick leave or paid time off. In addition, pay stubs will be deemed compliant if they list the amount of PTO accrued, and, for employers with unlimited PTO policies, employers may simply indicate that the amount of the employee’s accrued sick leave is “unlimited.”

Reinstatement of Cashed Out PTO Is Not Required

Under the original law and its amendments, employers do not have to pay out accrued sick leave upon an employee’s termination but do have to reinstate accrued sick leave to any employee who is rehired within a year of termination. The original law and its amendments also make clear that employers need not adopt a new sick leave program (or provide additional sick leave) if their PTO programs allow employees to use leave for the same purposes set forth in the Sick Leave Law and provide for accrual rates and use on the same or more generous terms as those provided by the statute. One question left unanswered by the original law, however, was what would happen when an employer used its PTO program to comply with the sick leave law and paid out—as it would be required to do—the employee’s PTO upon the employee’s termination. Would the employer then be obligated to reinstate, upon rehire, the employee’s accrued PTO that it previously paid out? The amendments make clear that no such reinstatement of paid-out PTO is required by the law.

Questions Remain Unanswered

Although the amendments resolve some of the more problematic provisions of the original law, not all of the kinks in the law have been worked out.  One question that remains unanswered by the statute is exactly how much sick time employers must pay to employees who regularly work part-time hours or work more than eight hours per day. The statute says that the requirement is met if the policy “provides no less than 24 hours or three days of paid sick leave.” However, for the 4-hour-per-day worker, 24 hours is the equivalent of six days per year—not three. For an employee on an alternative work schedule who works 10-hour days, three days would equal 30 hours.

While it would seem logical to presume that the Legislature intended for a worker to receive the equivalent of three days’ leave based on his or her own specific schedule, the DLSE has taken a different approach. The DLSE has published on its website answers to “Frequently Asked Questions” about the sick leave law. According to the DLSE, the part-time worker is entitled 24 hours of sick leave regardless how many days of work that equals, and the alternative workweek employee is entitled to three full days of sick leave, even if that amount exceeds 24 hours. Until the Legislature or the courts interpret the law in a contrary fashion, employers should consult legal counsel before deviating from the DLSE’s interpretation.