Introduction to Arizona Overtime Laws
Understanding Arizona Overtime Laws for Salaried Employees requires a basic understanding of Arizona overtime laws as a whole. In Arizona, overtime laws regarding hours worked are governed on a state and federal level.
Arizona’s state law on overtime is found in Arizona Revised Statutes §23-363 which requires employers to pay time and one-half when employees work more than 40 hours in a workweek. Apprentices and trainees are exempted from this requirement. Arizona Revised Statutes § 23-361 (9).
However, because Arizona overtime laws are closely aligned with the Fair Labor Standards Act, the provisions set forth in the federal FLSA will be used to explain Arizona overtime laws as well. Overtime pay under the FLSA refers to time and one-half after 40 hours in a workweek. FLSA also includes the following: All time worked is time worked for which an employer must pay you.
All the time you spend performing your job duties is time worked, including time spent answering phone calls or emails before or after your regular work hours (at home) or doing homework when you are on a business trip.
Therefore, even if you take only a 30 minute lunch period, if you are answering emails or handling calls from customers your 8 hours becomes 9 hours or more .
All rest periods must be counted as hours worked and you must be paid for all time employers knew or should have known that you worked. Overtime pay is calculated at a rate of time and one-half your regular rate of pay when your total hours worked exceeds 40 in a workweek. Regular rate of pay does not necessarily equal your salary. If you are a salaried employee (exempt), your salary divided by the number of hours you expected to work is your regular rate of pay.
The law also requires employers to keep records of the hours an employee works. There are limitations on the types of records that employees may use to prove hours worked. For instance, complaining about working a 12-hour day or weekend shift is not enough to support a claim of unpaid overtime. You must have evidence of some form to support a claim for unpaid overtime.
Arizona’s state overtime laws are similar to the federal law and set the minimum requirements for overtime pay in the state. There are two main sources of overtime pay for Arizona’s employees, the federal Fair Labor Standards Act, or "FLSA," and the Arizona Revised Statute 23-363, although depending on your situation, other statutes may also apply.
Salaried Employee Eligibility for Overtime Pay
Most states, including Arizona, and the federal government have laws regarding what qualifies as an overtime workweek. A normal workweek is 40 hours Monday through Friday, assuming that the employee has worked throughout the week. If the employee works more than 40 hours in a week, the employer must pay the employee overtime. Depending on the employment agreement and state and federal laws, the employer may also be required to pay overtime for work done over five days or 40 hours. This money can add up very quickly.
Arizona has a minimum wage law in place that requires most non-exempt workers to receive overtime if they work more than 40 hours in a seven-day period. The state has some variations for workers in certain industries and specific occupations, but the general rule still applies in most cases.
Arizona follows federal wage and hour laws when it comes to occupational classifications. According to the Department of Labor, exempt employees are not entitled to overtime compensation. To meet the white-collar exemption, an employee must be paid on a salary basis the greater of at least $455 per week or at least the state’s minimum wage for all hours worked.
Exempt and Non-Exempt Salaried Employees
In Arizona, the law does not require employers to pay their employees overtime if they qualify as an "exempt" employee. As such, who is an exempt employee?
In general, exempt employees, under the federal Fair Labor Standards Act ("FLSA"), are those who are employed as "bona fide executive, administrative, or professional" employees who mainly perform executive duties, decision-making duties, or are certain professionals who have advanced studies in their fields of expertise. The FLSA provisions restate the exemptions as "white collar workers," which also include some licensed health care workers performing medical services.
The Administrative Exemption: Generally, "administrative" exempt employees are required to be paid on a "salary" basis. Their primary responsibilities also require the performance of office or non-manual work directly related to the management or general business operations of the employer. For example, as stated in Brainzync, Inc. v. Arizona Health Care Cost Containment System Administration:
To qualify for the administrative exemption, Brainzync must properly reclassify its consultants. Based on the record, Brainzync failed to demonstrate that its consultants "exercise[d] discretion and independent judgment" when merely following directives that they perform certain tasks in a specific manner. 176 Ariz. 386, 861 P.2d at 642. However, Brainzync’s approximately 90 consultants had numerous responsibilities, most of which were outside of their responsibilities for performing authorizations. Many of their tasks required them to research legislation and the results of audits, interact and coordinate with agencies and parties involved in Medicaid matters, test software and verify its accuracy, train other consultants, and provide technical assistance. Accordingly, we conclude that Brainzync has established that its consultants were exempt administrative personnel under the FLSA. 218 Ariz. 344, 183 P.3d 1260, 1266 (Ariz. Ct. App. 2008).
The Executive Exemption: Generally, "executive" exempt employees are required to be paid on a "salary" basis. Their primary responsibilities also revolve around management duties. In Trahan v. Brown, the Court stated that the executive duties must include:
a. The [employee] has the authority to hire or fire other employees or in the alternative to effectively recommend those is to be hired for fired, and
b. That the [employee] customarily and regularly directs the work of two or more other employees, and
c. That the [employee] has the requisite authority or management skill to be considered equal in rank or knowledge to other management employees, and
d. The [employee] must have some influence on the business operations and not merely the authority to carry out orders, and
e. That the [employee] is paid on a salary basis and earns not less than the $250.00 per week required under the FLSA. 218 Ariz. 181, 181 n.1, 181 n.2, 176 P.3d 814, 816 n.1, 817-18 (Ariz. Ct. App. 2008). Also see, Spinks v. Equity Residential Properties Trust, 171 F.Supp.2d 1102, 1109 (N.D. Cal. 2001).
Professional Exemption: Generally, "professional" exempt employees are required to be paid on a "salary" basis. Also, their primary duties must include:
a. Work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, and
b. Have powers of exercise of discretion or judgment that is customarily directed to the general business operations in a recognized field of business activity that is under the general supervision of an executive or an administrative employee. 29 C.F.R. § 541.301; See also, Hines v. Davidowitz, 311 U.S. 57, 70-72, 61 S. Ct. 144, 150-151 (1940), and Wage and Hour Regulation No. 785.23.
The Misclassification Schemes: Most employers do not intend to misclassify their employees. Misclassifying employees is often inadvertent. The most common misclassification schemes are: (1) the employer treats the exemption as an all or nothing approach, and (2) the employer improperly applies the exemptions, or uses them as an excuse to underpay all their employees.
Salaried Employee Overtime Pay Calculations
Calculating overtime pay for salaried employees in Arizona can be complex, depending on how your health care facility structures salaried staff employment, overtime and timekeeping systems.
If the health care facility uses the fluctuating workweek pattern of hourly pay for the salaried workers, and the employer does not have a regular method of calculating 1.5 times the fluctuating workweek rate for the overtime, then the health care facility may be forced to pay salaried employees for all hours worked in excess of 40 hours each week, even though those hours occurred at straight time. The patient care contract may require that the employee work 53 4/5 hours per week (typically 12 hours a day, five days a week, and four hours on the fifth day), for a total of 40 hours per week. If the nurse or tech works the full 53 4/5 hours, she is paid $40/hour for those 53 4/5 hours ($2,150 weekly); if she worked 45 hours, she would be paid $100 for each of the additional 5/5 hours). Hourly overtime would be 1.5 times the regular hourly rate ($60/hour), times the number of hours of overtime worked over 40 hours, e.g., $300 for five hours of overtime.
Often, health care facilities have a policy of tracking and paying for a limited amount of overtime (sometimes referred to as phantom overtime). In this case, actual hours worked is tracked, often using time clocks, and the employee is paid an additional $10/hour for a defined amount of overtime. For example, an employee might be paid $200 for two hours of overtime (2 x $100), rather than regular straight time, when in fact the employer only wants to reimburse the employee for a limited amount of overtime, $100 ($50/hour). In this situation, the wage rate is $40.00/hour ($2,150 per week divided by 53 4/5 hours per week); the amount of hours actually performed is 53.5; and the amount of hours reimbursed is 5. On a weekly basis, the calculation is $40 x 54 + $10 per hour x 5 hours ($2,160 + $500) divided by 53.5 hours, for a straight-time hourly rate of $49.43/hour. The rate of pay for the overtime ($60/hour) is higher than the adjusted rate of pay ($49.43/hour), so the employee receives the lesser of the two rates, the adjusted rate of pay.
If the facility pays salaried employees overtime at the same regular rate of pay as the hourly compensation (e.g., $40/hour), that amount (i.e., regular rate) must be divided by the number of hours worked in the workweek to find the regular rate of pay for purposes of calculating overtime. If the employee worked 53.5 hours, and the health care facility paid the employee $2,160 for the week, the regular rate of pay and "regular hourly rate" would be $40 when divided by 53.5 (i.e., $2,160/53.5 = $40.33). Multiply $40.33 by 1.5 to determine the overtime rate of pay ($60.50).
If the employer is paying compensatory time off in lieu of overtime, the number of hours of compensatory time earned must be reimbursed at the regular rate of pay that was in effect when such stands were given. Such compensatory time off (CTO) must be compensated at the same rate of pay so long as the employee resigns during the pay period in which CTO was converted. If overtime was worked, the CTO must be paid. If an employee never used CTO, the employee would need to be paid at the final rate of pay.
Common Misunderstandings About Overtime Pay for Salaried Employees
While there is an abundance of information out there about Arizona overtime laws, it is not always directly applicable to salaried employees. Here are some common misconceptions that I have heard from clients that may help clarify Arizona overtime pay for salaried employees.
It is a fairly common misconception that if an employee is paid a salary and the salary is sufficient to meet Arizona or federal minimum wage requirements, they are not entitled to overtime. The fact is, whether an employee is entitled to overtime depends on whether they are considered to be an exempt employee. This is true whether the employee is hourly or being paid a salary. Simply paying an employee a salary is not enough to exempt them from the requirement to pay Arizona overtime on the hours the employee has worked over 40 in a week. Note, however, that some employees are exempt from overtime even though they are not being paid a salary.
There are three steps in determining whether an employee is exempt from overtime:
An employer does not need to pay Arizona overtime for each hour that a non-exempt employee works over 40 per week. Arizona overtime is only owed for hours worked in excess of 40 in a workweek .
The monetary threshold for an employee to be considered exempt under state law is $27,596 per year. Public employers must comply with the applicable state statutes rather than the Arizona Salary Basis Test.
As far as the federal standard, although the U.S. Department of Labor has issued updated regulations (which went into effect December 1, 2016), the regulations and accompanying opinion letters have not provided greater benefits in terms of federal overtime protection. In other words, even if an employee is being paid a salary of $47,476 per year, if their primary duty does not meet the definition of "white collar" worker, they are not exempt from overtime and are entitled to payment for overtime hours worked.
Under the new regulations, in order to be considered exempt from the requirement to pay overtime, an employee must be paid a minimum salary of $684 per week or $35,568 per year. Less than that and the employee is nonexempt and entitled to Arizona overtime. There is no requirement that the overtime pay also be $10.87/hour. The overtime rate is calculated by multiplying the $10.87/hour and one and a half times that rate.
Salaried Employee Legal Rights and Resources
Besides filing an overtime unpaid wages complaint with the Arizona Department of Labor, Arizona salaried workers who are not being paid necessary overtimes wages have the option to file a complaint in either state court or federal court against his or her employer. Also in some circumstances, an employee may be able to file a claim with the U.S. Department of Labor and receive unpaid wages.
Under the Fair Labor Standards Act: The FLSA is a federal law that has been adopted by the State of Arizona, requiring most businesses to pay employees overtime wages for hours worked beyond 40 per week at a rate of time-and-a-half. The federal law relating to overtime is governed by the U.S. Department of Labor, which provides guidelines, regulations and other information concerning the payment of overtime wages. The U.S. Department of Labor also provides complaint forms that must be filled out and filed in the event a labor law claim cannot be pursued in Arizona state courts.
Under the Arizona Department of Economic Security: The Arizona Department of Economic Security regulates the employment of Arizona workers. It is responsible for licensing businesses in the Arizona and for regulating wage and labor laws. An individual can file a complaint with the Arizona Department of Economic Security by filling out a complaint form that is available on the organization’s website. However, if a complaint form is unavailable, individuals can simply send a letter detailing the complaint. The complaint must include the name of the employer, name of the employee, a statement of the facts associated with the complaint and then be signed and dated by the employee.
Current Arizona Overtime Laws and Regulations Updates
While the last time Arizona’s overtime law changed was back in 1971, late-breaking developments may soon necessitate Arizona join other states in providing special overtime rules for salaried employees. The U.S. Department of Labor is expected to release soon a revised federal overtime rule, proposed last year, that would include overtime protections for salaried workers who currently work over 40 hours per week without receiving overtime pay. But even without the new federal rules, recent changes in the field of equal pay may lead to a statutory change to overtime eligibility for certain workers in Arizona.
At the federal level, the Department of Labor is expected to release as early as next month a revised overtime rule mandating that a salary-level test be used to determine exemption status. The DOL estimates that 4.2 million workers that would currently be classified as exempt under existing regulations would actually require overtime under the revised rule. This rule, however, would have no effect on Arizona employers as Arizona does not currently provide for a similar overtime test. Further, because most Arizona employers employ only a handful of salaried employees, any additional cost burden associated with overtime payout could be absorbed where necessary.
At the state level, however, developments in the field of equal pay may lead to more robust protections for Arizona’s salaried workers. The Arizona Equal Pay law is one of only a few in the country that requires equal pay not just for equal pay ("comparable pay") but that also requires equal pay for "substantially similar work." This statutory language is particularly broad and, as a result, it has been interpreted to include a plethora of occupations over which there is no wage disparity.
It is expected that these requirements will impact overtime eligibility for workers with similar job duties or skill sets. For instance, it is well known that the hospital industry compensates medical doctors and nurse practitioners substantially similar amounts. Under the current Arizona Equal Pay laws, however, it is unclear whether these two groups of workers are actually exempt from overtime pay. Just another reason why Arizona employers should monitor for changes in this arena and perform periodic audit for pay disparities.
Conclusion: Complying with Arizona’s Overtime Laws
For any salaried employee who works in Arizona, it is vital to have an understanding of how the state and federal overtime laws apply. Employers are required to pay overtime for hours worked over 40 hours in a week, unless their employee is exempt from overtime eligibility. The duties performed and salary level of the employee dictate whether they are exempt or nonexempt for overtime purposes.
To be sure that they do not make any overtime mistakes that could lead to them owing back overtime to their employee and/or their employee opting to file a wage and hour lawsuit, employers must: The risks associated with misclassifying exempt employees-or failing to pay overtime to nonexempt employees-could result in back overtime lawsuits, audits by the Department of Labor, or alleged violations of Arizona’s wage collection laws.
While exempt employees are not entitled to overtime , there are many required forms of payment for nonexempt employees. These include overtime, early closing pay, and "on-call" pay. However, to receive any of these forms of compensation, the employee must be properly classified as nonexempt. Otherwise, the employer could be sued to recover back overtime. In addition to having an understanding of these issues, the employer should carefully review the employee’s job duties to be sure they are properly classified.
To conclude, employers are encouraged to frequently check on their classification of their employees, the duties of their employees, and all of the methods by which they pay their employees, to be sure that they do not make an inadvertent mistake. While it may take employees years before they decide to pursue a lawsuit against their employer, it is a real risk and it is wise to avoid making this mistake in the first place.