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Preparing for Proposition 206 Implementation

Preparing for Proposition 206 Implementation

With the recent approval of Proposition 206, many Arizona employers find themselves needing to revamp their payroll and sick leave procedures. The changes go into effect January 1, 2017, and it’s imperative that employers and small business owners understand what will be required of them under Proposition 206.

What is Proposition 206?

Proposition 206 raises the minimum wage in Arizona to $12 per hour by 2020. Proposition 206 also entitles employees to earn one hour of paid sick leave for every 30 hours worked, with time limits based on the size of the employer. It also broadens the conditions under which paid sick leave may be taken.

You’ll Need to Plan for Wage Increases

The first key component of Proposition 206 is the minimum wage increase, which could stress small companies who rely on minimum wage workers. The minimum wage will increase from $8.05 per hour in 2016, to $10 per hour by 2017, and incremental increases to $12 an hour by 2020. For comparison, the federal minimum wage is $7.25 per hour.

Proposition 206 increases the minimum wage in Arizona to:

  • $10.00 per hour on January 1, 2017
  • $10.50 per hour on January 1, 2018
  • $11.00 per hour on January 1, 2019
  • $12.00 per hour on January 1, 2020

After 2020, Arizona’s minimum wage will increase, according to increases in the cost of living.

Proposition 206 also preserves the employer’s right to pay $3 per hour less than minimum wage to an employee who regularly receives tips or gratuities, such as food servers.

You Need a System in Place to Manage Sick Leave

Beginning in July 2017, you’ll need to have a process in place for managing paid sick time (PST). Arizona law previously did not require any private or municipal employers to provide PST for their employees. Under Proposition 206, however, private employers and municipalities would be subject to the following requirements, starting on July 1, 2017.

Employees accrue a minimum of one hour paid sick leave per 30 hours worked, within the following guidelines:

  • Employers with 15 or more employees must permit employees to accrue up to 40 hours of PST per year and to allow them to use up to 40 hours of accrued PST per year.
  • Employers with fewer than 15 employees must permit employees to accrue up to 24 hours of PST per year and to allow the use of up to 24 hours of accrued PST per year.

Some additional requirements to consider: Part-time and temporary workers are considered employees and are entitled to PST.  Employees are protected from retaliation and PST absences may not count against them.

Employers may not require employees to find their replacements as a condition for receiving PST leave. Also, unused accrued sick leave carries over from one year to the next.  Accrued paid sick leave does not need to be paid to terminated employees.

Proposition 206 also specifically outlines a number of situations for which an employee may use paid sick time, including when:

  • The employee has a mental or physical illness
  • The employee needs to care for a family member who has a mental or physical illness
  • A public health emergency arises
  • An employee must address issues related to domestic violence

If your business currently does not have a paid sick leave system in place, or if you’re struggling to find ways to increase your payroll to meet the new minimum wage requirements, it’s imperative that you begin implementing new procedures right away to meet the Arizona law deadlines.

Don’t wait to put your system in place. I can help you create system and processes that make this easy. Schedule your consultation today.

How to Determine Salary Structures as a Subcontractor

Subcontractors as well as other small businesses must keep a close eye on expenses and salary structure. Determining what wages to pay your employees within a total compensation plan requires knowledge of skills, prevailing wages, project expenses and profitability.Subcontractor

Know Key Skills

You probably already know the skills that you need for each of the jobs that are included in your list of services. Take the time to document the job description, including the title, tasks required, skills, abilities and work environment. Use the Department of Labor’s job resource tool O*NET to help you discover the tasks, technology, knowledge, skills, abilities, work activities, work context, education, work styles, work values, and wage trends. When you take the time to list these out, you create clarity with your job applicant as well as your hiring staff.

Pay Competitive Wages

O*Net has a link to Careeronestop, which can provide a range of hourly or annual wages specific to your state or zip code. Inexperienced employees can often be brought in at the low range if your total compensation, which includes paid time off, health and retirement programs are competitive. More experienced employees can command a higher wage, but are often worth it because they are more efficient and able to train your newer employees.

It’s important to note that there are minimum wages that you must pay your employees, even if the project you are working on is project based. On October 13, 2013 the Industrial Commission of Arizonan signed a resolution resulting from ARS 23-364 that raised the minimum wage. The hourly rate increased to $7.90 per hour effective January 1, 2014. You must pay at least this wage even if that means that you don’t make a profit on your project-based contract.

Subcontractor Profitability

Generally, contractors pay subcontractors by the job so that employment lines aren’t blurred, which could cause a reclassification of the subcontractor to employee status. Smart contractors ensure that the subcontractor has behavioral and financial control of their business as well as contracts that describe the nature of their relationship.

Because pay is often tied to the job, you must be competitive in your bid while still remaining profitable. Knowing what you pay your employees is just one component of the entire bid, but often times the highest expense. Don’t underbid just to get the job unless you can sustain your business with your current cash flow and have reasonable expectations of future higher paying contracts.

Subcontractors that create fair compensation structures will attract, retain and maintain performing employees. Compensation structures include salary, incentives and benefits. Determining the right mix for your small business requires research, planning and continuous improvement. It’s one piece of the financial health of your business. Contact me today if you’d like to discuss how I can help you implement systems and processes that improve your profitability.