Starting July 1, 2017, nearly all Arizona employers are required to provide earned paid sick time to their employees. Days before the law’s effective date, the Industrial Commission of Arizona (ICA) published notice of supplemental proposed rulemaking related to the new Earned Paid Sick Time law. The proposed regulations issued on June 27, 2017 highlight a number of issues, and Arizona employers should take note.

“Equivalent Paid Time Off”: Under the new earned paid sick time law, if an employer has an existing paid time off (PTO) policy, which meets the earned paid sick time accrual requirements, the employer need not provide employees with additional earned paid sick time. The ICA’s proposed regulations include the term “equivalent paid time off” when referencing earned paid sick time, affirming that PTO is equivalent to earned paid sick time under the agency’s rules. The proposed regulations support that employers may use qualifying PTO to satisfy the earned paid sick time accrual requirements.

Limiting Carryover Hours: The new Earned Paid Sick Time law limits employees’ use and accrual of earned paid sick time, but does not appear to limit the number of unused paid sick time hours an employee may carryover year to year. The ICA’s proposed regulations allow employers to limit the number of unused earned paid sick time hours employees may carryover year to year. Under the regulations, employers with 15 or more employees may limit carryover hours to 40 hours per year, and employers with fewer than 15 employees may set the limit at 24 hours annually.

Modified Frontloading: Under the Earned Paid Sick Time law, employers might avoid the carryover requirement by both paying out unused earned paid sick time at the end of the year and “frontloading” at least the statutory minimum number of earned paid sick time hours for employees’ immediate use at the beginning of the next year.

Notably, the ICA’s proposed regulations appear to modify this frontloading option. Under the new rules, employers who provide existing employees at least 24 or 40 hours (whichever is applicable) of earned paid sick time or PTO for immediate use at the beginning of each year are not required “to provide carryover or additional accrual.” The proposed regulations appear to allow employers to avoid the carryover requirement by frontloading earned paid sick time or PTO for existing employees each year or by paying out unused earned paid sick time at the end of the year according to the statute. The regulations do not appear to require both year-end payout and frontloading.

Hourly Rate Calculations: Perhaps the biggest challenges Arizona employers will face with the new law are how to track and to keep record of employees’ accrual and use of earned paid sick time. The proposed regulations provide calculations to determine the hourly rate for accrual of earned paid sick time for employees paid: (i) a single hourly rate; (ii) multiple hourly rates; (iii) by salary; (iv) by commission, piece-rate, or fee-for-service bases; and (v) for shift differentials. In fact, the proposal includes no less than five (5) alternative approaches to calculate the hourly rate for earned paid sick time for commissioned employees. Employers may avoid confusion by agreeing with employees in advance on the hourly rate it will use to calculate employees’ accrued earned paid sick time.

As the ICA’s proposed supplemental regulations suggest, this is a dynamic and evolving body of law. It remains to be seen if the ICA’s proposed rules will be adopted as proposed or amended. It also remains to be seen how courts will interpret both the new law and the regulations. The public may provide written comments to the ICA’s proposed regulations by August 8, 2017, and the ICA will hold an oral proceeding on that same day. Employers should consult with an attorney if they have questions about Arizona’s Earned Paid Sick Time law.