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California Enacts Clean-Up Amendments to the New Paid Sick Leave Law

By Michele Haydel Gehrke and Anne Cherry Barnett

After protracted negotiations, the California State Legislature passed AB 304 as urgent legislation to amend California’s mandatory paid sick leave law, also known as Healthy Workers, Healthy Families Act of 2014 or AB 1522 (the “Act”).  The bill was signed into law by Governor Jerry Brown  on July 13, 2015, making the amendments effective immediately.   A copy of AB 304 can be found here.

Effective July 1, 2015, the Act required nearly all employers to provide paid sick leave for an employee who works in California for 30 days or more per year, regardless of the size of the employer or the type of employee; see previous coverage on specifics of the Act here.  However, the Act as initially written caused significant confusion and contained many ambiguities, making the day-to-day application for some employers difficult.  Accordingly, the California Legislature moved swiftly to put into effect “clean-up” amendments aimed at clarifying the uncertainties of the Act.  The key areas of clarification for employers in the amendments include: rate of pay calculation, alternative accrual methods, recordkeeping requirements, and clarification on the definition of eligible employees and requirements for rehired employees. 

Rate of Pay Calculation of Paid Sick Leave

The amendments now clarify the proper methods for employers to calculate the rate of pay for nonexempt employees utilizing paid sick leave, permitting any of the following calculations:

1. in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek; or

2. 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.

For exempt employees, employers should calculate paid sick leave in the same manner as the employer calculates wages for other forms of paid leave time. 

Alternative Accrual Methods Now Expressly Authorized

Under the original Act, employers could provide paid sick time using an accrual based on hours worked (1 hour for every 30 hours worked) or provide a lump sum of 3 days or 24 hours at the beginning of the year.  These two options remain available for compliance.  However, now additional accrual methods are authorized, provided that the employee accrues sick time on a regular basis and the employee will have a minimum of 24 hours of accrued sick leave available by the 120th calendar day of his/her employment of each calendar year, or in each 12-month period. 

Grandfather Clause for Pre-January 1, 2015 Accrual Policies

The Legislature clarified protections for employers that prior to January 1, 2015 already had policies providing for paid sick leave or paid time off (“PTO”) that utilized a different accrual method than providing one hour per 30 hours worked.  Specifically, while employers will also still need to comply with other provisions of the Act, if their pre-January 1, 2015 policies met the following criteria they will be “grandfathered” in:

1. accrual method providing on a regular basis at least one day or eight hours of accrued sick leave or paid time off within three months of employment of each calendar year, or each 12 month period, and

2. the employee was eligible to earn at least three days or 24 hours of sick leave or PTO within nine months of employment. 

It is important to note that if the employer modifies the accrual method used in its “grandfathered” policy, the employer will then have to comply with the alternative accrual methods discussed above.  Employers are also permitted to increase the accrual amount or rate for a class of employees. 

Recordkeeping Requirements

Employers are required to keep records of hours worked and sick time used/accrued for three years.  However, the AB 304 amendments clarify that an employer is not obligated to inquire into or record the purposes for which an employee uses paid sick leave or PTO.  This is an important clarification for employers who use PTO policies to satisfy the Act’s requirements. 

Wage Statements for Unlimited Paid Sick Leave/PTO

Employers are required under the Act to provide written notice to employees of the amount of paid sick leave available, or PTO an employer provides in lieu of sick leave, on the employee’s itemized wage statement.  The clean-up legislation now clarifies that if an employer provides unlimited paid sick leave or unlimited PTO to an employee, the employer may now satisfy this requirement by indicating on the notice or the employee’s itemized wage statement “unlimited.” 

Employees Must Work 30 Days in California for the Same Employer To Qualify

It is now clear from the clean-up amendments that an employee must work for the same employer for 30 days or more in California within one year to qualify for the paid sick leave under the Act.  Prior to the amendments, it was not clear if the 30 days of employment applied if an employee worked for different employers in the state.

Reinstatement of Paid Sick Leave Balance Upon Rehire

AB 304 clarifies that an employee that separates from an employer and is rehired by that same employer within a year of separation shall be entitled to use the previously accrued and unused paid sick days as long as the employee was not paid out at the time of separation.  This is significant because if an employer used a PTO policy to comply with the Act, the accrued and unused PTO is treated as wages under California law and must be paid out at the time of separation (In contrast, accrued and unused paid sick leave does not need to be paid out at separation).  This begged the question whether the accrued and unused PTO balance had to be reinstated if an employee was re-hired within one year of separation since the employer had paid it out.  These clean-up amendments clarify that the answer is no. 

The re-hired former employee will also be entitled to use those previously accrued and unused paid sick leave days and to accrue additional paid sick days upon rehiring subject to the use and accrual limitations. 

Retired Annuitant Employee of a Public Entity Excluded

The amendments clarify the definition of “employee” to now exclude a retired annuitant of a public entity.  Accordingly, an employee of the state, city, county, district or any other public entity who is a recipient of a retirement allowance and employed without reinstatement into his or her respective retirement system does not qualify for mandatory sick leave under the Act. 

Summary

While the “clean-up” amendments provide further guidance to employers on the practical application of the Act, they do not answer all of the outstanding questions in applying the Act or calm the significant confusion that exists from the ambiguities that remain in the Act.  Employers should continue to monitor PolsinelliAtWork.com and the DLSE website for updates, and to consult with an experienced labor and employment attorney for further guidance in complying with the law.   A detailed review of employer policies and employee handbooks is recommended to ensure compliance with the Act. 

For more information or to initiate a review of your own employment policies and procedures, please contact the authors or your Polsinelli attorney.