By: Erwin Kratz, Esq. of ERISA Benefits Law
Arizona voters recently approved Proposition 206, which will increase the minimum wage to $10 per hour, effective as of January 1, 2017, and provides all Arizona employees (other than employees of the federal or state government) paid sick time (PST) as of July 1, 2017.
This post summarizes the key issues that employers will need to address before July 1, 2017.
Employers will likely want to create a new PST policy, which they provide to employees before July 1, 2017, and which explains employee rights to PST under the new Arizona statute.
Coordination with Other Policies
In most cases, employers will want to make their PST policy separate from any existing Paid Time Off (PTO) policy, even though the two policies will refer to each other. In addition, existing PTO policies may need to be refined to ensure they work as smoothly as possible with the new PST requirements.
Your PST policy will need to coordinate with your FMLA leave policies, as the two types of leave may overlap in some instances, but they are not synonymous. Employers should also consider coordinating their PST policy with any self funded short term disability policy (STD), to ensure that they do not have to pay out twice for the same leave (once under the STD policy and once under the PST policy).
- If you are an employer of fewer than 15 employees, employees must be allowed to accrue and use up to 24 hours of PST per year; and if you are an employer of 15 employees or more, employees must be allowed to accrue and use up to 40 hours of PST per year (the time is accrued 1 hour for every 30 hours worked)
- FLSA Exempt employees are presumed to work 40 hours per week; unless they actually work less than 40 hours per week in which case they can accrue PST based on actual hours worked
- Time taken for PST can also reduce available PTO (if your PTO policy so provides)
Employees can take PST for Four Broad Reasons
- Their own mental or physical illness, injury or health condition, need for diagnosis, treatment or care, or for preventive care
- Care of a family member with the above
- Absences necessary due to certain domestic violence, sexual violence, abuse or stalking
- Certain business closures due to public health emergencies
Optional Policy Provisions
In adopting a PST policy, employers will need to consider the following:
- Define a PST year: Your policy will need to define when the PST year begins. We generally recommend January 1, unless your company uses a different month for the beginning of the work year or your welfare benefits plan year
- Define the increments in which the employee can use the accrued PST: May be used in the smaller of either an hourly increment or the smallest increment that your payroll system uses to account for absences or use of other time
- Termination of Employment: Will you pay employees out for accrued PST upon separation of employment? Most employers will not pay it out
- Carryover of PST or payout unused accrued PST at the end of the year? Employers have the option to pay out unused PST at the end of each year, or to carry it over
- We recommend that most employers not payout the unused PST and instead allow the time to carryover each year. The employee will continue to accrue additional PST (up to 24 or 40 additional hours). However, the impact of this is limited because:
- employees cannot use more than 24/40 hours of PST per year, regardless of how much PST they carry over and end up accruing in the new year; and
- employers do not have to pay out PST upon termination of employment. The carry over therefore simply allows the employee to have the availability to use PST hours that were accrued and unused during the prior year – i.e. to use PST immediately in the subsequent year, as needed. The financial impact can be limited for most employers if their PTO policy is properly drafted to ensure this time is also deducted from an employee’s PTO bank.
- Delay Availability of PST for New Hires (after 7/1/2017)? Newly hired employees will accrue PST once they commence employment, however employers may require that they wait until 90 calendar days after they commence employment before they can use any accrued PST.
- Who in your organization will keep record of the PST? Employers must keep records for 4 years.
- Will you allow employees to borrow PST? Most employers will not allow borrowing of PST. However, many will revise the PTO policies to allow borrowing of PTO, if it is used for PST reasons (thereby increasing the likelihood that you will in fact reduce the amount of PTO available by each hour of PST taken).
- What Procedures will you adopt for requiring notice before an employee takes PST (both foreseeable and non-foreseeable) (and how will you coordinate that with your current policy for requesting PTO)?
- If you require notice of the need to use PST, even where the need is not foreseeable, your policy must include the procedures for the employee to provided notice.
- What circumstances will you require proof of the need for PST (other than a request)?
- You may request “reasonable documentation” that earned PST is used for a proper purpose only where an employee seeks to use three or more consecutive work days of PST.
- “Reasonable documentation” is defined as “documentation signed by a health care professional indicating that the earned paid sick time is necessary.”
- Where three or more consecutive PST days are used in cases of domestic violence, sexual violence, abuse, or stalking, the statute provides alternative forms of reasonable documentation that may be requested, such as a police report, a protective order, or a signed statement from the employee or other individual (a list of which appears in the statute) affirming that the employee was a victim of such acts.
- If you currently require a doctor’s note for any single-day absence you will need to change that practice.
In addition to adopting a policy, and posting a required notice (a model of which the ICA will provide), employee pay statements must include or have enclosed a report of PST to include the following:
- the amount of PST available;
- the amount of PST taken to date; and
- the dollar amount of PST paid year to date.
We recommend employers wait until March/April of 2017 before drafting their PST policy and updating their PTO policies, because expected ICA rules will likely provide some guidance on the new law that may impact your policy choices.