CLIENT ALERT: Arizona Voters Approve Minimum Wage Increases and Paid Sick Leave
November 2016

On November 8, 2016, Arizona voters approved the Arizona Minimum Wage and Paid Time Off Initiative (Proposition 206), which will increase the minimum wage and, for the first time in state history, provide mandatory paid sick leave for employees.
 
Minimum Wage Increases 
 
With the approval of Proposition 206, the minimum wage in Arizona will increase from its current rate of $8.05 per hour to $10.00 per hour on January 1, 2017. The minimum wage will increase gradually on an annual basis to $12.00 per hour by January 1, 2020. For each year thereafter, the minimum wage will increase to reflect cost of living. The measure allows employers to continue paying their tipped employees up to $3.00 less per hour than the minimum wage, but only if the employer can show that the employee’s hourly wage plus tips equals the minimum wage.
 
Mandatory Paid Sick Time
 
The paid sick time component of the law will go into effect on July 1, 2017. Under the new law, employees (both part-time and full-time) will accrue “earned paid sick time” at the rate of 1 hour earned for every 30 hours worked.  
 
Employers with 15 or more employees may cap the maximum annual accrual of paid sick time at 40 hours. Employers with fewer than 15 employees may cap the maximum annual accrual at 24 hours. FLSA-exempt employees (i.e., employees who are exempt from the FLSA’s minimum wage and overtime requirements) are presumed to work 40 hours in each work week for purposes of calculating paid sick time accrual, unless their normal work week is less than 40 hours, in which case their earned paid sick time will accrue based on actual hours worked.
 
Unused earned paid sick time must be carried forward to the following year consistent with the accrual limits of the statute.  Alternatively, employers may “pay out” sick time accrued during the prior year. Penalties for failure to comply with either the minimum wage or sick leave provisions include payment of the balance of wages or earned paid sick time owed, plus interest, and an additional amount equal to twice the balance of wages or earned paid sick time.
 
The new law includes specific employee protections that make it unlawful for an employer to retaliate or discriminate against an employee for exercising his or her rights under the law or for using accrued sick time. Critically, if an employer takes any adverse action against an employee within 90 days of a person’s use of paid sick leave, the law provides a rebuttable presumption that the action was retaliatory. Although penalties for unlawful retaliation or discrimination are discretionary, the minimum penalty imposed will be $150 for each day the violation continued or until judgment is final.
 
The law also imposes various notice and recordkeeping requirements, including a requirement that employers keep records of earned paid sick time for a period of four years. 
 
Recommendations
 
Employers should act now to build the newly approved minimum wage increase into their 2017 budgets and should formulate a written plan for calculating and implementing mandatory employee sick leave. They should also establish procedures for compliance with the notice and recordkeeping requirements of the act. Finally, employers should take special note of the law’s retaliation provisions and consult with employment counsel to determine best practices for reducing liability risks.