On October 13, 2023, California Governor Gavin Newsom signed California Senate Bill No. 525 (SB 525) into law. Effective June 1, 2024, the law raises the minimum wage for California healthcare employees and sets a new salary threshold for who is considered an exempt healthcare employee (and exempt from overtime).
WHAT HEALTHCARE FACILITIES ARE COVERED?
The scope of SB 525 is vast, covering nearly all healthcare facilities operating in California. This includes:
A facility or other work site that is part of an integrated healthcare delivery system;
A licensed general acute care hospital, as defined Section 1250(a) of the Health and Safety Code, including a distinct part of any such hospital (including rural general acute care hospitals);
(All statutory section references in this article are to the Health and Safety Code unless otherwise specified)
A licensed acute psychiatric hospital, as defined in Section 1250(b), including a distinct part of any such hospital;
A special hospital, as defined in Section 1250(f);
A licensed skilled nursing facility (including small house skilled nursing facility);
A patient’s home when healthcare services are delivered by an entity owned or operated by a general acute care hospital or acute psychiatric hospital;
A licensed home health agency, as defined in Section 1727(a);
A clinic, as defined in Section 1204(b) (including a specialty care clinic, a dialysis clinic, a surgical clinic, a rehabilitation clinic or an alternative birth center);
A psychology clinic, as defined in Section 1204.1;
A clinic as defined in Section 1206(d), (g) or (l);
A licensed residential care facility for the elderly, as defined in Section 1569.2, if affiliated with an acute care provider or owned, operated or controlled by a general acute care hospital, acute psychiatric hospital, or the parent entity of a general acute care hospital or acute psychiatric hospital;
A psychiatric health facility, as defined in Section 1250.2;
A mental health rehabilitation center, as defined in Section 5675 of the Welfare and Institutions Code;
A community clinic licensed under Section 1204(a), an intermittent clinic exempt from licensure under Section 1206(h), or a clinic operated by the state or any of its political subdivisions, including—but not limited to—the University of California or a city or county that is exempt from licensure under Section 1206(b);
A rural health clinic, as defined in 42 U.S.C. 1396d(l)(1);
An urgent care clinic (i.e., a facility or clinic that provides immediate, nonemergent ambulatory medical care to patients, including—but not limited to—facilities known as walk-in clinics or centers or urgent care centers);
An ambulatory surgical center that is certified to participate in the Medicare Program under Title XVIII (42 U.S.C. Sec. 1395, et seq.) of the federal Social Security Act;
A physician group (i.e., a medical group practice, including a professional medical corporation, as defined in Section 2406 of the Business and Professions Code, another form of corporation controlled by physicians and surgeons, or a medical partnership, provided that the group includes a total of 25 or more physicians);
A county correctional facility that provides healthcare services; and
A county mental health facility.
“Health care services” is also defined broadly to mean patient care-related services, including: nursing; caregiving; services provided by medical residents, interns or fellows; technical and ancillary services; janitorial work; housekeeping; groundskeeping; guard duties; business office clerical work; food services; laundry; medical coding and billing; call center and warehouse work; scheduling; and gift shop work; but only where such services support patient care.
SB 525 does not cover hospitals owned, controlled or operated by the Department of State Hospitals or tribal clinics exempt from licensure under Section 1206(c), or an outpatient setting conducted, maintained or operated by a federally recognized Indian tribe, tribal organization or urban Indian organization, as defined in 25 U.S.C. 1603.
WHAT WORKERS ARE COVERED?
SB 525 applies to the following types of workers:
An employee of a healthcare facility employer who provides patient care, healthcare services or services supporting the provision of healthcare;
A contracted or subcontracted employee if (i) the employee’s employer contracts with the healthcare facility employer, or with a contractor or subcontractor to the healthcare facility employer, to provide healthcare services, or services supporting the provision of healthcare, and (ii) the healthcare facility employer directly or indirectly, or through an agent or any other person, exercises control over the employee’s wages, hours or working conditions; and
All employees performing contracted or subcontracted work primarily on the premises of a covered healthcare facility to provide healthcare services or services supporting the provision of healthcare.
The types of workers that the law covers are expansive. This includes (without limitation) employees performing work in the occupation of a nurse, physician, caregiver, medical resident, intern or fellow, patient care technician, janitor, housekeeping staff person, groundskeeper, guard, clerical worker, nonmanagerial administrative worker, food service worker, gift shop worker, technical and ancillary services worker, medical coding and medical billing personnel, scheduler, call center and warehouse worker, and laundry worker, regardless of formal job title.
However, the law contains specific carve-outs and does not apply to:
Employment as an outside salesperson;
Any work performed in the public sector where the primary duties performed are not healthcare services;
Delivery or waste collection work on the premises of a covered healthcare facility, provided that the delivery or waste collection worker is not an employee of any person that owns, controls or operates a covered healthcare facility; or
Medical transportation services in or out of a covered healthcare facility, provided that the medical transportation services worker is not an employee of any person that owns, controls or operates a covered healthcare facility.
CHANGES TO MINIMUM WAGE EFFECTIVE JUNE 1, 2024
SB 525 creates the following minimum wage schedules for covered employees, depending on different categories of healthcare facilities:
Healthcare Facility Category*
June 1, 2024, to May 31, 2025
June 1, 2025, to May 31, 2026
June 1, 2026
Covered healthcare facility employer: (i) with 10,000+ full-time equivalent employees; (ii) that is a part of an integrated healthcare delivery system or healthcare system with 10,000 or more full-time equivalent employees; (iii) that is a dialysis clinic under Section 1204(b) or that is a person that owns, controls or operates a dialysis clinic; or (iv) that is owned, affiliated or operated by a county with a population of more than 5,000,000 as of January 1, 2023
$25, and until adjusted
Hospital with a high governmental payor mix, independent hospital with an elevated governmental payor mix, a rural independent covered healthcare facility, or a covered healthcare facility that is owned, affiliated, or operated by a county with a population of less than 250,000 as of January 1, 2023
$19.28 (and 3.5% increases annually)
Beginning June 1, 2033, and until adjusted, $25
Clinics as defined in Section 1206(h) not operated or affiliated with a clinic described in Section 1206(b), community clinics licensed under Section 1204(a) and any associated intermittent clinic exempt from licensure under Section 1206(h), a rural health clinic that is not license-exempt, or an urgent care clinic owned and affiliated with such community or rural health clinic
Beginning June 1, 2027, and until adjusted, $25
Other covered healthcare facilities (including licensed skilled nursing facilities)
Beginning June 1, 2028, and until adjusted, $25
*A covered healthcare facility that is county-owned, affiliated or operated would not be required to comply with SB 525 until January 1, 2025.
By January 31, 2024, the Department of Health Care Access and Information will publish online: (1) a list of all covered healthcare facility employers with 10,000 or more full-time equivalent employees, or covered healthcare facility employers that are part of an integrated delivery system or healthcare system with 10,000 or more full-time equivalent employees; and (2) a list of all hospitals that qualify as a hospital with a high governmental payor mix, an independent hospital with an elevated governmental payor mix or a rural independent covered healthcare facility. Any facility that believes they have been misclassified and wishes to be reclassified must file a request with the Department of Health Care Access and Information to be reclassified properly no later than January 31, 2025.
CHANGES IN EXEMPT SALARY THRESHOLD
SB 525 establishes that for exempt healthcare employees paid on a salary basis, a covered employee’s monthly salary shall be no less than 150% of the applicable healthcare worker minimum wage or 200% of the minimum wage (under the Labor Code section 1182.12), whichever is greater.
WAIVER PROGRAM FOR CLINICS
By March 1, 2024, the Departments of Industrial Relations, Health Care Services and Health Care Access and Information will develop a waiver program for the following covered healthcare facilities:
Clinics as defined in Section 1206(h) not operated or affiliated with a clinic described in Section 1206(b);
Community clinics licensed under Section 1204(a) and any associated intermittent clinic exempt from licensure under Section 1206(h);
Rural health clinics that are not license-exempt; and
Urgent care clinics owned and affiliated with such community or rural health clinics.
The waiver program would authorize these covered healthcare facilities to apply for and receive a temporary pause or alternative phase-in schedule of the healthcare minimum wage requirements under the law.
A waiver, if granted, would be for a term of one year from the date of issuance, subject to renewal by request from the facility and approval by the agencies. To obtain a waiver, a covered healthcare facility will be required to demonstrate that compliance with the law would raise doubts about the covered healthcare facility’s ability to continue as a going concern under generally accepted accounting principles, including evidentiary documentation of the facility’s financial condition, as well as the condition of any parent or affiliated entity, and evidence of the actual or potential direct financial impact of compliance with the law. The agencies will consider the following factors:
Actual or likely closure of the covered healthcare facility or any affiliated entity;
Actual or likely closure of patient services or programs;
Actual or likely loss of jobs;
Whether the covered healthcare facility is small, rural, frontier or serves a rural catchment area;
Whether closure of the covered healthcare facility would significantly impact access to services in the region or service area; and
Whether the covered healthcare facility is in financial distress that results, or is likely to result, in the closure of the covered healthcare facility or any affiliated entity, closure of patient services or programs, or loss of jobs. Factors to consider in determining financial distress include, but are not limited to, the covered healthcare facility’s prior and projected performance on financial metrics, including the amount of cash on hand, and whether the covered healthcare facility has, or is projected to, experience negative operating margins.
PENALTIES FOR NONCOMPLIANCE
SB 525 provides a private right of action for any covered employees to enforce the minimum wage requirement. Therefore, we expect healthcare employees to institute civil litigation including via class actions to enforce claims such as failure to pay minimum wage, failure to pay overtime wage, derivative claims including wage statement and waiting time penalties, and claims associated with misclassification of exempt employees. In addition, we expect the state Department of Industrial Relations to institute enforcement actions via random audits and pursuant to employee complaints.
MORATORIUM ON LOCAL COMPENSATION ORDINANCES
SB 525 also prohibits any city or county from enacting or enforcing an ordinance, regulation or administrative action that would impose compensation requirements or limitations on any covered healthcare facility. This prohibition, among other things, negates the ballot initiatives that had been promoted in Los Angeles County, San Diego County and various California cities to impose a cap on the compensation that could be paid to any employee of a covered healthcare facility (for example, in Los Angeles County, the proposed cap was equal to the annual salary of the US president). These ballot initiatives were widely viewed as imposing severe restrictions, if passed, on the ability of hospitals and healthcare systems to pay competitive compensation to their executive leaders. SB 525 places its moratorium on separate local compensation ordinances through the end of 2029 (with an additional moratorium on separate local minimum wage ordinances for covered healthcare facility employees through 2033).
SB 525 is the nation’s first law creating a statewide healthcare worker minimum wage standard and the first to raise the minimum wage to $25 per hour. The law preempts any local ordinances setting wages for healthcare workers (cities and counties can still set industry-agnostic wage standards).
Healthcare employers and contractors that employ workers who provide services at healthcare facilities should consider the following steps to stay in compliance with the new law:
Evaluate which category of healthcare-covered employer you fall within and determine which minimum wage increase schedule applies;
Conduct an audit of employees’ hourly wages and salaries to determine if current wage rates meet the new SB 525 thresholds for hourly and salaried exempt employees; and
Implement a compliance plan to adjust wages as needed before June 1, 2024, and/or begin gathering documentation to support a temporary exemption request via the waiver program (for certain clinics only).
Healthcare and other industry-specific laws continue to gain traction at the state and local levels as labor unions push for these changes, which come at a time of increased organizing campaigns and changes to the way unions can be elected. Employers should continue to closely collaborate with legal counsel as they focus on employee relations and long-term compliance strategies.