What is Senate Bill 525?
Senate Bill 525 (SB 525) is a new California law that raises the minimum wage for covered health care employees. SB 525 went into effect on January 1, 2024. It periodically raises the minimum wage over a number of years using four separate wage increase schedules based on the type of health care facility. SB 525 is codified at California Labor Code Section 1182.14.
Who and What is Covered by SB 525?
SB 525 applies to entities that employ “covered health care employees” that work in “covered health care facilities.” Expansive lists of “covered health care employees” and “covered health care facilities” are set forth in the statute and warrant careful review. Below we discuss some of the most relevant categories of employees and facilities covered by SB 525 as they relate to public employers.
“Covered health care employees” are employees who work for a health care facility employer to provide patient care, health care services, or services supporting the provision of health care. The statutory definition is very broad and includes employees as diverse as physicians, patient care technicians, interns, food service staff, billing personnel, and laundry workers. However, as applied to the public sector, the term “covered health care employees” only applies to employees whose primary duties are health care services.
“Covered health care employees” include contracted or subcontracted employees where a covered employer exercises control over the employee’s wages, hours, or working conditions. It does not include outside workers who are medical transportation workers, such as EMT and ambulance workers, or waste collection and delivery services workers.
SB 525 also broadly defines the term “covered health care facilities.” Examples of “covered health care facilities” include: (a) licensed special, acute care, or psychiatric care hospitals as defined in Section 1250 of the Health and Safety Code; (b) certain clinics defined in Section 1206 of the Health and Safety Code, including community clinics operated by public agencies that are exempt from licensure, as well as rural health clinics as defined in Section 1396d of Title 42 of the U.S. Code; and (c) county correctional facilities that provide health services; and county mental health facilities. Due to the statute’s detailed definition of “covered health care facilities,” employers should carefully review the statute to see if their type of facility is covered. LCW can also help clients make that determination.[1]
Are Counties and Charter Cities Covered?
By the plain language of the statute, the legislature clearly intended SB 525 to apply to all public agencies. However, counties and charter cities should evaluate whether they are exempt from SB 525 under Article XI, Sections 1, 4, and 5 of the California Constitution, which constitute the “Home Rule Doctrine.” [2] Under the Home Rule Doctrine, charter cities and counties have exclusive authority to regulate and determine their own municipal affairs, including setting employee compensation, free from intrusion by the state. For more discussion on this topic, click here.
Charter cities and counties should consult legal counsel to evaluate the applicability of the Home Rule Doctrine to SB 525.
The Four Minimum Wage Schedules
Under SB 525, the minimum wage for covered health care employees at covered health care facilities will increase on June 1, 2024 (except for county covered health care facilities, which do not need to comply with SB 525 before January 1, 2025). The SB 525 minimum wage will then increase to $25 per hour over a period of between two to nine years, depending on the wage schedule applicable to the covered health care facility, as set forth below. Once the SB 525 minimum wage reaches $25 per hour, it will then be adjusted on an annual basis using a formula equivalent to the state minimum wage increase formula.[3]
Greater Than 10,000 Full Time Employees, Counties with a Population Over 5,000,000
This wage schedule includes covered health care facilities with 10,000 or more full time or equivalent employees. It also includes covered health facilities owned, affiliated, or operated by a county with a population of over 5,000,000.
Governmental Payor Mix, Rural Facilities, Counties with Populations Under 250,000
This wage schedule covers hospitals with a high governmental payor mix[4] and independent hospitals with an elevated government payor mix.[5] It also includes rural independent covered health care facilities, or covered health care facilities that are owned, affiliated, or operated by a county with a population of less than 250,000.
Primary Care Clinics, Community Clinics, Rural Health Clinics, Urgent Clinics
This wage schedule covers primary care clinics, community clinics, rural health clinics, and urgent clinics owned and operated by primary care clinics.
All Other Covered Health Care Facility Employers
This wage schedule covers all other covered health care facility employers
County One-Year Exception
SB 525 provides that a covered health care facility owned, affiliated or operated by a county shall not be required to comply with the new minimum wage requirements before January 1, 2025.[6]
How Does SB 525 Affect Salaried Employees?
SB 525 states that for a covered health care employee to qualify as exempt from minimum wage and overtime law, they must earn a monthly salary of at least 150% of the health care worker minimum wage or 200% of the applicable minimum wage, whichever is greater. The statute expressly states this salary basis applies to the state, a political subdivision of the state, the University of California, or a municipality. Importantly, because public agencies are exempt from the overtime provisions of the California Wage Orders, the effect of SB 525’s salary basis on public agencies is primarily limited to ensuring covered health care employees are paid in compliance with minimum wage law.
However, there is a secondary effect for public agencies that are covered by California Labor Code 512.1. Under Labor Code 512.1, public employers must provide meal and rest periods to employees who provide or support direct patient care in a general acute care hospital, clinic, or public health setting – unless the employee is exempt from overtime under state law. Since SB 525 increases the state’s salary basis for covered health care employees, more public employees who provide or support direct patient care in a general acute care hospital, clinic, or public health setting may be subject to Labor Code 512.1’s meal and rest period requirements. For more information on Labor Code 512.1, click here.
Public agencies with general acute care hospitals, clinics, and/or public health settings should immediately begin looking into the effect of SB 525 on employees that may have been exempted from Labor Code 512.1.
How Does SB 525 Affect Overtime and Other Wage and Hour Laws?
The applicable minimum wages in SB 525 constitute the state minimum wage for covered health care employment for all purposes under the Labor Code and Wage Orders of the Industrial Welfare Commission.
Waivers
The SB 525 requirements can be waived. The Department of Industrial Relations must develop a waiver by March 1, 2024. The waiver will allow a covered health care facility to apply for a temporary pause or alternative phase-in schedule of the minimum wage requirements. Waivers can be renewed, but the entity must apply to renew a waiver at least 180 days before it expires.
Moratorium on Local Wage Regulation
SB 525 contains a 10-year moratorium on local ordinances, regulations, or administrative actions that would impose wage or compensation requirements for covered health care facility employees, subject to limited exceptions. The moratorium began on September 6, 2023 and expires January 1, 2034. Consult with legal counsel to evaluate whether this provision applies to counties and charter cities.
[1] Skilled nursing facilities are addressed separately at California Labor Code Section 1182.15.
[2] Three sections of the California Constitution provide grounds for the argument that SB 525 does not apply to charter cities and counties under the Home Rule Doctrine: Article XI, Section 1(b) provides that counties shall set the compensation of their employees; Article XI, Section 4(b) provides that county charters shall set compensation for employees unless delegated to the Legislature; Article XI, Section 5(b)(4) provides plenary authority for city charters to set compensation for their employees..
[3] SB 525 provides that following the implementation of a $25 minimum wage increase, on or before August 1 of the following year and annually thereafter, the Director of Finance shall calculate an adjusted minimum wage that increases by the lesser of 3.5 percent or the rate of change in the non-seasonally adjusted U.S. Consumer Price Index.
[4] “Payor mix” measures the percent of patients who have federal health insurance such as Medicaid and Medicare compared to patients who pay themselves or pay with private health insurance. A “hospital with a high governmental payor mix” means a licensed acute care hospital, as defined in subdivision (a) or (b) of Section 1250 of the Health and Safety Code, where the combined Medicare and Medi-Cal payor mix is 90 percent or greater. A hospital only qualifies under this definition if the combined payor mix of both the hospital and the health care system to which it belongs, if any, is 90 percent or greater.
[5] An “independent hospital with an elevated payor mix” means a hospital, as defined in subdivision (a) or (b) of Section 1250 of the Health and Safety Code, where the combined Medicare and Medi-Cal payor mix is 75 percent or greater. For the purposes of SB 525, the hospital must not be owned, controlled, or operated by any parent entity with two or more separately licensed hospitals.
[6] California Labor Code Section 1182.14(c)(5).