San Francisco Health Care Security Ordinance (HCSO): Employer Compliance Guide
Table of Contents
- What Is the San Francisco Health Care Security Ordinance (HCSO)?
- Who Is Required to Comply with the San Francisco HCSO?
- HCSO Compliance Requirements for Employers
- Common HCSO Compliance Mistakes and How to Avoid Them
- What Are the Penalties for HCSO Non-Compliance?
- Frequently Asked Questions About the San Francisco HCSO
- Simplify HCSO Compliance with AEIS
Regardless of where your headquarters are located, the shift to remote and hybrid work has expanded many companies’ reach, often unintentionally. When an employee responds to emails from a kitchen table in their San Francisco home during a work-from-home day, your company may be operating in a new or different legal environment without even realizing it. Across the Bay Area, several cities enforce their own labor rules related to health care expenditures and paid sick leave. These rules apply based on where work is performed, not where the company is based. If someone on your payroll regularly works from a home office in San Francisco, your responsibilities change.
Under the San Francisco Health Care Security Ordinance (HCSO), for-profit employers with 20 or more workers worldwide (50 or more for nonprofits) must spend a set dollar amount on health care for each hour an employee works within city boundaries. This applies even to part-time employees who have worked for the employer at least 90 days and regularly work eight or more hours per week in San Francisco.
Understanding who is subject to the HCSO and what it requires is the first step toward staying aligned.
What Is the San Francisco Health Care Security Ordinance (HCSO)?
The San Francisco Health Care Security Ordinance (HCSO) is a city law that requires qualifying employers to make health care expenditures on behalf of employees working in San Francisco. Designed to improve access to medical care, the ordinance applies to for-profit businesses with 20 or more employees worldwide, and nonprofit organizations with 50 or more, when even one employee performs work inside the city for at least 8 hours per week.
This applies to any employee working within San Francisco city limits, whether on-site or from home. It’s the employee’s location that matters, not where the company is based. Employers must calculate expenditures based on hours worked, provide acceptable health care benefits or contributions, and maintain proper documentation. Failing to meet these standards can lead to back payments and financial penalties.
Who Is Required to Comply with HCSO?
Covered Employers
The HCSO applies to for-profit businesses with 20 or more employees worldwide and nonprofit organizations with 50 or more, when at least one employee works within San Francisco's geographic boundaries. Headcount includes all employees, wherever they work, not just those in the city.
Covered Employees
An employee is covered when they:
• Are entitled to be paid minimum wage
• Have been employed for at least 90 calendar days
• Regularly perform at least eight hours of work per week in San Francisco
• Don't meet one of the exemptions below
This includes remote, part-time, and temporary staff who meet the criteria. A quick way to spot exposure is to review your payroll for home addresses in San Francisco ZIP codes, which begin with 941.
Exempt Employees
Common exemptions include employees with a valid voluntary waiver on file and managerial, supervisory, or confidential employees earning above the city's annual threshold: $128,861 per year ($61.95 per hour) in 2026, rising to $131,763 ($63.35 per hour) in 2027. Properly classified independent contractors are not covered.
HCSO Compliance Requirements for Employers
Employers covered under the San Francisco Health Care Security Ordinance must follow several ongoing requirements to remain in compliance.
Ways to Meet the Employer Spending Requirement
Employers must make health care expenditures for each covered employee based on hours payable in San Francisco, at the rates shown above. These contributions can be made through insurance premiums, payments to the SF City Option, contributions to a reimbursement program (subject to limitations), or other approved methods.
City Option payments are due within 30 days after the end of each calendar quarter. Employers with self-funded plans that pay claims as incurred may calculate expenditures annually, but any shortfall must be made up with a "top-off" payment by the end of February of the following year.
Recordkeeping and the HCSO Annual Reporting Form
Businesses must track all health care expenditures and retain documentation for at least four years. Employers must also submit the HCSO Annual Reporting Form to the San Francisco Office of Labor Standards Enforcement (OLSE) by April 30 each year, covering the previous calendar year.
Notice and Posting Requirements
A current HCSO notice must be posted at each worksite where covered employees perform duties. For remote workers, digital distribution may be required.
HCSO Waivers
Employees may voluntarily waive employer health care contributions if they have other group coverage. Valid waivers must be renewed annually and kept on file.
Common HCSO Compliance Mistakes and How to Avoid Them
Some employers overlook how easily HCSO requirements can be triggered. It doesn’t take a full office in San Francisco; just one employee working a regular schedule from home is enough. If that work happens inside city limits, the rules apply. Too often, businesses focus on where they’re based instead of where the work is happening.
Another oversight is failing to track hours accurately, especially for employees with irregular schedules. Without precise records, calculating the required expenditures becomes difficult—and noncompliance more likely.
A frequently missed gap involves part-time employees. The HCSO covers employees who work as few as eight hours per week, but many group health plans only cover employees working 30 or more hours. Part-time employees who aren't eligible for your plan still require health care expenditures, typically through quarterly City Option payments.
Some employers also miss the annual reporting deadline or neglect to post required notices, both of which can lead to fines. Others rely on outdated contribution rates, unaware that the city adjusts them each year.
Avoiding these mistakes starts with understanding your workforce location, updating procedures regularly, and working with a knowledgeable benefits partner who stays current on HCSO rules. Consistent review helps reduce risk and keep your business on the right track.
What Are the Penalties for HCSO Non-Compliance?
Non-compliance with the San Francisco Health Care Security Ordinance can lead to significant financial consequences. The Office of Labor Standards Enforcement (OLSE) may impose different penalties depending on the violation. For example, failing to make required health care expenditures can carry an administrative penalty of $100 per employee for each quarter the violation occurs, in addition to the unpaid expenditures themselves. These fines can add up quickly, especially if multiple requirements, like insufficient health care spending, failure to post notices, or missing records, are involved. The OLSE also reserves the right to conduct audits, which can extend across several years of employment history.
Frequently Asked Questions About HCSO Compliance
Can Employers Use Existing Health Plans to Comply?
Yes. Employers can meet HCSO requirements through contributions to existing health insurance plans as long as those plans provide meaningful coverage and meet the city’s minimum expenditure rate. Simply offering a plan isn’t enough if the cost-sharing or benefit design falls short.
How Much Must an Employer Spend on Healthcare Per Employee?
The required hourly expenditure rate is set by the City of San Francisco and adjusted annually. Rates vary depending on business size. Employers must track hours worked within city limits and apply the correct rate accordingly.
How Can Employees Spend HCSO Funds?
If employers choose to use the City Option, the Medical Reimbursement Account to comply, employees can use those funds to pay for qualified medical expenses, including copays, prescriptions, dental and vision expenses, and medical devices.
How Does HCSO Compare to ACA and Other Regulations?
The HCSO operates separately from federal laws like the Affordable Care Act (ACA). Employers must comply with both, even if they meet ACA standards. HCSO has its own thresholds, spending requirements, and documentation rules.
Can Employees Opt to Waive HCSO Expenditures from Employers?
Yes. Employees with other health coverage, such as through a spouse's employer, Medicare, Medi-Cal, or veterans benefits, can complete the San Francisco Employee Voluntary Waiver Form. Waivers must be voluntary, renewed annually, and kept on file.
Does the HCSO Apply to Remote Employees?
Yes. The HCSO applies based on where work is performed. An employee who regularly works at least eight hours per week from a home in San Francisco can be covered, even if your company is based elsewhere.
When Is the HCSO Annual Reporting Form Due?
Covered employers must submit the HCSO Annual Reporting Form to the OLSE by April 30 each year, reporting on the previous calendar year.
Simplify HCSO Compliance with AEIS
Managing compliance across multiple jurisdictions can feel overwhelming, especially when local rules shift under the surface of a remote workforce. The San Francisco Health Care Security Ordinance is just one of many regulations that can impact your business without warning. Staying ahead requires more than awareness; it demands structure, accuracy, and the right partner.
At AEIS, we help businesses like yours navigate complex benefit regulations, reduce compliance risk, and build benefit strategies that support both your team and your bottom line. Based in San Mateo, we work with San Francisco employers and businesses across the Bay Area to keep HCSO requirements, expenditure calculations, and reporting on track.
Connect with us today, and we’ll help make sure your business stays compliant (and competitive) in every ZIP code where work gets done.
Disclaimer: Any information related to compliance, laws and regulations, or other subject matters in this content is intended to be informational and does not constitute legal advice regarding any specific situation. The content is based on the most up-to-date information available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.
