Arizona’s New Paid Sick Time Law Goes Into Effect July 1, 2017

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.   We will be providing more information and will assist clients in drafting a compliant policy in the coming months, as we expect clarification on the notice requirements in rules that will be issued by the Industrial Commission of Arizona (ICA).

Employers will likely want to create a new PST policy, which they provide to employees before 7/1/2017, and which explains the employees’ 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, 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)

PTO Accrual

  • 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 (we anticipate providing a checklist in the Spring of next year to help clients draft their policy to incorporate these choices):

  • 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 clients 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.  We anticipate providing clients a checklist in the Spring to select the features they would like in a PST, and to draft policies based on those choices. We expect we will be able to provide that service for a low flat fee. Look for details in the Spring.

COBRA, FMLA and the ACA Employer Mandate

Let’s assume you have diligently designated initial and standard measurement and stability periods to take advantage of the opportunities provided by the final employer mandate regulations to minimize the risk of incurring employer mandate penalties under the ACA (if you have not, let’s do it now – better late than never). But you may not yet have figured out how these designations may impact your FMLA and COBRA administration. To help you do that, let me tell you a story….

Joe Blow worked as a full-time employee for Acme, Inc. for several years. As such, he and his family were covered by Acme’s medical plan. In 2014, Acme designated a November 1 – October 31 standard measurement period, and a January 1 – December 31 standard stability period for ongoing employees such as Joe. In November 2014, Joe was diagnosed with cancer and went out on FMLA leave. In accordance with its long-standing practice, Acme continued Joe’s coverage under the medical plan while Joe was on FMLA leave, until the later of February 28, 2015 (the end of the month in which the 12 week FMLA leave period ended), or the date Joe indicated he would not return to work.

In January 2015, Joe let Acme know that he would return to work on March 1, 2015, but that due to his medical condition he could only work 20 hours per week. Joe was a valuable employee, and Acme wanted Joe to return to work in whatever capacity they could have him. So Acme welcomed Joe’s return.

Now, before the ACA, Acme would have:

  • terminated Joe’s medical coverage upon his return to work,
  • retroactively collected from Joe the employee portion of the premium for his coverage for the FMLA leave period, and
  • offered Joe and his qualified beneficiaries COBRA coverage. The COBRA period would have started running as of March 1, 2015 (the end of the FMLA leave period).

What about after the ACA? When Joe returns to work in March 2015, Acme can no longer terminate his employee coverage, because Joe worked full time during the measurement period that ran from November 1, 2013 to October 31, 2014 (and therefore he satisfies the requirement to be considered a full-time employee for the stability period that runs from January 1, 2015 to December 31, 2015). This would remain true, even if Acme had extended Joe’s leave beyond the FMLA period, into March and April 2015. For example, if Acme had agreed to extend Joe’s leave through April 1, 2015 as an accommodation under the ADA, or if Acme had voluntarily permitted Joe to extend his leave (without terminating employment) through April 1, 2015, Acme would still not be able to terminate Joe’s coverage at the end of the FMLA leave, because of its ACA measurement and stability period designations. Acme needs to continue offering Joe coverage under the Plan through the end of 2015.

What about COBRA after the ACA? Joe works 20 hours per week for the remainder of 2015. Therefore, he does not work sufficient hours during the November 1, 2014 – October 31, 2015 measurement period to be considered a full time employee for the stability period that runs from January 1, 2016 to December 31, 2016, and Acme terminates Joe’s employee coverage as of January 1, 2016.

Under COBRA, the coverage period runs from the date of the qualifying event that leads to a loss of coverage (not from the date of the loss of coverage). Therefore, Joe’s standard 18 month COBRA period would end on August 31, 2016 (18 months after March 1, 2015). So under COBRA, Acme cannot terminate Joe’s COBRA coverage before August 31, 2016.

Alternatively, Acme could design its medical plan to start the COBRA period as of the date coverage is lost (as opposed to the date of the qualifying event). Here, that would give Joe 18 months of COBRA after January 1, 2016. Before it does so, however, Acme needs to make sure that its stop loss insurer is on board (Acme’s plan is self-funded, with a stop loss policy).

As this little tale teaches, regardless of whether Acme’s plan is self-insured or fully insured, and regardless of whether it decides to run the COBRA period from the original qualifying event, or from the loss of coverage at the end of the stability period, Acme should make sure that its insurance policies, plan documents, summary plan descriptions, medical plan eligibility administration, COBRA administration, and leave policies all account for the implications of its designated measurement and stability periods.

New FMLA Rule Defining “Spouse” Based on Marriage “Place of Celebration” Rather Than Employee’s “State of Residence”

Same-Sex-CouplesOn February 25, 2015, the Department of Labor published updated FMLA rules pursuant to which employees in legal, same-sex marriages, regardless of where they live, will have the same rights as those in opposite-sex marriages to federal job-protected leave under the Family and Medical Leave Act (FMLA).

Originally enacted in 1993, the FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. Employees are, for example, entitled to take FMLA leave to care for a spouse who has a serious health condition.

This rule change updates the FMLA regulatory definition of “spouse” so that an eligible employee in a legal same-sex marriage will be able to take FMLA leave for his or her spouse regardless of the state in which the employee resides. The new rules are effective March 27, 2015.  Previously, the regulatory definition of “spouse” did not include same-sex spouses if an employee resided in a state that did not recognize the employee’s same-sex marriage. Under the new rule, eligibility for federal FMLA protections is based on the law of the place where the marriage was entered into.

This “place of celebration” rule brings FMLA into alignment with the rules applicable to qualified retirement plans since the Supreme Court’s Windsor decision in 2013.

We recommend that employers review and update their FMLA policies to ensure compliance with the new rules.  In addition, while it is still theoretically permissible for employers to use a different definition of “spouse” for purposes of welfare benefit plans, such as medical, dental, life, and disability (because ERISA does not require spousal coverage under those plans), we recommend that employers seriously consider aligning their definition of “spouse” for all purposes.

icon The Final Rule

icon DOL FAQs

icon DOL Fact Sheet