With Proposition 206 currently in effect in Arizona, even while the law still awaits decisions from pending court dates, many small businesses are understandably focused on the implications for their operating costs based on the mandated minimum wage increases. However, other provisions of the law will have significant impacts on businesses as well. We have compiled some great information having to do with Prop 206 paid sick leave.
Preparing for Prop 206 Paid Sick Leave Requirements
What is Prop 206?
Proposition 206, also known as the Minimum Wage and Paid Time Off Initiative, is a ballot measure that was passed by Arizona voters during the November 2016 election. In addition to incrementally increasing the minimum wage from its previous $8.05 to $12 per hour by 2020, the initiative proposes to mandate large employers (defined as those organizations employing 15 people or more) provide 40 annual hours of “earned paid sick time” to full-time employees, with small employers (those with 14 or fewer employees) responsible for providing 24 hours of the annual benefit to their full-time employees, with organizations of either size providing some level of paid sick time to part time workers as well.
While a previous lawsuit was not filed in time to stop the law, there is still a pending legal action that means that the future of the initiative is not yet definite. However, in the interest of maintaining operations, businesses would do well to prepare for the law to remain intact in the meantime. The Arizona Legislature’s Joint Legislative Budget Committee hypothesizes that:
“An increase in sick leave use resulting from Proposition 206 may increase business labor costs as additional nonwage compensation is needed for employers to purchase a given amount of labor hours. To offset added labor costs, businesses may attempt to raise product prices, reduce wages of employees that make above the minimum wage, and/or substitute capital for labor through automation. Some of the initial labor costs of increased use of paid sick leave may also be offset by improved employee health from lower transmission of contagious diseases and lower employee turnover.”
Understandably, in the face of a decent level of uncertainty for what Prop 206 sick leave and minimum wage requirements will ultimately mean for their bottom lines, many businesses are enlisting the help of Arizona payroll and accounting experts to properly map their strategy for adaptation.
Prop 206 Sick Leave
As mentioned previously, the Prop 206 paid sick leave requirement applies to full-time and part-time employees alike. Employees will accrue a single hour of paid sick time for every 30 hours of work they complete, regardless of the size of the employer. Unless employers decide to provide more paid time off as an incentive for their people, employees at a company with 15 or more employees are entitled to up to 40 hours with workers at organizations with 14 or fewer companies being entitled to up to 24 hours in a year.
Effective as of the beginning of this year, Prop 206 paid sick leave hours also carry over from year to year if they are not used.
Under Prop 206, employees can use the paid sick time they earn for a variety of reasons. In addition to the obvious reason of being sick themselves, the time can also be used to care for family members. The definition of a “family member” is not incredibly clear under the law. Parents can care for their sick children, spouses are covered, as are grandparents, siblings, and in-laws. More vaguely, the law also mandates that earned paid sick time can be used to care for “Any blood relative or person of such affinity or close association as to be the equivalent of a family member.”
The state was already able to levy civil penalties against employers that violate requirements of minimum wage provisions—including recordkeeping and posting. Organizations found to be in violation are fined $250 for the first violation. Then, any subsequent violation comes with a fine of $1,000. Prop 206 expands the reach of the Industrial Commission, meaning that these same penalties now will apply to similar violations of Prop 206 sick leave requirements.
Current Court Dispute
On March 9, the Arizona Supreme Court will hear and consider a lawsuit challenging Prop 206 on the basis that the law did not properly identify a funding source, as required by state constitutional requirement for all ballot measures. The group who sponsored the ballot initiative, Arizonans for Fair Wages and Healthy Families, argue that because the state itself is exempted from extending Prop 206 benefits to its employees, they are not in violation of Arizona’s constitution.
While we are unmatched experts when it comes to all things HR, accounting, and payroll, we are not attorneys (we ain’t passed the bar, but we know a little bit). We really can’t opine one way or the other how the court case will end up. However, one thing we are certain of is that it is always better safe than sorry when it comes to matters of business preparedness and compliance. The best time for business owners to start planning for Prop 206 sick leave requirements was last year; The next best time is now. PayTech is here for you when it comes to any of your financial needs, please contact us if you have any questions or concerns!