Governor Jerry Brown signed Assembly Bill 304 on Monday July 13, 2015, amending the Healthy Workplaces, Healthy Families Act of 2014.  The Amendment went into effect immediately and changes key provisions of the law regarding calculation of the rate of pay, method of accrual of paid leave, and recordkeeping.

California’s new sick leave law went into full effect on July 1, 2015, requiring employers to provide three days of annual paid sick leave to virtually all employees.  But the law left many questions unanswered regarding exactly how to implement the new requirements, particularly for exempt employees and for employers with existing paid time off policies.  The Amendment attempts to clarify some of these issues.

Changes to the Rate of Pay Calculation: 

The Amendment requires an employer to calculate paid sick time for non-exempt employees using one of the following methods: (1) use the same regular rate used to calculate overtime pay during the workweek that an employee takes sick leave, whether or not the employee actually works overtime in that workweek; or (2) divide 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.

The Amendment requires that paid sick time for exempt employees be calculated in the same manner as the employer calculates wages for other forms of paid leave time.

Importantly, the Amendment eliminates the prerequisite that an employee earns commissions, piece rate, varying pay rates or be paid as a salaried nonexempt to trigger any special calculation method.

Alternative Accrual Methods:

While employees may continue to accrue paid sick leave at the rate of not less than one hour for every 30 hours worked, the Amendment now allows employers to use the following alternative methods of accrual:

1. The Amendment allows an employer to provide for sick leave accrual on a basis other than one hour for every 30 hours worked, provided that the accrual is on a regular basis and the employee will have 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment of each calendar year, or in each 12-month period.

2. The Amendment includes a grandfather clause for employers that provided paid sick leave or paid time off before January 1, 2015 that used a different accrual method. An employer’s accrual method will be grandfathered if it provided that (a) the accrual is on a regular basis so an employee (including one hired after January 1, 2015) has no less than one day or eight hours of accrued sick leave or paid time off within three months of employment each calendar year or each 12-month period and (b) the employee was eligible to earn at least three days or 24 hours of sick leave or paid time off within nine months of employment. If an employer modifies the accrual method used in its policy that it had in place before January 1, 2015, the employer will need to comply with any accrual method outlined in the amended law or provide the full amount of leave (lump-sum basis) at the beginning of each year of employment, calendar year, or 12-month period. Note that even if an employer’s policy is grandfathered for accrual purposes, the employer still needs to ensure it complies with other significant provisions of the law (e.g., pay calculation, broad definition of family member, notice, and recordkeeping).

Front Load Method:

An employer may still satisfy the accrual requirements of the law by simply providing three days of paid sick leave at the beginning of each year. The Amendment provides that the accrued time must be available to the employee to use by the completion of his or her 120^th calendar day of employment.

Reinstatement of Prior Accrued Time:

The Amendment clarifies that an employer is not required to reinstate accrued paid time off to an employee who is rehired within one year of separation from employment and whose accrued time was paid out at termination, resignation, or separation.

Recordkeeping:

Existing law requires an employer to keep records for three years, documenting the hours worked and paid sick days accrued and used by an employee and to make those records available to the Labor Commissioner upon request. The Amendment clarifies that the employer has no obligation to inquire into or record the purposes for which an employee uses sick leave or paid time off.

Notice for Unlimited Sick Leave or Paid Time Off Policies:

The Amendment permits an employer who provides unlimited sick leave or unlimited paid time off to its employees to satisfy the law’s notice requirements by indicating “unlimited” on the employee’s itemized wage statement or the separate writing provided on the designated pay date with the payment of wages.

Other Areas of Clarification: 

The Amendment clarifies that employees must perform 30 days of work within a year from the commencement of employment for the same employer to be eligible for paid sick leave.

The Amendment permits an employer to limit an employee’s use of paid sick days to 24 hours or three days in each year of employment, a calendar year, or a 12-month period.

The Amendment modifies the definition of “employees in the construction industry” in Section 245.5(a)(2). Now, the definition of “employee in the construction industry” means an employee performing work associated with construction, including work involving alteration, demolition, building, excavation, renovation, remodeling, maintenance, improvement, repair work, and any other work as described by Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, and other similar or related occupations or trades.

Employers should contact their Labor and Employment counsel at Hill Farrer for guidance on how the recent amendments may affect compliance with the new law.