On March 14, 2017, with little to no fanfare, the City of Los Angeles Office of Wage Standards (OWS) revised its rules implementing the Minimum Wage Ordinance (MWO), which includes mandatory paid sick leave requirements. OWS also revised its frequently asked questions (FAQs). The revised FAQs provide that an employer’s business size is based on covered employees, i.e., individuals who perform at least two hours of work in a particular week within the City of Los Angeles and are entitled to the state minimum wage. Also, the revised FAQs specify that employers can use different sick leave methods for different employee classes, e.g., accrual-based system for part-time employees and frontloading for full-time employees. Per the revised FAQs, at the end of each year, employers—at their discretion—can pay out accrued but unused sick leave that exceeds the 72-hour overall cap. Finally, relevant revised regulations address frontloading by small employers, calculating an employee’s regular rate when sick leave is used, and using existing paid time off benefits to comply with the law.

Pro-Rated Frontloading for Small Businesses in 2017: The MWO’s paid sick leave provisions applied to employers with 26 or more covered employees on July 1, 2016, and will apply to employers with 25 or fewer covered employees on July 1, 2017. As it did for large employers when the law originally became operative, for 2017 only, OWS will allow small employers to frontload 24 hours for the period spanning July 1 through December 31, 2017. However, for 2018 and subsequent years, the full 48 hours must be provided for frontloading to be used.

For existing businesses that operated before January 1, 2016, determining whether they have 26 or more employees or 25 or fewer employees is based on the average number of covered employees in 2015. For employers that began business on or after January 1, 2016, business size is based on the number of covered employees during the first pay period.

Sick Leave Rate of Pay: The MWO’s only pay-related requirement is that an employee using sick leave be paid at the least the city’s minimum wage. The revised rules, however, require employers to use either of the following calculation methods: 1) Calculate in the same manner as the regular rate of pay for the workweek in which sick time is used (regardless of whether overtime is worked that workweek); or 2) Divide total wages—excluding overtime premium pay—by total hours worked in the full pay periods of the prior 90 days of employment. This is the same calculation method state law requires for all employees except bona fide executive, administrative, or professional employees (which OWS contends are not covered by the MWO).

Using Existing Benefits to Comply with MWO: The MWO states that employers with a paid leave or paid time off policy that provides 48 hours of compensated time off do not have to provide additional paid sick leave. The revised rules clarify that paid time off includes, but is not limited to, vacation, sick, paid time off, floating holiday, holiday, or personal days.

Under the MWO, OWS may allow an employer to maintain a paid leave policy that does not meet all the law’s requirements if the policy is overall more generous to employees. OWS has published a new form for employers to use to request a determination that their policy qualifies for this limited exemption. The revised rules state that a determination will be based on the totality of the circumstances, including a combination of the following benefits:

Paid Sick Leave Maximum Bank:  The revised regulations confirm hard accrual caps are prohibited if employers use an accrual-based instead of a frontloading system. A maximum bank operates as a temporary cap on accrual—employees stop accruing once their leave bank contains a specific number of unused hours (in Los Angeles, employers can set the maximum amount at 72 hours). Whatever amount is in the bank at the end of the year must be carried over to the following year. Employees only resume accruing leave after they use the bank’s already-accrued leave.

Next steps

The revised regulations and FAQs clarify important issues. For employers with operations and/or employees in the City of Los Angeles, they clarify that business size determinations are based on covered employees only. By aligning pay calculation requirements with state law, the city has made compliance less stressful for employers subject to both the state and local paid sick leave law. Also, for those small employers, the pro-rated frontloading option makes complying with both laws less administratively burdensome.  Finally, the regulations clarify that a maximum bank of 72 hours is permissible.  Employers may want to review existing leave policy to confirm that no changes are required or would be desirable.