Prop 206: Paid Sick Time Off is Now Required of Arizona Employers
Prop 206 was recently upheld by the Arizona Supreme Court. Not only does Prop 206 increase Arizona’s minimum wage to $10 per hour but also requires paid sick time. Arizona employers must have a paid sick time (“PST”) policy before the new law takes effect on July 1, 2017. Employers need to prepare now so they are ready to be in compliance when the new law takes effect. There are common questions that Arizona employers have about PST.
Does Prop 206 apply to our business?
Prop 206 applies to all Arizona employers, except “small businesses,” which are defined as any employer that that has less than $500,000 in gross annual revenue and that is not engaged in “commerce.” It does not apply to employees of the state or federal government. The definition of engaging in commerce is very broad and includes taking payments from out of state customers or even loading, unloading, or using goods that come from an out of state supplier. We, therefore, recommend that every employer in Arizona comply with Prop 206.
Our company already offers 40 hours of PTO that can be used for any reason. Is that good enough?
This issue is not clearly addressed in the new law. It is our current opinion that offering 40 hours of PTO that can be used for any reason is not good enough. We recommend that every Arizona employer adopt a PST policy. Consider this illustrative example: An employee uses all 40 hours of their PTO in the first half of the year to take a personal vacation. In the second half of the year, the employee gets sick and requests to use PTO. The employer denies the request because the employee has no remaining PTO. A court or agency could find that the employer violated the new law by failing to give the employee PST for their qualifying healthcare reasons.
How is PST calculated?
An employee accrues 1 hour of PST for every 30 hours worked, which is subject to certain caps depending on the size of the employer. This is not a method that payroll companies have typically calculated PTO. Check with your payroll service provider before the new law takes effect. Employees who are exempt from overtime requirements under the Fair Labor Standards Act will be assumed to work 40 hours in each work week for purposes of calculating the number of hours worked. If, however, an exempt employee’s normal work week is less than 40 hours, earned PST accrues based upon their actual hours worked.
Are there posting requirements?
Yes, every employer must actually post a notice about the employee's rights. A copy of the model notice can be found here. The notice should be posted in a conspicuous place.
Is there any limit on how many PST hours an employee can accrue?
Employees are not entitled to accrue or use more than 40 PST hours in any calendar year, unless the employer selects a higher limit.
Is PST only for healthcare reasons?
No, employees may also use PST for themselves or for family members in the following circumstances:
Medical care or mental or physical illness, injury, or health condition
A public health emergency
Absence due to domestic violence, sexual violence, abuse, or stalking
What if the employer fails to comply with Prop 206?
The employer may have to pay their employees two times the amount of the PST that should have been given to them. If the employee hires a lawyer and prevails in the lawsuit, they can recover a mandatory award of attorney fees, which often greatly exceeds the amount of any PST that is owed. If the Department of Labor suspects a violation, it may conduct an audit of all of the employer's records and practices. The DOL can impose fines and penalties and order the employer to pay two times the amount of PST owed.
Is there a “one size fits all” PST policy?
No, each policy should take into account the unique circumstances of the employer. For example, an employer that employs “piece rate” or commissioned employees will need a policy that outlines how the employee’s normal hourly rate will be calculated for purposes of PST. In addition, Prop 206’s requirements differ depending on the number of employees. Some employers will also want to offer additional PTO on top of the required PST and others will not. These, and other issues, will needs to be addressed in the employer’s PST policy. Employers should engage legal counsel to draft a PST policy. Counsel can also discuss best practices with the employer. The new law can be tricky to navigate, and even good-faith mistakes can be very costly.