The Industrial Commission of Arizona’s (ICA) proposed rules under Arizona’s new paid sick time (PST) law provide detailed guidance on how to calculate an employee’s “same hourly rate” for purposes of paying sick time, answering employer questions on how to calculate the rate for employees who earn wages based on something other than a straight hourly rate.
In particular, for employees who earn multiple hourly rates, the proposed rules list two methods of calculation, in order of priority:
- The hourly rate the employee would have earned, if known, for the period of time in which sick time is used
- The weighted average of all hourly rates from the previous pay period
For salaried employees, an employer does not need to calculate a “same hourly rate” if the employee’s use of PST does not reduce their regular salary during that pay period. When using PST will reduce an employee’s regular salary, the proposed rules provide two methods to calculate the “same hourly rate,” in order of priority:
- All wages earned during each pay period covered by the salary divided by the agreed-upon work hours during each pay period, if previously established
- All wages earned during each workweek covered by the salary in the current year divided by 40 hours
For employees paid on a commission, piece-rate, or fee-for-service basis, the proposed rules list five methods of calculation, in order of priority:
- A previously established agreed upon rate (such as in an employment contract)
- The wages that would have been paid, if known, divided by the number of hours used
- A “reasonable estimation” of wages that would have been paid, divided by the number of hours used
- The hourly average of all wages earned during the previous 90 days based on hours actually worked or a 40-hour workweek
- The hourly average of all wages earned in the previous 365 days based on hours actually worked or a 40-hour workweek
The proposed rules also clarify that shift differentials, hazard pay, and other premiums meant to compensate for differing conditions must be included in the hourly rate. The employer can exclude overtime premiums, holiday pay, bonuses, incentive pay, and tips, but the hourly rate can never dip below the minimum wage.
The proposed rules are not final and may change before going into effect, but they provide valuable insight into how the ICA interprets the new PST law. The ICA will hold a hearing on the proposed rules on August 8 at 9:00 a.m. in the ICA auditorium. Employers may submit written comments until August 8.
For more information on the ICA’s proposed rules and answers to FAQs, check out our other ICA Guidance posts.