Employers should know by now that California’s Healthy Workplaces, Healthy Families Act (the “Act”) took effect on July 1, 2015. The Act requires employers to provide paid sick leave to California employees that meets certain requirements. Recently, the California legislature passed Assembly Bill 304 (“AB 304”), which amended the Act. The changes, summarized below, may affect employers who have been working to comply with the Act’s requirements.

Accrual Method

The Act requires employers to provide one hour of sick leave or paid time off (“PTO”) for every 30 hours worked. However, many employers’ existing paid leave plans accrue using a different method, such as per pay period or month.

Fortunately, AB 304 permits employees to use an alternate accrual method, provided that the accrual is on a “regular basis” and the employee accumulates no less than 24 hours of sick leave by the 120th calendar day of employment in each calendar year, or in each 12-month period.

Additionally, sick leave or PTO policies with alternate accrual methods that were in place before January 1, 2015, meet the law’s requirements if the provide: (1) no less than one day or eight hours of accrued sick leave or PTO within three months of employment of each calendar year, or in each 12-month period; and (2) at least three days or 24 hours of sick leave or PTO within nine months of employment. However, this “grandfather” provision does not apply if an employer has modified its pre-January 1, 2015, accrual method (for example, to comply with the Act’s requirements).

These changes sound confusing. But they provide greater flexibility for employers. At the same time, they raise new questions. For example, it is not clear whether, under the alternate accrual method, an employee must accrue at least 24 hours of leave by the shortest period of time provided in the law (generally, 120 days) or whether ensuring an employee accrues 24 hours within any of the listed time periods (e.g., a 12-month period) is sufficient.

“Frontloading” Method

AB 304 provides an alternate “frontloading” method. Under the original Act, an employer could provide three days or 24 hours of sick leave at the beginning of the year (although it could restrict new employees from taking the sick leave until their 90th day of employment). Under the new method, an employer can provide at least 24 hours or three days of sick leave to the employee to use by the 120th calendar day of employment.

Again, this amendment raises new ambiguities. It may be intended to allow employers to limit sick leave to short-term or temporary employees working fewer than 120 calendar days. However, the provision does not restrict application to those employees. Nor does it address whether, how, if, or when an employer who uses this method must frontload an additional three days of sick leave the following year.

AB 304 also appears to allow an employer to frontload sick leave to all employees on a fixed date (such as January 1), versus on each employee’s anniversary date—a point that was unclear under the Act. Now, an employer satisfies the law’s requirements by frontloading sick leave “each year of employment, calendar year, or 12-month period.” Thus, an employer can arguably frontload sick leave to all employees at the start of a designated 12-month period, as long as employees have a full year to use the frontloaded time.

Pay Rate

AB 304 provides important changes to the required pay rate. Exempt employees’ sick leave can be calculated at the rate the employer calculates wages for other forms of paid leave. However, nonexempt employees must be paid sick leave at either the “regular” rate of pay, or by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment. Therefore, paid sick leave may not always be paid at the employee’s “base” pay rate. Employers may have to take into account many forms of compensation such as nondiscretionary bonuses and commissions.

Recordkeeping Requirements

AB 304 makes some changes to employer recordkeeping requirements. First, it specifies that an employer is not obligated to inquire into or record the purposes for which an employee uses paid leave or PTO to meet sick leave recordkeeping obligations, a point which was unclear under the Act. Also, it clarifies that an employer who offers unlimited paid time off can satisfy its obligation to provide information about available sick leave on the wage statement (or other written document) by stating that sick leave is “unlimited.”

Other Changes

Several additional changes to AB 304 will affect certain employers. For example, government employers are not required to provide sick leave to “retired annuitants,” and employers under Wage Orders 11 and 12 do not have to provide itemized wage statements until January 21, 2016. Finally, sick leave provided to certain government employees is considered legally compliant.

Employer Compliance

Employers who have already modified their policies and practices to comply with the Act likely need not do anything as a result of AB 304, except ensure their payroll systems and policies are consistent with the law’s pay rate requirements. Other requirements of the law remain in effect, such as poster, recordkeeping, wage statement, use, and notice requirements.

However, employers with sick leave or PTO policies existing before January 1, 2015, or those who wish to change the accrual method of their policies as a result of AB 304, may need to develop new policies and craft strategies for implementing them.

At the same time, employers should check the Labor Commissioner’s website for additional interpretative guidance about AB 304 (www.dir.ca.gov). Because the Labor Commissioner has the authority to enforce the law, employers will benefit from understanding its position on any ambiguities.

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