On June 27, 2017, the Industrial Commission of Arizona (ICA) issued supplemental draft regulations. The supplemental regulations tweak some of the draft regulations the ICA issued on May 5, 2017. Some supplemental regulations are entirely new and help clarify several important yet unanswered questions lingering in employers’ minds.

Frontloading Paid Sick Time

The biggest developments are for employers who frontload paid sick time (PST) or equivalent paid time off (PTO) for the same purpose and under the same conditions as PST. Employers who frontload PST are allowed to prorate the annual PST frontloaded amount if it meets or exceeds the employer’s “reasonable projection” of the amount of PST the employee would earn in the rest of that year at the statutorily required rate of 1 hour PST accrued for every 30 worked. (R20-5-1206(F)). If the employer’s reasonable projection turns out to be off, the employer is afforded the opportunity to (and must) true up the accrual. Also notable is that, under R20-5-1206(G), (H),employers that frontload the full 40 hours (or 24 hours if you are an employer with fewer than 15 employees) are not required to carryover PST to the next calendar year.

More Generous PTO Plans 

For employers opting to fold PST into their pre-existing and more generous PTO plans, the supplemental regulations provide helpful clarity on several previously gray areas. Under R-20-5-1202(3), the amount of PST “available” to the employee is defined as the amount of earned PST or the amount of equivalent PTO available to employee for use in the current year. The supplemental regulations also instruct that it is sufficient to report PTO accrued, used, and paid on paystubs if you are sticking with a more generous PTO plan. Specifically, R-20-5-1202(4) and (5) of the supplemental regulations define the amount of PST taken by the employee in the current year and amount of pay received by the employee in the current year—giving clarity on how to meet paystub obligations, specifically, year-to-date balances on PST or equivalent PTO. Under R-20-5-1202(13), the new definition of “employee’s regular paycheck” is a “regular payroll record that is readily available to employees,” which includes electronic paychecks and stubs.

Determining an Employee’s “Same Hourly Rate”

Revisions to the definitions of “same hourly rate” also help clear up some confusion. Salaried employees who use PST but receive the same salary with no deductions are not entitled to more pay. The supplemental regulations also revise the methodologies and priority order in which different employees’ same hourly rates are to be calculated. For example, under R20-5-1202(25)(c)(i)-(ii), the regulation proscribes the first method to determine a salaried employee’s same hourly rate is to compute the wages the employee earned during each pay period covered by the salary divided by the number of hours agreed to be worked during each pay period, if that number was previously established. Because most salaried exempt employees work until their jobs are done, this method may be seldom deployed. Rather, the second proscribed method—dividing the salary by 40—likely will be the most commonly selected approach.

“Smallest Increment”

The supplemental regulations also clarify the minimum time increments employers must allow employees to take for PST. Employers may impose the same minimum time increments for PST as they use for other paid time off policies, such as PTO, even if they account for absences in smaller increments.

What’s Next?

While many unanswered questions remain, the ICA has made a significant effort to address some of the biggest unknowns and most frequent pleas for clarification in its supplemental regulations. Input from employers grappling with the real world implications of this new law should make their concerns and questions known to the ICA to maximize the rule making and informal guidance being received through regular updates to ICA’s frequently asked questions (FAQs). The oral proceeding during which the ICA will receive feedback on the supplemental regulations will be held at the ICA on August 8, 2017 at 9:00 a.m. Employers can call or email the ICA with questions before the oral proceeding and make comments or ask questions of ICA representatives at the proceeding itself. Employers should consider submitting written comments on the supplemental regulations and any outstanding issues not addressed prior to August 8.