Badoux: Changes coming to Arizona employers after election day

The presidential election may be dominating the news as Nov. 8 approaches, but there are a lot of important changes on the horizon for Arizona employers, both on and off the ballot.

On the ballot, Arizonans will vote on Prop 206. Off the ballot, Arizona employers will have to address changes to federal wage laws significantly impacting our local economy as of Dec. 1.

First, let’s talk about Prop 206.

Laurent Badoux

Laurent Badoux

It gives me flashbacks to 2006, when Arizonans approved a minimum wage law. That measure, Prop 202, became the Arizona Minimum Wage Act, and created an indexed minimum wage that is approximately $1 higher than its federal counterpart.

What people missed were two pages of legalese designed to foster minimum wage litigation. These add-ons are now part of Arizona law. A decade later, we are right back at it, with Prop 206, a measure designed to significantly boost the minimum wage level set in Prop 202 by 50 percent in 3 years, and, of course, offering a little surprise to those who do not read the ballot measure to the end, namely mandatory paid sick leave.

Obviously, we have dealt with a higher-than-federal minimum wage for a while now, but mandatory paid leave of up to 40 hours per year (24 hours for employers with fewer than 15 workers) is a different animal altogether.

Only California, Connecticut, Massachusetts and Oregon have adopted paid sick leave laws; states with which Arizona is rarely associated when it comes to employment laws.

This is one of the most progressive employment law measures ever placed on a ballot in this state and virtually no one is talking about its impact. As it did a decade ago, the white noise about minimum wage increase is drowning out what should be a hotly debated ballot measure.

If Prop 206 passes, and latest polling suggests it is more likely to do so than Joe Arpaio is to be reelected, employers statewide will have to significantly revise their leave policies and adjust their labor costs for 2017.

Second, and much further under the radar, are the new Salary Rules the DOL has promulgated earlier this year. Those rules, which go into effect on Dec. 1, will likely change the way Arizona employers pay many of their workers, yet most smaller-size Arizona businesses are utterly unaware of their significant impact, which could dwarf the cost of Prop 206.

The new DOL salary regulations increase the threshold for who can qualify for “white collar” exemptions from overtime.

Generally, to qualify for an exemption from overtime (which allows the employer to pay the employee a salary without any additional overtime pay), the employee must be paid a salary in excess of the minimum provided by the DOL regulations and the duties of the employee’s position must meet the requirements for a specific exemption (i.e., a manager supervises two or more employees in a recognized business unit to qualify for the executive exemption).

At this time, the salary threshold for most exemptions is $455/week ($23,660/year). The new regulations nearly double that amount to $913/week ($47,476/year).

This new nationally applicable threshold sets a high bar in Arizona.

It is not uncommon for many Arizona employees to be in an exempt administrative or supervisory role earning quite a bit less than $47,476 a year. Currently, these employees qualify as exempt and are largely paid only their salary. Arizona employers must now decide what to do for employees earning less than the new threshold.

Does the employer give a pay increase to the employee affected or reclassify the employee to an hourly paid position?

If the employer determines that it cannot afford to give a pay increase to a currently exempt employee to maintain the exemption, that employer must re-classify that employee and begin paying that employee on an hourly basis.

Doing so creates three significant practical questions: (1) At what rate should the employee be paid? (2) How do you evaluate how much overtime that employee may work? (3) How do you reclassify someone to an hourly position from a salaried position without conveying the impression that this employee’s importance to the company is inherently diminished?

Answering these questions lead to hard choices for employers and will have an impact on tens of thousands of Arizona employees.

Whereas the minimum wage increase in Prop 206 will touch approximately 700,000 Arizona workers, there is no accurate economic analysis as to the impact of the mandatory sick leave law (which affects virtually all employers) or the new DOL regulations.

Costs of goods and services could easily increase 3 percent to 5 percent as a result of the confluence of these three changes, and one could argue that is a more important set of figures for Arizona than any other being discussed as part of the presidential election.

Editor’s Note: Mr. Badoux is a Scottsdale resident.

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