California recently enacted Senate Bill 525, adding sections 1182.14 and 1182.15 to the California Labor Code and substantially raising the base minimum wage for health care workers. The new law also expands the definition of covered “health care” positions to include virtually any employee who works in the health care setting.  The stated purpose of SB 525 is to combat California’s shortage of health care workers and create a “stable workforce.” The minimum wage for all healthcare employees will ultimately increase to $25 per hour, with the first incremental increase above the general state minimum wage to occur on June 1, 2024.  The rate at which the minimum wage increases take effect will vary depending upon the size and nature of the employer.    

Which Employers Are Covered?

Sections 1182.14 and 1182.15 apply to nearly every type of medical employer except hospitals owned/controlled by the State Department of State Hospitals, tribal clinics exempt from licensure, and outpatient settings operated by tribal organizations.  Covered employers include:

• Facilities or other work sites that are part of an integrated health care delivery system;
• Licensed general acute care hospitals;
• Licensed acute psychiatric hospitals;
• Special hospitals;
• Licensed skilled nursing facilities, if owned, operated, or controlled by a hospital or integrated health care delivery system or health care system;
• Patients’ homes when health care services are delivered by an entity owned or operated by a general acute care hospital or acute psychiatric hospital;
• Licensed home health agencies;
• Clinics, including a specialty care clinic, dialysis clinic, psychology clinic, outpatient clinic, clinic operated or affiliated with any institution teaching a recognized healing art, and/or non-profit clinics that conduct medical research and health education and provides health care to its patients through a group of 40 or more physicians and surgeons, who are independent contractors representing not less than 10 board-certified specialties, and not less than two-thirds of whom practice on a full-time basis at the clinic;
• Licensed residential care facilities for the elderly, 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;
• Psychiatric health facilities;
• Mental health rehabilitation centers;
• Community clinics, intermittent clinics, or a publicly operated clinics;
• Rural health clinics;
• Urgent care clinics;
• Ambulatory surgical centers;
• Physician groups;
• County correctional facilities that provide health care services; and
• County mental health facilities.

Which Employees Are Covered?

This law applies to any employee of a health care facility employer who provides patient care, health care services, or services supporting the provision of health care, including, but not limited to, employees performing work in the occupation of 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, warehouse worker, and laundry worker, regardless of formal job title.

Contracted or subcontracted employees of a covered employer are included when: (1) the employee’s employer contracts with the health care facility employer, or with a contractor or subcontractor to the health care facility employer, to provide health care services, or services supporting the provision of health care; and (2) the health care facility employer directly or indirectly, or through an agent or any other person, exercises control over the employee’s wages, hours or working conditions.  However, “covered health care employees” include only those employees performing contracted or subcontracted work “primarily on the premises of a health care facility” irrespective of items (1) and (2).   

How the Law Affects the Status of Exempt Employees

The new law significantly limits a health care employer’s ability to meet the salary threshold required for most exemptions from overtime and minimum wage.  If employers want to avoid paying minimum wage and overtime to employees whose “compensation … is on a salary basis,” such employees must earn a monthly salary of no less than 150% of the healthcare worker minimum wage, or 200% of the applicable state minimum wage for all workers under Section 1182.12, whichever is greater, for full-time employment.  

Which Employees Are Not Covered?

Outside salespeople, public sector employees who do not perform healthcare services, delivery or waste collection employees who are not employed by a covered health care facility, and medical transportation service workers who are not employed by a covered health care facility are exempt from SB 525’s coverage.

What is the New Minimum Wage, and When Do We Start Paying it?

The stated goal is for all covered health care employers eventually to pay a minimum wage of $25/hour. When that rate takes effect, however, depends on the type and size of the health care employer as follows:

Covered health care employers who are county-owned, affiliated, or operated are not required to comply with the new minimum wage requirements before January 1, 2025.

By January 31, 2024, the California Department of Health Care Access and Information will publish a list of all covered employers with 10,000 or more full-time employees, covered employers that are part of an integrated delivery system with 10,000 or more full-time employees, as well as all hospitals with a high or elevated governmental payor mix, and rural independent health care facilities.  Any employer that believes they were incorrectly “excluded” may file an appeal by January 31, 2025. 

Cities and counties are prohibited from enacting any ordinances, regulations, or administrative actions that controvert the efforts of section 1182.14, and any such laws enacted after September 6, 2023, are void. 

What if an Employer Cannot Afford to Pay the New Wage Scales?

The law creates a waiver program for certain covered health care employers that believe they cannot comply with the law’s requirements.  Employers can seek a temporary pause or an alternative phase-in schedule for the new minimum wage requirements.  To qualify for a waiver, an employer must provide documentation of its financial condition, as well as that of any parent or affiliated entity, "to continue as a going concern under generally accepted accounting principles.”  Considerations include:  actual or likely closure of the covered health care facility or any affiliated entity; actual or likely closure of patient services or programs; actual or likely loss of jobs; whether the covered health care facility is small, rural, frontier, or serves a rural catchment area; whether closure of the covered health care facility would significantly impact access to services in the region or service area; and/or whether the covered health care facility is in financial distress that results or is likely to result in the closure of the covered health care facility or any affiliated entity, closure of patient services or programs, or loss of jobs.

The Department of Industrial Relations will publish more information regarding the waiver program by March 1, 2024.  

Practical Considerations

In addition to analyzing the impact of Labor Code sections 1182.14 and 1182.15 on budgets, identifying which health care category and minimum wage scale apply to their workplace, and implementing the new rates, health care employers can take the following actions:

• Evaluate how increases in the new minimum wage will impact overall compensation of the organization;
• Update minimum wage posters by the time each new rate goes into place;
• Advise employees of the new rates by, among other potential methods, issuing Labor Code section 2810.5 Notices within seven days of the change if necessary;
• Provide management and human resources departments with talking points regarding the wage rate changes;
• Determine whether exempt employee salaries must be increased to meet new overtime salary exemption thresholds;
• Appeal or apply for a waiver, if needed;
• Look to any collective bargaining agreements if relying on the California exemption to overtime. It is unclear from the language of Labor Code sections 514 and 1182.14 whether collective bargaining agreements must have wage scales of 130% of the existing state minimum wage ($15 per hour), or the new minimum wage applicable to health care employees to qualify for this exemption.  Counsel should be consulted to evaluate the new law’s impact on this exemption.