As Arizona employers prepare for the imminent July 1 effective date of Arizona’s first mandatory paid sick time law (The Fair Wages and Healthy Families Act (the “Act”)), one of the questions that we get most frequently is, “If we have a Paid Time Off, do we need to have a separate policy for paid sick time?”

The answer is: Possibly not, but you still might want to.

The Industrial Commission of Arizona’s FAQs regarding the Act address this very issue, providing, “If an employer has a paid leave policy that provides an amount of paid leave that meets or exceeds Arizona’s earned paid sick time minimum requirements (and can be used for the same purposes and under the same conditions as the statutorily-required earned paid sick time), the employer is not required to provide additional earned paid sick time.” Although the FAQs specify that they “should not be used as a replacement for the [Act] or the qualified advice of legal counsel,” the Industrial Commission reiterated this position at its June 5, 2017, proceeding to address rules regarding enforcement of the Act. In other words, if an employer’s PTO policy allows all Arizona employees to accrue 1 hour of PTO for every 30 hours worked up to at least 40 hours for employers with 15 or more employees (or 24 hours for employers with fewer than 15 employees), allows employees to roll over up to 40 hours of unused PTO at year-end (or pays out the unused time and fully grants PTO at the start of the next year), and meets the Act’s notice and recordkeeping requirements, the Industrial Commission has indicated that it will not penalize an employer that does not maintain a separate policy for earned paid sick time.

Despite the Industrial Commission’s FAQ comments generically allowing employers to continue using PTO policies, an employer may be exposing itself to preventable risk by maintaining only a PTO policy, even if the policy meets the requirements of the Act. One of the most significant risks comes within the Act’s retaliation provision. Under the Act, there is a rebuttable presumption of retaliation if an employee is disciplined or terminated within 90 days of using accrued sick time. If an employer maintains only a PTO policy, the presumption of retaliation will arise if an employee is disciplined or terminated within 90 days of using PTO for any reason. The penalties for retaliation under the Act are at least $150 per day.

Another risk to an employer with a PTO policy could arise if an employer knows that an employee used all of his PTO for leave that would not otherwise qualify for sick time under the Act. In this scenario, the employer may find itself in a position of needing to providing additional sick leave if the employee later develops a qualifying reason for leave during a benefit year. Further, because the Act allows employees to use sick time without notice in the event of unforeseeable needs for leave, another challenge for employers would be how to prevent abuse of using all PTO time for “unforeseeable” leaves.

Because of the heightened risks in maintaining only a PTO policy rather than separate vacation and sick leave policies, where it is merely inconvenient, but not impracticable, to create and maintain separate policies, the best practice would be to separate PTO into earned paid sick time and vacation. In the short term this will be an adjustment, but with a long term goal of avoiding claims and HR issues, separating vacation from sick time seems prudent for most companies.