Arizona sick time: 5 numbers for labor burden

Price Arizona sick time into labor burden by multiplying expected sick hours by the sick-hour wage, then dividing by annual worked hours.

Key takeaways

Check your company headcount before choosing the annual cap.
Model accrual from each worker's start date.
Record your expected sick-time use and confirmed pay rate.
Keep sick time as its own line in labor burden.

It belongs in the hourly rate the same way insurance, payroll taxes, and holiday pay do. The trouble is that the rule is written in terms of hours worked and hours accrued, not dollars for each crew hour, so the number you need takes a few steps to reach.

This post walks through five numbers from Arizona's earned paid sick time statute, A.R.S. 23-372, "Accrual of earned paid sick time". For each one, I explain what it means for an estimate and how it changes the hourly math. I am not a lawyer or an accountant, and this is not legal advice. Use it to build a first-pass number, then check the full statute and your own rules before you sign a bid.

Number 1: 30 hours (the accrual rate)

The starting point is the accrual rate. The statute says employees "shall accrue a minimum of one hour of earned paid sick time for every 30 hours worked." That is the floor. An employer may give more, but this is the rate you have to plan for.

One hour of sick time for every 30 hours worked is a small share of hours worked, but that share is a rough guide to the size of the obligation, not the cost. Accrual is a balance that builds up. The cost comes when the time is used or paid out, and that depends on the cap, the waiting period, and how your company handles carryover. The next four numbers cover the two caps, the waiting period, and the accrual start date.

For a bid, the accrual rate tells you how fast the balance grows for a worker on your crew. A worker who puts in 30 hours in a week earns one hour of sick time that week. A worker on a 40-hour week earns more than that at the same rate. Over a year, the balance grows quickly enough that the annual cap, not the accrual rate, will set the limit for a full-time worker.

Number 2: 40 hours (the cap for employers with 15 or more employees)

The second number is the annual limit for larger employers. For employers with 15 or more employees, the statute limits annual accrual and use to 40 hours unless the employer selects a higher limit.

Two points matter for pricing. First, the cap applies to both accrual and use. Second, the cap is a ceiling you can raise. If you offer more than 40 hours, that extra time is a cost to price into the rate.

The cap also changes how the accrual rate plays out. At one hour for every 30 hours worked, a worker reaches 40 hours after working 40 multiplied by 30 hours. A full-time worker, who works far more hours than that in a year, reaches the cap partway through the year. After that, extra hours add no new sick time for that worker. This means the burden is not a flat percentage of every hour. It is a fixed block of hours for each worker each year, spread across however many hours that worker actually bills.

Number 3: 24 hours (the cap for employers with fewer than 15 employees)

The third number is the cap for smaller employers. For employers with fewer than 15 employees, the statute uses the same accrual rate but limits annual accrual and use to 24 hours unless the employer selects a higher limit.

The count of 15 is the dividing line, so check your headcount before you choose the cap. Confirm how to count workers who move between jobs or work part time before you assume you are under the line. Confirm that point in the full statute or with your advisor before you assume you are under the line.

For the same reason as the 40-hour cap, the 24-hour cap works out to a fixed block for each worker each year. At one hour for every 30 hours worked, a worker reaches 24 hours after working 24 multiplied by 30 hours. A smaller employer therefore has a lower ceiling on the cost for each worker, but the same structure: the cost for each crew hour falls as each worker bills more hours.

A practical note: choose the cap using your company's employee count. If your company is near 15 employees, the difference between the two caps is worth modeling both ways.

Number 4: the waiting period before first use (optional)

The fourth number is a waiting period, and it is optional. The statute says an employer "may require an employee hired after July 1, 2017, to wait until the ninetieth calendar day after commencing employment before using accrued earned paid sick time, unless otherwise permitted by the employer."

For pricing, this affects when the cost shows up, not whether it exists. A new hire on your crew may accrue time from the first day, but may not be able to use it until the ninetieth calendar day, if you choose that rule. That can push some of the expected cost later in the job, or past the end of a short job altogether.

Be careful with the word "may." Your company's policy decides which way you go. If you do not use the waiting period, the estimate should assume a new hire can use sick time as soon as it accrues. If you do use it, model when a new hire could use accrued time rather than assuming a short job eliminates the cost.

Number 5: July 1, 2017 (when accrual starts)

The fifth number is a date. The statute says earned paid sick time "shall begin to accrue at the commencement of employment or on July 1, 2017, whichever is later."

For any worker hired now, the later date is the first day of employment. Accrual starts when the worker starts, not on a fixed date in 2017. Do not assume a new hire arrives with a balance built up from before they started. The 2017 date matters mostly because it marks the start of the rules, and because the waiting period applies to hires after it.

For an estimate, the practical rule is simple. Model accrual from each worker's start date, and carry the balance forward through the year. A worker hired in the middle of the year has fewer months to accrue, so estimate that worker's hours rather than assuming the full annual cap. Crews that turn over often will have a different cost pattern than crews that stay put, so do not copy one year's number onto a crew whose makeup will change.

Turning the five numbers into an hourly rate

Once you have the five numbers, you can convert them into a rate. The steps are below. Use a real wage and real hours for your own crew. The formulas are the point here, so plug in your own figures.

Step one is to pick the cap that applies to your company.

Step two is to estimate how much of that cap a worker will use. The statute sets the most sick time an employee can use, not the amount they will use. A conservative estimate assumes the full cap is used. A less conservative estimate uses a share of the cap based on your own records, or on what your insurer or your crew history suggests. Whichever you choose, state the assumption in the bid so the number is traceable.

Step three is to convert the annual hours into an hourly share. Divide the sick-time hours by the paid hours the worker will work in the year. Use your scheduled hours for the year rather than a guess. If the cap is used in full, the sick-time hours equal the cap.

Step four is to apply the wage. Multiply that share by the wage rate you pay for sick hours. Check the full text of the statute and your own pay policy for the rate before you finalize the number. In formula form, the annual cost is the sick-time hours multiplied by the wage, and the cost for each paid hour is that annual cost divided by the paid hours for the year.

Step five is to add that to your labor burden alongside other costs. Keep sick time as its own line in the burden build-up, so you can change it when the cap, the waiting period, or your company's policy changes. Review related employer payroll tax rules when checking the other lines.

The same arithmetic works for a smaller employer. At the 24-hour cap, the annual sick-time hours are 24, so the annual cost is 24 multiplied by the wage rate. Because the cap is lower, the hourly figure is lower too. The gap is small for one worker, but it adds up across a large crew.

Illustrative example: price an accrued hour

Assume a worker works 30 hours and uses the one sick hour earned, with an illustrative sick-hour wage of 30 dollars. That sick hour costs 30 dollars. Divide that cost by the 30 worked hours: the added burden is 1 dollar for each worked hour. This example assumes the accrued hour is used; it is not an annual forecast.

Exempt salaried workers

Some crew members are paid a salary and are exempt from overtime under the federal Fair Labor Standards Act. The statute has a specific rule for them. The statute says those employees "will be assumed to work 40 hours in each work week for purposes of earned paid sick time accrual unless their normal work week is less than 40 hours, in which case earned paid sick time accrues based upon that normal work week."

This matters for salaried foremen, superintendents, and crew leads who are exempt from overtime under the Fair Labor Standards Act. Their accrual is not based on the hours they actually log. It is based on a 40-hour week, unless their normal week is shorter. A salaried lead who works well over 40 hours in a week still accrues on the assumed 40. A salaried worker whose normal week is shorter than 40 hours accrues based on that shorter week.

For the estimate, non-exempt salaried leads accrue on hours actually worked, without the 40-hour assumption. The accrual rule does not give them more sick time than the cap allows, so the same caps still apply. The difference is in the accrual pattern, which affects how quickly the balance builds, not the annual ceiling. Check overtime exemptions before applying the assumption.

Carryover and payouts

Your estimate should also reflect how unused time moves from one year to the next. The statute gives two options. The first is to carry unused time forward. The second, which the statute describes as an alternative "in lieu of carryover," is to pay the employee for unused time at the end of the year and give them enough time for the next year that meets the statute's requirements, available for immediate use at the start of that year.

Each option changes when the cost lands. Carryover means a balance can sit on the books and be used later, possibly in a year when you bid differently. A year-end payout means the cost is recognized in the year you pay it, and the employee starts the next year with the amount the statute requires. Neither changes the annual ceiling, but both change the timing and the cash flow, which matters for a crew with a tight margin.

The statute also allows an employer to provide all the sick time an employee is expected to accrue in a year at the start of that year. Front-loading gives workers the time on day one, which makes the balance available sooner. For a short job, that can mean the full annual amount is on the books for a worker who may leave before the year ends. Decide which approach you use before you price the job, and write the choice into your bid assumptions.

Payroll taxes and the rest of the burden

Sick time is not the only piece of labor burden. Employers also carry payroll taxes. The unemployment insurance tax is one example. The Department of Labor says that "employers pay this tax annually by filing IRS Form 940," as explained in its Unemployment Insurance Tax Topic. That is a reminder that some burden is paid on a schedule, not spread evenly across each pay period.

Check applicable rates, wage bases, and state tax rules separately. For this post, the point is that your labor burden build-up should list each item separately, with its source and its timing, so you can change one item without rebuilding the whole rate.

A checklist for the bid

Before you finalize a crew rate, go through this list.

Confirm your employee count, and whether you are at or near the 15-employee line.
Check your selected cap against the applicable annual limit.
Record your waiting-period policy for new hires.
Model each worker's expected hours and accrued balance.
Check overtime exemption before applying the assumed workweek.
Choose carryover or a year-end payout, and note the choice in the bid.
Decide whether you will front-load the annual amount at the start of the year.
Convert the annual sick-time hours into dollars for each paid hour, using a confirmed sick-hour pay rate.
Show sick time as its own line in the labor burden, with the statute cited.
Check the full statute and your own counsel or accountant before you rely on any number.

Today, calculate the sick-time burden for one worker using your scheduled hours, expected sick-time use, and confirmed sick-hour pay rate.

What this post does not settle

How should I confirm the sick-hour pay rate?

Check the full statute and your own pay policy before setting the rate. If your bid depends on employee counting, workers who move between jobs or states, or how sick time interacts with overtime and other pay, look up the full statute and get advice before you commit.

Can I use this calculation for work outside Arizona?

Check the rules where the work is performed, not just where your office is. This calculation addresses Arizona sick time; confirm the applicable requirements before carrying it into another estimate.