The passage of Proposition 206 in November 2016 brought not just an increase in Arizona’s minimum wage, but also enactment of a new state law requiring all employers (with very narrow exceptions) to provide all employees, including part-time workers, with annual paid sick time (PST). With the July 1, 2017 effective date rapidly approaching, we want to make sure you have the important information you need to adopt or revise policies, provide notice, and update your payroll and recordkeeping practices before the law takes effect. Here’s what you need to know:

How much PST must be provided?

• Employees must accrue a minimum of one hour of PST for every 30 hours worked. (Thus, part-time employees will accrue PST at a slower rate than full-time employees.) Employees begin to accrue PST on July 1, 2017 or on the first day of employment, whichever is later.
• For employers with 15 or more employees, accrual and use of PST is capped at 40 hours in a single year, unless the employer sets a higher limit. The annual limit is 24 hours for smaller employers.
• For accrual calculation purposes, employees classified as exempt under the Fair Labor Standards Act are assumed to work 40 hours each workweek, unless their normal workweek is less than 40 hours, in which case the employee accrues PST based on her or his normal workweek.
• Employers are not required to use the accrual method and may provide all PST that an employee is expected to accrue within the year at the beginning of that year.
• The employer may define the “year” for PST purposes. It may be the calendar year or any other “regular and consecutive” 12-month period.

• Note: Employers who already have paid leave policies, such as a general paid time off (PTO) policy, are not required to provide additional time off, as long as the existing policy provides employees at least as much time off as they would get under the PST law and allows for use of the time for the same purposes and under the same conditions as the PST law. The “under the same conditions” requirement can present the greatest challenge when modifying an existing policy.

What are the permissible uses for PST?

• Diagnosis, care or treatment of the employee’s own mental or physical health condition, or for preventive medical care;
• Diagnosis, care or treatment of a family member’s mental or physical health condition, or for preventive medical care;
• Certain circumstances related to a public health emergency; and
• To obtain medical care, victim services, counseling, relocation, or legal services related to domestic violence, sexual violence, abuse, or stalking of the employee or a family member.

What are the important rules regarding use of PST?

• The employee may use PST as she or he earns it. In the employer’s discretion, PST may be loaned to the employee in advance of accrual.
• Employers may require employees hired after July 1, 2017 to wait 90 days before using their accrued PST. (Accrual starts from the beginning of employment, however.)
• An employee may use accrued PST in one-hour increments or the smallest increment the employer’s payroll system uses to account for absences “or use of other time,” whichever is smaller. (For example, if an employer’s payroll system tracks other absences by the quarter-hour, then employees must be permitted to use PST in quarter-hour increments.)

What rates of pay apply to PST?

• PST must be paid at the “same hourly rate” as the employee normally earns during hours worked, and must be at least equal to the state’s minimum wage. This rate is easy enough to determine when the employee has a single hourly rate or fixed salary. It can be more complicated for tipped and commissioned employees and those with multiple rates of pay. Regulations recently proposed by the Industrial Commission of Arizona (ICA) provide additional guidance on this topic.

What notice must employees provide to use PST?

• If the employee’s need to use PST is foreseeable, the employee must make a good-faith effort to give advance notice to the employer and to schedule the leave in a way that does not “unduly disrupt” the employer’s operations.
• Employers who wish to require employees to provide notice of their intent to use PST when the need is not foreseeable must maintain written policies informing employees of the procedures for providing notice. If an employer does not maintain such a written policy, the employee may not be denied the right to use PST on the grounds that the employee failed to provide the notice.
• When possible, the employee’s request must include the expected duration of the absence.

What can employers do to verify appropriate use of PST?

• Employers’ ability to verify that employees are not abusing PST is limited, especially when leave is taken for short periods. For example, employers may require certain statutorily defined “reasonable documentation” only when the employee takes three or more days of consecutive PST. The implication, of course, is that employers likely will be unable to independently confirm that employees are using PST for permissible reasons when taken in increments shorter than three days.
• For PST leave of three or more consecutive days taken for medical reasons, a note signed by a health care professional simply stating that sick time is necessary qualifies as reasonable documentation. Other forms of documentation may be provided for PST taken for domestic violence reasons. In all cases, employers may not require employees to disclose the nature of the employee’s (or family member’s) health condition or details relating to domestic violence, sexual violence, abuse, or stalking, as a condition of providing earned PST.

How is unused PST handled?

• The general rule is that accrued unused PST must be carried over to the following year. According to the ICA’s proposed regulations, carryover may be limited to the maximum number of hours that an employee can accrue in a year (either 24 or 40, based on the size of the employer).
• The carryover does not increase the amount of PST that the employee accrues or may use in the following year, unless the employer allows use of additional time. In other words, the default is that the 40-hour (or 24-hour) limit still applies to both accrual and use of PST each year.
• Alternatively, the employer may pay out accrued unused PST at the end of the year, so long as it provides the employee with a full year’s allotment of PST that is available for immediate use at the beginning of the next year.
• Employers are not required to pay out accrued, unused PST when an employee leaves. We recommend having a clear written policy informing employees about whether your business pays out accrued, unused PST upon separation from employment.

What notices must employers provide?

• By July 1, 2017 or at the start of employment, whichever is later, employers must provide a prescribed written notice to employees. The ICA has created model notices in English and Spanish for this purpose, and may create them in other languages it deems appropriate. These should be posted in the same location where employees will find other required workplace postings. We also strongly recommend having a separate written policy explaining the company’s PST (or general PTO) program.
• Employers must either record on pay statements, or attach to employees’ regular paychecks, the amount of PST the employee has available, the amount of PST used, and the amount of pay received from PST used by the employee.

What protections does the law provide for employees who use PST?

• Employers are prohibited from discriminating or retaliating against employees who exercise their rights under Arizona’s wage laws, including the new right to PST. Among other things, this means that an employer may not count PST as an absence that may lead to disciplinary action or termination under its attendance policy.
• It is also important to note that any adverse action taken against an employee within 90 days after the employee uses PST or otherwise asserts any rights under the PST law is presumed to be retaliatory. The burden then shifts to the employer to establish, by clear and convincing evidence (a higher standard of proof than is required for most civil legal claims), that the action was taken for other permissible reasons.

Our Employment Group stands ready to work with you to develop or revise policies to comply with the PST law, and we are dedicated to providing the highest level of service to ensure that you experience a smooth transition to these new requirements. Do not hesitate to contact any one of us with questions or for assistance.

Kent Brockelman Email 602-381-5477

Jill Chasson Email  602-381-5481

Kim Fatica Email 602-381-5474