SB 525: How the New California Law Affects Your Healthcare Facility

On October 13, 2023, California Governor Gavin Newsom signed SB 525, creating the nation's first statewide healthcare worker minimum wage of $25 per hour.

State legislators declare that higher wages are an essential means of attracting and retaining experienced healthcare workers to treat patients and improve the quality of care.

Starting June 1, 2024, SB 525 will progressively raise the minimum wage for California healthcare workers from $15.50 per hour to $25 per hour.

According to the UC Berkeley Labor Center, the wage hike is expected to benefit around 469,000 employees, including workers who currently earn slightly above $25 per hour but would be receiving a pay increase to maintain their pay premium.

As stated in the new law, California workers falling under “covered healthcare employees” encompass those who provide patient care, healthcare services, or services supporting the provision of healthcare, regardless of their formal job titles—including contracted and subcontracted employees. These include:

• Nurses
• Physicians
• Caregivers
• Medical Residents, Interns, or Fellows
• Patient Care Technician
• Janitors
• Housekeeping Staff Members
• Groundskeepers
• Guards
• Clerical Workers
• Nonmanagerial Administrative Workers
• Food Service Workers
• Gift Shop Workers
• Technical and Ancillary Services Workers
• Medical Coding and Medical Billing Personnel
• Schedulers
• Call Center and Warehouse Workers
• Laundry Workers

The law, however, excludes outside salespersons, public sector employees not primarily involved in healthcare, and delivery or waste collection workers whom the covered healthcare facility does not directly employ.

How Does SB 525 Affect Your California Healthcare Facility?

Well, that depends. The pace and amount of the wage increase depend on the size of the facility and its volume of government-insured patients. The new law establishes different minimum wage schedules depending on which category your healthcare organization falls under:

Large Employers and Integrated Health Systems

The facilities that fall under this classification can have any of the following characteristics:

• They have 10,000 or more full-time equivalent employees.
• They are part of an integrated healthcare delivery system.
• They are a covered health facility owned, affiliated, or operated by a county with a population of 5,000,000 or more as of January 1, 2023.
• They are a dialysis clinic.

If your organization is considered a large employer or an integrated health system, SB 525 requires you to follow the minimum wage schedule below:

Hospitals with a High Government Payor Mix, Rural Independent Facilities, and Facilities Run by Low-Population Counties

The facilities under this category can have any of the following characteristics:

• They are an independent hospital with an elevated governmental payor mix (75% or more).
• They are a hospital with a very high governmental payor mix (90% or more).
• They are a rural independent covered healthcare facility.
• They are a covered health facility owned, affiliated, or operated by a county with a population of less than 250,000 as of January 1, 2023.
  

If your organization falls under this classification, you follow the minimum wage schedule below

Primary Care, Free, Community, and Rural Clinics

This category encompasses primary care clinics, free clinics not run by government entities, community clinics (and their associated intermittent clinics), rural health clinics, and urgent care clinics owned by or affiliated with community or rural health clinics.

Organizations under this category follow the minimum wage schedule below:

Other Covered Healthcare Facilities

This category comprises all other healthcare facility employers that don’t fall under the mentioned categories. They follow the minimum wage schedule below:

While the bill appears to cover almost all healthcare facilities, it explicitly exempts the following:

• Hospitals owned, controlled, or operated by the State Department of State Hospitals
• Tribal clinics
• Outpatient settings conducted, maintained, or operated by a federally recognized Indian tribe, tribal organization, or urban Indian organization

What You Need to Do About the New Minimum Wage

While the passing of SB 525 is a much-deserved reward for healthcare workers who devote their lives to caring for others, the wage hike will undoubtedly impact the financial situation of covered employers all over California.

“SB 525 is another crushing blow for hospitals struggling in the inflation-laden, economic aftermath of COVID-19 without a commensurate increase in Medi-Cal and Medicare reimbursement rates,” said Community Health System CEO Craig Castro.

If you’re not sure how to respond to the new law or what to do to stay compliant, here are some helpful tips from the Society for Human Resource Management (SHRM):

Know Which Requirements Apply to Your Facility

With the law going into effect in June 2024, you should start consulting with employment counsel to help determine which minimum wage requirements apply to your organization, who among your staff SB 525 covers, and if your facility qualifies for a waiver.

On or before January 31, 2024, the California Department of Health Care Access and Information (HCAI) will release a list of all covered healthcare facility employers that can be classified as large employers, integrated health systems, hospitals with a high governmental payor mix, independent hospitals with an elevated governmental payor mix, and rural independent covered healthcare facilities.

Once the lists are published, carefully review them to know if you were accurately classified. If you have any concerns about your classification, contact HCAI before January 31, 2025, and submit a request to be classified appropriately.

Prepare for Possible Policy Revisions

Once you know your minimum wage requirements, you must review your current wage-and-hour practices and compensation structures to ensure they comply with the new law. Prepare for possible changes to your policies.

The new minimum wage will impact overtime pay calculations, exemption statuses, meal and rest period premiums, paid sick leave calculations, and other benefits, so you must stay up to date in those areas. Update your payroll systems to accurately reflect the changes, including the covered employees’ pay rates, tax withholdings, and any automatic deductions related to employee benefits.

Employers should also consider SB 525’s potential impact on your overall labor costs and budget. You may want to consider investing in healthcare automation for more efficient, accurate, and cost-effective operations with minimal human intervention.

Read More: The Benefits of Automated Care Home Technology

Review Service Contracts 

Because SB 525’s coverage extends to independent contractors, the minimum wages of contracted or subcontracted covered healthcare employees working for your facility need to be adjusted, too.

Review your facility’s service contracts to ensure independent contractors are paid in accordance with the new California min wage. 

Check If You Qualify for a Waiver

To tackle employers’ potential financial concerns, SB 525 requires the California Department of Industrial Relations to develop a waiver program that allows covered healthcare facilities to apply for a temporary pause or alternative phase-in schedule of the minimum wage requirements.

To apply for the waiver, covered employers must demonstrate that complying with the new minimum wage requirements would be financially detrimental to their operations. Qualifying for it will be based on various factors, such as the likelihood of facility closure, patient program closure, job loss, etc. 

The Department of Industrial Relations is set to develop the waiver program on or before March 1, 2024, so if you believe you qualify for it, keep an eye out for any announcements.

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