Seyfarth Synopsis: West Hollywood has joined the growing ranks of California cities that have their own local sick leave and/or minimum wage requirements. West Hollywood enacted an ordinance that creates new paid and unpaid time off mandates as well as minimum wage obligations and mandates the distribution of service charges. The new ordinance went into effect for most employers July 1, 2022.
On November 15, 2021, West Hollywood enacted an Ordinance that permits employees to accrue up to 96 compensated hours per year for sick leave, vacation, or personal necessity, up to 80 hours of uncompensated sick time, and set a schedule for increasing the city’s minimum wage. On May 16, 2022, West Hollywood amended the Ordinance to clarify some of its more confusing provisions. The city recently released regulations and administrative materials, such as required posters regarding the new minimum wage and the time off components.
How to Get Four Stars for Compliance
Employers need to make sure they stay on script with the key components of the Ordinance:
- Different Effective Dates for Hotel Versus General Employers: For hotel employers, the Ordinance took effect on January 1, 2022. For all other employers, the Ordinance took effect on July 1, 2022.
- Two Hours of Work Creates a WeHo “Employee”: “Employee” includes any person who performs at least two hours of work within the geographic boundaries of West Hollywood for an employer in a particular week, and is entitled to minimum wage (i.e. is nonexempt).
- Broad Definitions of Employers and Hotel Employers: Employers are defined broadly. “Hotel employers” broadly encompasses hotels, as well as entities that own or control leased or sublet premises connected to the hotel (for example, a spa or restaurant).
West Hollywood Takes PTO to the Big Time
The city’s paid time off (“PTO”) provisions create paid time off that includes paid sick leave, vacation, or personal necessity time.
- Up to 96 Hours of Paid Time Off: Employees are able to accrue up to 96 compensated hours off per year. Part-time employees must receive a pro-rated amount. Employers must not “unreasonably deny” an employee’s request to use accrued leave.
- Employers Can Separate Sick and Vacation: The regulations explain that employers can separate paid sick time and paid vacation time. However, if an employer uses multiple buckets, at least 50% of the time must either be vacation or personal necessity leave. Any paid sick leave component will need to comply with both the California State PSL and West Hollywood standards, and any personal time or vacation time will need to be treated as vacation time under California law (and paid out upon termination).
- PTO Accrual: After the first six months of employment, full-time employees (those working at least 40 hours per week or whom the employer deems full-time, whichever is more generous) shall accrue at least 96/52 hours of compensated time off for each week worked. Compensated time off does not accrue for work in excess of 40 hours in a given week.
- Part-time employees must accrue compensated time off in increments proportional to that accrued by someone who works 40 hours per week (i.e. a 20 hour per week employee must be allowed to accrue at least 48 hours of compensated time off per year).
- Employers can choose to forgo the accrual method and grant a single lump sum.
- Carryover: Unused, accrued compensated time off must be allowed to carry over until the time off reaches a maximum balance of 192 hours, unless the employer’s established policy is more generous.
- Cash-Out Not Required: The original Ordinance required covered employers to provide a cash payment to employees for any accrued compensated time above 192 hours every 30 days. However, the amended version deletes the 30-day cash-out provision.
- Rate of PTO Pay: Unlike California’s state-wide PSL, the rate of pay for compensated time off is based solely upon the base rate of pay. Employers who seek to have WeHo paid sick leave comply with state requirements will need to tread carefully.
- Sick Leave (Uncompensated Time Off): Employers must also permit full-time employees to take at least eighty (80) additional hours per year of uncompensated time off to be used for sick leave where the employee has exhausted their compensated time off for that year. Employees should accrue not less than .039 hours of uncompensated time off per hour worked, up to 80 hours, but employers can choose to frontload the time. Part-time employees receive a proportional amount. Unused, accrued uncompensated time off will carry over until the time off reaches a maximum of 80 hours, unless the employer’s established policy is more generous. Uncompensated time off does not accrue in excess of 40 hours in a given week.
- Credit Where Credit Is Due. Though the ordinance is not crystal clear on this point, the regulations suggest that only the hours worked within the city count towards accrual.
- Six Month Waiting Period. Employees are eligible to use accrued compensated and uncompensated time off after the first six months of employment or consistent with company policies, whichever is sooner.
- No Unlawful Practices or Retaliation: As with similar ordinances, employers are prohibited from reducing hours or benefits in order to pay wages less than the established minimum wage, and they are prohibited from retaliating against employees for exercising their rights under the Ordinance.
- Liability for Civil Penalties and Lawsuits: The Ordinance provides for administrative penalties and creates a private right of action for aggrieved employees.
- Rehire Obligations: Like regular California paid sick leave, if an employee is rehired within a year, the previously accrued and unused compensated leave (designated as sick leave) and uncompensated sick leave must be reinstated.
Minimum Wage Requirements
In addition to the paid time off components as described above, West Hollywood’s Ordinance contains a minimum wage component, raising the minimum wage above the levels set by the state and other local areas.
- Schedule for Employers with 50-Plus Employees:
- January 1, 2022: no less than $15.50 per hour.
- July 1, 2022: no less than $16.50 per hour.
- January 1, 2023: no less than $17.50 per hour.
- July 1, 2023: no less than $17.64 per hour.
- Schedule for Employers with Less Than 50 Employees:
- January 1, 2022: no less than $15.00 per hour.
- July 1, 2022: no less than $16.00 per hour.
- January 1, 2023: no less than $17.00 per hour.
- July 1, 2023: no less than $64 per hour.
- Annual Increase of Minimum Wage Rate: On July 1, 2022 and annually thereafter, the minimum wage rate will increase based on an applicable location index determined and adopted by the West Hollywood City Council. The city will announce the adjusted rates annually on or before each April 1st and publish a bulletin announcing the adjusted rates, which will also take effect on July 1st of each year.
- Notice and Posting: Every employer shall post the city’s poster in a conspicuous place at any workplace or job site where covered employees work. Notices shall be posted in English, Spanish, and any other language spoken by at least five percent (5%) of covered employees. At hiring, employers are also required to provide notice of the employer’s name, address, and telephone number in writing. Employers should also inform their employees of the possible right to the earned income tax credit under state and federal law.
- Record Retention: Similar to state requirements, employers need to retain payroll records pertaining for no less than three years.
Service Charge Requirements in the Limelight
Employers are required to distribute Service Charges to employees who performed services (excluding managers and supervisors). The Ordinance defines a Service Charge as something that is not a gratuity, but is a separately-designated amount charged and collected from customers for service, or is described in such a way that customers might reasonably believe that the amount is for those services or is otherwise to be paid or payable directly to employees, including those charges designated on receipts, invoices, or billing statements under the term “service charge,” “table charge,” “porterage charge,” “automatic gratuity charge,” “healthcare surcharge,” “benefits surcharge,” or similar language.
Can We Exit Stage Left?
The ordinance provides an avenue for businesses that would experience hardship to seek a waiver, which requires specific notice provisions to employees. The provisions in the ordinance can also be waived through a collective bargaining agreement, but only where the waiver is set forth in clear and unambiguous terms.
As the paid leave landscape continues to expand, companies should reach out to their favorite Seyfarth attorney for solutions. To stay up-to-date on paid leave developments in California and beyond, click here to sign up for Seyfarth’s Paid Sick Leave mailing list.