Whether a small business or a large enterprise, running payroll comes with its mandates. Employers must know several Arizona payroll laws, as there is no scope for guesses. Arizona overtime laws cover several crucial aspects of payroll, including minimum wage, overtime regulations, and various types of employment that impact employees. Unless you are outsourcing payroll, it is essential to know Arizona overtime rules to avoid penalties, fees, or any legal implications.
We have created this guide on overtime in Arizona to guide employers, covering state-specific requirements and federal guidelines.
Table of Contents
Arizona Minimum Wage Laws
The state increased the minimum wage for all employees from $13.85 to $14.35 per hour from January 1, 2024. For tipped employees, the minimum wage has been increased to $11.35 per hour. These changes are part of a broader initiative under the Fair Wages and Healthy Families Act, which was approved by voters in 2016.
However, it is essential to note that there is no change in the minimum wage for federal employees, which is currently $7.25 per hour. However, Arizona mandates that employers pay higher wages than the federal or state-mandated minimum wage. Therefore, all public employers in Arizona must pay employees at least $14.35 per hour.
Additionally, employers in Flagstaff must pay an even higher minimum wage from January 1, 2024. All Flagstaff employees are entitled to a minimum wage of $17.40 per hour.
In Arizona, employers are required to follow the federal guidelines on overtime regulations. It is essential to fairly compensate all employees for their additional work hours beyond the standard workweek. Here, we delve into the State of Arizona overtime laws employers must follow to maintain compliance and avoid legal repercussions.
The standard workweek in Arizona is defined as 40 hours. Any hours worked beyond this threshold must be compensated at an overtime rate of 1.5 times the regular wage rate.
Arizona Overtime Regulations
It is crucial to note that Arizona follows state as well as federal regulations, with the state law taking precedence in case of any discrepancies. The employers have 2 options when it comes to compensating overtime hours-
Overtime pay rate- each hour is paid at 1.5 times the regular pay rate
Compensatory hours- for every overtime worked hour, the workers get 1.5 hours of paid time off
Once the employee has gathered 240 hours compensatory time, the overtime must be paid at 1.5 times of the regular pay rate.
Key Aspects of Arizona Overtime Regulations
The state of Arizona does not have laws governing overtime. Rather, Arizona defers to the federal law under the FLSA 1938. The FLSA provides just one piece of guidance- that the employees are due 1.5x pay of hours worked over 40 hours in a week.
Compensatory Time
Compensatory time, often called “comp time,” is allowed in the private sector in Arizona. It simply means that private sector employers can offer time off in lieu of overtime pay, provided there is a mutual agreement between the employer and employee. No one party can enforce comp time if there is no voluntary agreement.
Compensatory time off is earned at 1.5 hours for every hour of overtime worked. Hence, if employees work 10 hours of overtime, they earn 15 hours of comp time. The maximum compensatory hours an employee can earn in Arizona are capped at 240 hours a year.
Enforcement
Any or all Arizona overtime laws are primarily handled by the U.S. Department of Labor’s Wage and Hour Division (WHD). Any dispute regarding overtime compensation can be filed with WHD. Employers must ensure that there is a redressal mechanism in place to avoid conflicts reaching the WHD, as if investigations of complaints find any violations, employers may be required to pay back wages and could also face additional penalties.
Recordkeeping
All employers in Arizona must maintain accurate records for compliance. They must keep records of all hours worked, wages paid, and overtime hours for at least three years. This recordkeeping must include information about wages and detailed records of any bonuses or other forms of compensation that could impact overtime calculations.
Fair Labor Standards Act (FLSA)
The FLSA is the federal law establishing minimum wage, overtime pay, recordkeeping, and youth employment standards throughout the United States. While states can have independent legislation regarding wages and overtime, the FLSA provides the foundation for overtime regulations. Understanding the provisions of the FLSA is crucial for employers in Arizona as the state enforces all the policies laid down by the federal law.
Who Falls Under the Fair Labor Standards Act’s Provisions?
FLSA covers most employees, including businesses with an annual gross volume of sales of at least $500,000, hospitals, institutions primarily caring for the sick, aged, or mentally ill, schools, and government agencies.
The minimum wage set by FLSA is $7.25 per hour effective July 24, 2009, but as Arizona’s minimum wage is greater, employers must pay the higher minimum wage, i.e., $14.35 per hour.
All employees must be paid overtime for hours worked over 40 hours in a workweek. However, there are some exemptions.
FLSA Exemptions
- Executive Employees: Employees whose primary duty is managing the enterprise or a recognized department or subdivision and who have the authority to hire or fire other employees.
- Administrative Employees: Employees engaged in office or non-manual work related to the management or general business operations of the employer or the employer’s customers.
- Professional Employees: Employees whose primary role involves work requiring advanced knowledge in a science or learning field earn at least $684 per week.
- Outside Sales Employees: Sales employees make sales or obtain orders or contracts for services without using office facilities.
Additional Laws That May Be Applicable for Employers
Arizona employers may be subject to additional overtime or wage laws depending on their industry, employee strength, and nature of the role.
COBRA Laws
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows eligible employees and their families to continue their group health benefits provided by their group health plan for limited periods under certain circumstances. These circumstances include:
- Death of the covered employee
- Covered employee’s job loss or reduction in hours for any reasons other than gross misconduct
- Covered employee becomes entitled to Medicare
- Covered employee’s divorce or legal separation
- A child’s loss of dependent status
While COBRA applies to more prominent employers (more than 20 employees), Arizona created a COBRA-like state continuation law known as Arizona Mini-COBRA, or Arizona COBRA, which covers smaller employers with 20 or fewer employees. The qualifying events for eligibility for Arizona mini-COBRA are the same as those in federal CORBA circumstances.
Drug and Alcohol Testing Laws
Arizona allows employees drug and alcohol testing in the workplace if they meet the state’s extensive requirements. Employers who wish to implement such testing must adhere to the Drug Testing of Employees Act, which outlines permissible testing procedures, employee rights, and employer responsibilities.
Also, employers cannot discriminate against employees or applicants who are registered card holders for the use of medical marijuana unless they are applying for a security-sensitive position.
Background Check Laws
Employers in Arizona can legally conduct background checks only if they are hiring for the following positions:
- Staff at domestic violence shelters, groups advocating for victims of domestic violence, or organizations offering support services to these victims
- Educators and specific staff within educational institutions
- Drivers of taxis, livery vehicles, and limousines
- Employees at children’s behavioral health facilities
- Workers at residential healthcare or nursing care facilities or those in home health agencies
- Personnel involved in childcare settings
- Individuals providing direct services to juveniles or vulnerable adults
- Operators of school buses
In some cases, employers can be required to obtain written consent from applicants and employees if adverse actions are taken based on the results.
Impact of Bonuses on Overtime Calculation
Employers can offer employees different bonuses to boost their morale or as a reward. Broadly, bonuses are categorized into discretionary, non-discretionary, and incentive-based bonuses.
Understanding the distinctions between these types is crucial for proper overtime calculations.
Discretionary Bonuses: Any reward or bonus given at the employer’s sole discretion and is not expected by employees. They are typically not included in calculating the regular rate for overtime purposes.
Non-Discretionary Bonuses: These bonuses are promised to employees upon meeting certain criteria or performance metrics, typically at the time of employee. As a rule, all non-discretionary bonuses must be included in the calculation of the regular rate of overtime pay.
Incentive-Based Bonuses: These are similar to non-discretionary bonuses tied to specific goals or targets. They also must be factored into the overtime calculation.
Overtime with Bonuses
When calculating overtime pay, non-discretionary and incentive-based bonuses must be included in the employee’s regular pay rate as it can significantly affect their total earnings. Let’s understand with an example how overtime rate and, thus, the final pay is affected considering bonuses.
Overtime Pay Calculation with Non-Discretionary/Incentive Bonus
Suppose Jane is an hourly employee who earns $15.00 per hour. During a particular week, she works 45 hours and receives a non-discretionary bonus of $70 for meeting a production target.
Her Total Regular Earnings will be:
Regular hours worked: 40 hours
Overtime hours worked: 5 hours
Regular pay: 40 hours * $15.00/hour = $600.00
Non-discretionary bonus: $70.00
Her total earnings before overtime: $600.00 (regular pay) + $70.00 (bonus) = $670.00
Her Regular Rate of Pay considering bonus:
Total hours worked: 45 hours
Regular rate of pay: $670.00 / 45 hours = $14.90/hour
Calculate Overtime Rate:
Overtime rate: $14.90/hour * 1.5 = $22.35/hour
Calculate Overtime Pay:
Overtime pay: 5 hours * $22.35/hour = $111.75
Her total pay for the week:
Total pay: $670.00 (regular earnings) + $111.75 (overtime pay) = $781.75
Overtime Calculation for Hourly Employees
All hourly employees are entitled to overtime pay for any hours worked over 40 in a workweek. The overtime calculation for such employees is simply one and a half times their regular hourly rate for overtime hours.
Assume Emily works as an hourly employee at $15.00 per hour. During a particular week, she works 50 hours.
Her overtime will be calculated as follows:
Regular hours: 40 hours
Overtime hours: 10 hours
Regular pay: 40 hours * $15.00/hour = $600.00
Overtime Pay:
Overtime rate: $15.00/hour * 1.5 = $22.50/hour
Overtime pay: 10 hours * $22.50/hour = $225.00
Total Pay:
Total pay: $600.00 (regular pay) + $225.00 (overtime pay) = $825.00
Overtime Calculation for Part-Time Employees
Part-time employees in Arizona are also entitled to overtime pay if they work more than 40 hours per week. The overtime for such employees is calculated as for full-time hourly employees.
Overtime Calculation for Salaried Employees
Salaried employees earning less than $684 per week may be eligible for overtime pay. Non-exempt salaried employees are entitled to overtime. However, there are two scenarios:
- If they work the standard 40-hour workweek, they are paid 1.5 times the regular wage rate for their overtime hours.
- If their standard workweek is less than 40 hours, they are paid 0.5 times the regular wage rate.
Suppose a salaried employee earns $8000 monthly and works a 35-hour workweek. For a week, they work 45 hours. The overtime calculation will be as follows:
Regular Weekly Wage Rate:
Regular Weekly Wage Rate=$8000/4=$2000
Regular Hourly Rate:
Regular Hourly Rate=$2000/35 hours=$57.14 per hour
Regular Wage:
Regular Wage=35 hours×$57.14=$2000
Overtime Wage:
Overtime Wage=10 hours×($57.14×0.5)=10×$28.57=$285.70
Total Pay:
Total Pay=$2000+$285.70=$2285.70
Overtime Calculation for Commission-based/Per Piece Employees
Overtime calculation for employees paid based on commissions or piecework depends on the number of products produced in a given period, and the premium overtime rate is calculated at 0.5 times the regular hourly rate.
Let’s consider a laborer gets $10 for picking a half bushel of apples. In a week, they worked 45 hours picking 120 half bushels.
Calculate the Regular Hourly Pay Rate:
Regular Hourly Pay Rate = (Piece Rate × Total Units Picked)/ Total Hours Worked
Regular Hourly Pay Rate= (10×120)/45 = $26.67
Overtime Hours: 45 – 40 = 5
Calculate the Overtime Premium Rate:
Overtime Premium Rate = 0.5 × Regular Hourly Pay Rate
Overtime Premium Rate = 0.5 × 26.67 = $13.34
Calculate the Total Compensation for the Week:
Regular Earnings: Piece Rate × Total Units Picked = 10 × 120 = $1200
Overtime Pay: Overtime Premium Rate × Overtime Hours = 13.34 × 5 = $66.70
Total Compensation: $1200 + $66.70 = $1266.70
Overtime Laws for Tipped Employees
Overtime calculation for tipped employees considers their overtime earnings or tip credit. Let’s understand it with an example.
Assume Earl earns a regular minimum wage of $12.00 per hour, gets a tip credit of $4.00 per hour, and works overtime for 5 hours.
Here’s how his overtime will be calculated:
Overtime rate=Regular minimum wage×1.5
Overtime rate=$12.00×1.5=$18.00
Subtract the tip credit from your total:
Adjusted overtime rate=Overtime rate − Tip credit
Adjusted overtime rate=$18.00−$4.00=$14.00
Multiply your total by the number of overtime hours:
Overtime pay total=Adjusted overtime rate × Overtime hours
Overtime pay total=$14.00×5=$70.00
After finding the overtime pay total, you add it to their regular wage.
Regular pay = (Regular minimum wage – Tip credit) × Regular hours
Regular pay = ($12.00−$4.00) × 40=$8.00×40=$320.00
Total Pay Calculation
Total pay=Regular pay + Overtime pay total
Total pay=$320.00+$70.00=$390.00
Arizona Overtime Eligibility
Arizona has no state eligibility policy regarding overtime pay. All employers in the state are required to follow the FLSA guidelines when deciding overtime eligibility based on job duties, salary level, and classification under the FLSA.
The overtime exemptions are based on FLSA guidelines.
Overtime Exemptions
Employees work in an executive capacity and can hire or fire other employees.
The administrative staff’s primary duty is performing office and authority to make independent decisions.
Professionals utilizing advanced knowledge in science or learning and earning at least $684 per week.
Outside sales, employees are not working out of the office to make sales or obtain orders or service contracts.
How Can Truein Help with Overtime Pay Management?
As there are so many provisions and types of overtime calculations, employers need to streamline payroll with time and attendance tools like Truein for compliance and maintaining employee satisfaction.
Truein, a cloud-based employee time and attendance management solution, offers robust overtime pay management features. Employers can ensure accurate overtime calculations using Truein’s precise tracking of employee hours, including overtime. Its customizable policy templates allow companies to automate the calculation of overtime pay, drastically reducing the risk of errors and ensuring compliance with state and federal regulations. Employers can set up over 70 customizable policy templates to align with company rules and regulatory requirements.
Truein also offers real-time reporting and analytics, helping employers monitor overtime trends and manage labor costs effectively. Furthermore, it can seamlessly integrate with existing payroll systems, simplifying the payroll process and ensuring timely payments. You can check the detailed features of Truein overtime pay management here.
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Conclusion
Arizona overtime laws for salaried employees must be included in company policies for compliance and fostering a positive work environment. Understanding the minimum wage laws, correctly calculating overtime for different types of employees, and staying informed about additional relevant regulations can help avoid legal pitfalls and ensure compliance.
Truein can enhance accuracy in time tracking and payroll management, ensuring that employees are compensated fairly and by the law.
FAQs
1. How do I calculate my overtime pay rate in Arizona?
To calculate your overtime pay rate, determine your regular hourly rate based on your employment type-hourly, salaried, part-time, or tipped. Overtime in Arizona is calculated as per the number of hours worked in a week and not on daily basis. There is no overtime pay required for weekends, holidays or working nights.
2. Who qualifies for exemption from overtime pay regulations in Arizona?
Executive, administrative, professional, and outside sales employees qualify for an exemption. Additionally, any salaried employee with more than $684 per week is exempted from overtime pay. The FLSA says that the salaried employees who earn over this amount are exempt from the overtime wage. Some more employee examples also include lawyers, C suite executives and teachers.
3. Is mandatory overtime legal in Arizona?
Yes, mandatory overtime is legal in Arizona. However, employees must be compensated appropriately when they are made to work overtime. It is also said that the employer who requires the employee to work over 40 hours a week must provide the employee with overtime pay for the extra hours.
4. Do part-time employees qualify for overtime in Arizona?
Yes, part-time employees qualify for overtime if they work over 40 hours. They are paid overtime in the same way as full-time employees. This also ensures that there is equitable treatment for all the employees aligning with the FLSA standards.
5. Does Arizona have daily overtime requirements?
No, Arizona does not have daily overtime requirements. The hourly employees are given 1.5 times the regular hour wage for their overtime work.
