Arizona Proposition 206: Minimum Wage Increase and Paid Sick Leave

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On November 8, 2016, Arizona voters passed Proposition 206, the Fair Wages and Health Families Act (the “Act”). This Act established new minimum wage requirements in Arizona along with imposing new paid sick time requirements on employers.

Increased Minimum Wage

The Act increased Arizona’s minimum wage, which was $8.05 in 2016. Any employer that was subject to Arizona’s minimum wage laws prior to approval of the Act is subject to the Act’s new minimum wage requirements. Even though the federal minimum wage is lower than Arizona’s minimum wage, employers are required to pay the higher wage established by this Act. The minimum wage increased on January 1, 2017 to $10.00/hour and will continue to increase each year as follows:

  • January 1, 2018-$10.50/hour
  • January 1, 2019-$11.00/hour
  • January 1, 2020-$12.00/hour
  • January 1, 2021 and every year thereafter- will increase by the increase in the cost of living increase per the U.S. consumer price index.

Employers who pay employees who receive tip income can continue to pay their employees $3.00 per hour less than the minimum wage if the employer can prove the employee is earning at or more than the minimum wage when tips are counted.

Employers must comply with the minimum wage requirements or they will be subject to severe penalties. If there is a determination by law that an employee was not paid minimum wage, an employee can recover twice the amount of unpaid minimum wage along with a mandatory award of attorney fees and court costs. It is important that employers maintain their payroll records for four years and comply with the record keeping requirements under the Act.

Paid Sick Leave

Beginning on July 1, 2017, employees can accrue earned paid sick time under the Act. As Arizona law does not currently require any employers to provide any form of sick time for their employees, this is new requirement for employers.

Who Is Covered Under the Act?
Employees working for compensation, such as full time, part-time and temporary employees are entitled to paid sick time under the Act. There are a few exceptions, including:

  • Small businesses that earn less than $500,000 gross revenues and who are not engaged in interstate commerce or in the producing of goods for interstate commerce;
  • Federal government employees;
  • Independent Contractors; and
  • State of Arizona employees

Employees can use sick leave for themselves or a family member for a number of different reasons, such as physical or mental illness, preventative care, care of a family member or for various legal reasons.

Accrual of Paid Sick Time
Earned paid sick time accrual rates differ based on an employer’s number of employees.

For employers with 15 or more employees: Employees must accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but employees are not entitled to accrue or use more than 40 hours of earned paid sick time per year, unless the employer selects a higher limit.

For employers with fewer than 15 employees: Employees must accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but they are not entitled to accrue or use more than 24 hours of earned paid sick time per year, unless the employer set a higher limit.

Exempt employees under the Fair Labor Standards Act are presumed to work 40 hours per week for accrual purposes. For weeks in which they work less than 40 hours, their paid sick leave accrues based on the actual number of hours worked.

Leave starts accruing on the later of employee’s hire date or the effective date of the law. Employers may require employees that are hired after July 1st 2017, to wait until the 90th calendar day after beginning employment to use any leave. An employer may also loan paid sick leave to an employee in advance of employee’s earning the leave.

Employers do not need to pay out the paid sick leave upon termination of employment, but if the same employee is rehired within nine months of termination, the accrued, unused sick leave needs to be reinstated and the employee can use that balance immediately upon rehire.

Carryover
Accrued paid sick that was never used carries over to the next year, but will not affect the minimum annual accrual and use caps during the following year. The employer may also choose to pay out unused accrued paid sick leave in lieu of carryover to the following year provided that the employee is given an amount of earned paid sick time at the beginning of the following year that meets or exceeds the requirements of the paid sick leave law and that is available for the employee’s immediate use.

Information Given to Employers about Reason for Paid Sick Days
Information relating to leave must be treated as confidential. Employers may request documentation relating to the leave if the employee is absent for three or more consecutive days. A statement from a health care provider is sufficient documentation after such absence but an employer cannot inquire about the details of illness. If the leave was for legal reasons, the employer can require documentation for the legal reason but the employer cannot ask specific details.

Notice Requirements to Employees
Employers must give employees written notice of the following at the commencement of employment or by July 1, 2017, whichever is later. A link to The Industrial Commission’s 2017 model earned paid sick time notice can be found here: https://www.azica.gov/posters-employers-must-display 

Also, employers must provide a statement sent with employee’s paychecks informing employees of how much paid sick time they have accrued, how much paid sick time they have used and how many of hours of sick time is available.

An employee must make a good faith effort to provide notice to the employer in advance of the leave and make a reasonable effort to schedule time off in a manner that does not unduly disrupt the operations of the employer. If the need for leave is unforeseeable, no prior notice is required unless the employer has a written policy containing procedure for providing notice.

Further Provisions in the Act:

  • Retaliation for use of sick leave is prohibited. Employers cannot use paid sick time absences for discipline or termination. If an employer violates the Act or otherwise discriminates, retaliates or interferes with an employee’s rights under the Act, they may be subject to civil penalties and damages, including attorney’s fees.
  • Employers must permit employees to use paid sick leave in the smaller of hourly increments or the smallest increment that their payroll system uses to account for absences or other time.
  • Employers cannot require employees to find a replacement worker as a condition of using paid sick leave.

Conclusion
Employers should review their current leave policies. An employer’s current paid time policies may already satisfy the requirements of Proposition 206. If not, it is important to work with legal counsel to draft a leave policy for implementation by July 1, 2017. Employers should also review their timekeeping and record keeping systems, track hours worked and sick leave accrual, and review their pay stubs to ensure they contain the information required for compliance with this Act.

Fair Wages and Health Families Act: http://apps.azsos.gov/election/2016/general/ballotmeasuretext/I-24-2016.pdf
Frequently Asked Questions (FAQS) About Minimum Wage and Earned Paid Sick Time: https://www.azica.gov/frequently-asked-questions-about-wage-and-earned-paid-sick-time-laws
Authored by: Colleen Gole, JD
BASIC – Compliance Director
cgole@basiconline.com
Ph: 269.488.6759