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Proposed Rules Provide Some Clarity To Prop 206 Paid Sick Time Law, Leave Other Questions Unanswered

Posted By Cindy Hesch, Thursday, May 11, 2017

By Erin Norris Bass, Associate, Steptoe & Johnson LLP

The Industrial Commission of Arizona (ICA) issued proposed rules under Arizona’s new paid sick time (PST) law on May 5, 2017. The proposed rules provide some clarity on calculating the “same hourly rate” for paying sick time and how the PST carry over rules intersect with the PST accrual rules. However, the proposed rules leave open other questions on how to implement the new laws. Employers have until June 5 to submit written comments on the proposed rules.

Calculating the “Same Hourly Rate”

The proposed rules provide detailed guidance on how to calculate the “same hourly rate” for purposes of paying sick time, answering employer questions on how to calculate the rate for employees who earn wages based on something other than a straight hourly rate.

In particular, for employees who earn multiple hourly rates, employers must first pay the wages that would have been paid for the period of time in which sick time is used. If that’s not known, employers must pay the weighted average of all hourly rates from the previous pay period.

For employees paid on a commission, piece-rate, or fee-for-service basis, the proposed rules list four methods of calculation, in order of priority:

1.       a previously established agreed-upon rate (such as in an employment contract);

2.       the wages that would have been paid, if known;

3.       a “reasonable estimation” of wages that would have been paid; or

4.       a weighted average of all hourly rates over 90 days.

Salaried employees must be paid an hourly rate that divides their salary by the number of hours the salary is intended to cover. For fluctuating hours, the employee is presumed to work 40 hours in a week.

The proposed rules also clarify that shift differentials, hazard pay, and other premiums meant to compensate for differing conditions must be included in the hourly rate. The employer can exclude overtime premiums, holiday pay, bonuses, incentive pay, and tips, but the hourly rate can never dip below the minimum wage.

Given the different options for calculating pay for employees who earn wages based on something other than a straight hourly rate, employers should consider whether they would benefit from advance agreements with employees over rates or hours. Employers should also note the proposed rules’ emphasis on calculating the hourly rate based on the time of use, particularly if loaning employees PST or paying out the balance of sick time at the end of the year.

Clarification on How Carry Over Affects Accrual

The proposed rules clarify the cap on the number of PST hours an employee can carry over to the following year – 40 hours for an employee whose employer has 15 or more employees, and 24 hours for an employee whose employer has less than 15 employees.

Importantly, the proposed rules make clear that “[c]arry over shall not affect accrual or use rights.” That is, employees of larger employers can potentially carry a balance of up to 80 hours of PST – 40 carried over from a previous year and 40 accrued in the current year. Nevertheless, the employee can use no more than 40 PST hours in a year.

Other Clarifications

The proposed rules clarify precisely what records the employer must keep on PST for both non-exempt and exempt employees: (1) accrued PST, (2) used PST, and (3) the current balance of PST.

The proposed rules also exempt “small employers” from the posting requirement (although they are still subject to other minimum wage and PST rules). A “small employer” is defined as a company with less than $500,000 in gross annual revenue.

Finally, the proposed rules define “public health emergency” narrowly, as only applying when the governor has declared certain state emergencies.

Questions Left Open

The proposed rules offer no clarity on who is an individual related by “affinity” for purposes of determining whether they qualify as a “family member” whom the employee may take PST to care for.

Also, the proposed rules do not clarify if or how an employer can recover PST that it loans to an employee if the employee departs the company before actually accruing the PST.

Comment Period and Hearing

The IAC will hold a hearing on the proposed rules on June 5, 2017, at 9 a.m. at the IAC auditorium. Employers may submit written comments on the proposed rules until June 5. Employers should consider submitting comments that would garner clarification on how the PST laws would impact their particular business model.

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