Since 2017, Arizona paid time off (PTO) law has been in effect. It requires employers to provide paid sick leave to employees throughout the state. Not having a Paid Sick Time Policy for Arizona means you're already behind the ball (and out of compliance with Arizona PTO laws).
Here’s everything you need to know to help ensure compliance with Arizona PTO laws and create a sick leave policy to effectively manage paid and unpaid employee sick time from eligibility to time-off requests to tracking balances and carryover rules.
Arizona Sick Leave Law OverviewThe AZ sick leave law and its requirements are a component of the Fair Wages and Healthy Families Act or Proposition 206, which instituted two new core requirements for employers operating in the state:
State Minimum Wage Updates
Minimum wages have a scheduled annual increase from 2017 through 2020 after which any annual increases are based on changes to cost of living. As a quick overview, here was the confirmed wage increase schedule;
January 1, 2017 - $10.00 per hour
January 1, 2018 - $10.50 per hour
January 1, 2019 - $11.00 per hour
January 1, 2020 - $12.00 per hour
- January 1, 2021 - $12.15 per hour
*First cost of living increase
- January 1, 2022 - $12.80 per hour
*Based on cost of living increase announced in September 2021
Employee Entitlement to Earned Arizona PTO
As of July 1, 2017, most employees are entitled to accrue paid sick time. For existing employees, this began on July 1st while any newly hired employees that started on or after July 1st began accruing sick time once they started their employment.
Arizona Sick Leave Notice or Poster
The first thing you should do to comply with Arizona PTO posting requirements is to ensure employees are aware of the legislation and their rights under Arizona's sick law. There MUST be an Arizona-specific sick leave poster or notice published in a conspicuous location within the workplace that is accessible by employees. You can use a pre-approved Industrial Commission of Arizona version of this Earned Paid Sick Time Notice.
Alternatively, if you don’t have one already, you can publish an all-in-one Arizona labor law poster that includes details of this in addition to other areas of employee’s rights that require notices like Workers’ Compensation, Notice of Unemployment Insurance, Minimum Wage, Safety & Health Protection under OSHA, etc.
Arizona Sick Time Requirements
Arizona PTO requirements can be broken down into two core categories:
Sick Time Requirements by Employee SizeAll-sized employers need to comply with the legislation, the only item in question for your company is how much sick time is required to provide? And the amount of sick time that employees have the right to attain or accrue is based on the size of your organization:
Companies with Less Than 15 Employees – must allow employees to accrue or use 24 hours of paid sick time each year
Companies with 15 or More Employees – must allow employees to accrue or use 40 hours of paid sick time each year
Eligible Employee Types
Companies of ANY size need to comply with Arizona Paid Sick Leave law, but not necessarily all employees need to be provided with sick leave (although it’s pretty close)… Not only are full-time employees eligible for this entitlement, but part-time, temporary, and seasonal staff are also eligible. In virtually all scenarios, employees do have rights to sick leave – so your best course of action is to provide it to everyone. There are only a few exceptions in terms of which employees do not need to be provided with sick time, such as those employed by a parent or sibling, babysitters, and Arizona / US government employees.
Check out our 4 step sick leave compliance checklist to ensure you’re complying with this portion of the Fair Wages and Healthy Families Act today.
Creating Your Arizona Sick Leave Policy
In its simplest form, there are only two core ways to set up a sick policy or amend your existing time-off policy in Arizona in order to comply with the legislation. To save some time, check out our Arizona Paid Sick Leave Policy Sample.
Lump-Sum Sick Time Off:
This type of policy would provide the full 40 hours of sick time required for an employee at the beginning of the accrual year. If all time is exhausted, the employee must wait until next year for a new balance. At the end of the year, any unused time will NOT need to be carried over.
Accrued Sick Time Off:
In this policy type, sick time is awarded at the rate of one hour per 30 hours of worked time. Once the employee has reached a total of 40 hours earned for the year, they will stop accruing. At the end of the year, any unused time will be carried over.
NOTE: Please recognize that the policy itself can be more complex than this as there are tons of protections for the employees to ensure companies do not restrict their rights to using PTO.
It’s also important to review your overall attendance and time off policy or your employee handbook to ensure it doesn’t currently have verbiage about enforcement when employees are using sick leave that would be non-compliant with the law. For instance, if your attendance policy says, “miss two days and you’re fired” or “give us notice four hours before a shift or you’ll be punished”, these are not in compliance with the reasonable use of protected sick leave. You could also include a separate more lenient notice policy for use of sick leave, but enforce a stricter policy when employees do not have protected leave available for use.
Calculating Arizona Sick Time Pay Rates
Processing payroll can be a challenge with Arizona sick time. You need to make sure earned sick time used is paid out at the employee's hourly pay rate. It can never be less than the Arizona minimum wage (and no tip credit may be applied).
Additionally, your systems and processes need to follow these pay rate guidelines:
Pay rules for employees with a single hourly rate:
This is the same hourly rate that the employee would have earned for the period in which earned paid sick time is used but is in no case less than minimum wage.
Pay rules for employees with multiple hourly rates:
This is the hourly rate the employee would have earned, if known, for each hour of earned paid sick time used. If this is not known, an employer should use the weighted average of all hourly rates of pay during the previous pay period.
Pay rules for salaried employees:
This is the wages an employee earns during each pay period covered by the salary divided by the number of hours agreed to be worked during each pay period.
Pay rules for employees paid on a commission, piece-rate, or fee-for-service basis:
This is the most complex of the rates and is the hourly rate of pay previously agreed upon by the employer and the employee, which can be:
a minimum hourly rate for work performed or
an hourly rate for payment of earned paid sick time, which, here’s where it gets complex, can be:
The wages that the employee would have been paid, if known, for the time in which earned paid sick time is used, divided by the number of hours of earned paid sick time used.
A reasonable estimation of the commission, piece-rate, or fee-for-service compensation that the employee would have been paid for the period of time in which the earned paid sick time is used, divided by the number of hours of earned paid sick time used.
The hourly average of all commission, piece-rate, or fee-for-service compensation that the employee earned during the previous 90 days.
Arizona Sick Time Management and Recordkeeping
There is a multitude of ways to manage Arizona sick time and maintain your records. However, the solution you choose and how much automation can be leveraged will directly correlate with the amount of time and manual effort you need to spend on managing and complying with the Arizona sick leave law.
Manual Arizona Sick Leave Processes
Tracking current sick time balances and accrual amounts manually can be done, but this is NOT AT ALL ideal. It would involve an incredible amount of time to manage, and be quite complicated. In this scenario, you’d likely be leveraging a lump sum sick time off policy. You’d need to maintain spreadsheets for sick time balances. Requests from employees to utilize sick time would come in manually, potentially via paper, email, or text message. You’d need to react to these as they come in and update spreadsheets as these requests come in. If not, these requests can be lost and not entered into payroll in a timely manner. There’s not a means of reporting or determining live balances for employees to view either, which means they’ll be continuously requesting this. In terms of pay rates calculations, break out the calculator, as this is going to extend the time it takes to process payroll significantly.
Semi-Automated Arizona Sick Leave Processes
This process would likely involve tracking your paid sick time accruals in your payroll software and ensuring you’re updating time off as requests come in through a time and attendance system. You’ll need to ensure your payroll process accounts for how to enter paid sick leave to display properly on checks and reduce balances. Then you’ll want to ensure your accrual balances are either displayed on employees’ paychecks or a statement is provided to your employees with each check issued.
Fully Automated Arizona Sick Leave Processes
We can’t stress enough the importance to fully automate this. A unified, cloud-based Human Capital Management (HCM) solution provides closed-loop administration for Arizona paid sick leave compliance (and much more). Depending on the solution leveraged, employees can have real-time access to view up-to-date sick time balance information (accrued, current balance, amount taken) and request their time off through timeclocks, their computer, or their smartphone. Then managers or administrators can approve this time off through their computer or smartphone. This time off is then automatically deducted from employee balances and passed to payroll seamlessly ensuring leave is paid at the accurate rate of pay with the correct earning codes… It makes compliance easy!
And if an employer fails to maintain these required records, it will be presumed that the employer did not pay the required earned paid sick time and is susceptible to the penalties laid out below.
Penalties for Arizona Sick Leave Law Non-Compliance
Compliance with this legislation can involve some effort, at least initially. You may think you can get away with not complying… and perhaps you can, but is it worth it? You be the judge:
Arizona Sick Leave Fines
There are a few different fines you should be aware of. To start, if a company retaliates against an employee for taking sick time in Arizona (ex: firing), they are required to pay penalties sufficient to compensate the employee and deter future violations. At a MINIMUM this is $150 for each day that the violation continued or until legal judgment is final. Then there are civil penalties for the first violation or for not posting the required notice (mentioned above) of at least $250 and each subsequent or willful violation is at least $1000. In addition to the fines, special monitoring and/or inspections can also be imposed on the company.
According to a study by Hiscox, the average cost to defend against employment-related charges is $125,000, which includes attorney’s fees and settlement costs. However, the median cost of judgments was about $200,000, and one-in-four cases was a judgment of $500,000 or more. Remember, not only are you paying your legal fees, but you’re paying for the employee’s or ex-employee's legal fees as well. Donald Peder Johnsen of Gallagher & Kennedy shared that even if $1 of unpaid sick time is proven, the employee’s attorney will collect 100 percent of their fees. This means that lawyers will be highly motivated to pursue cases that are brought to them.
With the new legislation, government agencies are apt to want to capture early non-compliers so that these companies can be used as a warning to others that have yet to be caught. And the worst part about it? This is covered by the local, and in some cases, national media. These are the types of stories we all see time and time again, talking about how this “terrible” company did not provide poor Jane Doe with her legal right to use sick time to take her elderly mother to the doctor as they were required to.
Arizona sick leave compliance aside, there’s an 11.7 percent chance that companies based in the U.S. have an employment-related charge filed against them.
Sure that sounds bad, right? The worst part is that all of this would have an incredibly negative impact on employee morale. What’s more is that it will be incredibly difficult to bring in new talent as well because whenever candidates search the company name online, they’ll be served search engine results with how the company doesn’t provide paid sick time.
Compliance can be difficult, but it doesn’t have to be. Do yourself a favor, and schedule a compliance check with Inflection HR today, we are experts in Arizona payroll, HR, and labor management. Being headquartered in Tempe, we’re experts on Arizona laws and compliance helping companies create and implement policies and best practices for clients across the state.
Feel free to email us with any questions you have or feel free to call us at 877-449-0676, we’re happy to help!