As a practicing accountant in the state of Arizona, I am often asked questions pertaining to the wages and state labor laws. I remind my clients that I am not an attorney, and if they have specific issues regarding an employment incident, they should consult an attorney. I extend that advice to you.
For general reference, I have included below some of the statutes which cover the questions I am asked most often. Should you wish to learn more about the labor laws in Arizona, go to :http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp. Labor Laws are under Title 23.
I hope this serves as a good resource for my clients and those looking for a quick answer to a question about employment laws in Arizona.
Definitions:
"Department" means the labor department of the industrial commission of Arizona.
"Employee" means any person who performs services for an employer under a contract of employment either made in this state or to be performed wholly or partly within this state.
"Employer" means any individual, partnership, association, joint stock company, trust, corporation, the administrator or executor of the estate of a deceased individual or the receiver, trustee or successor of any of such persons employing any person. Employer also includes this state and any county, municipality, school district or other political subdivision of this state.
"Hours worked" includes all time an employee is employed.
"Wages" means nondiscretionary compensation due an employee in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid whether determined by a time, task, piece, commission or other method of calculation. Wages include sick pay, vacation pay, severance pay, commissions, bonuses and other amounts promised when the employer has a policy or a practice of making such payments.
Exaction of fee or gratuity as condition of employment prohibited; classification:
It is unlawful for a person charged or entrusted by another with the employment or continuance in employment of any workmen or laborers to demand or receive, either directly or indirectly, from a workman or laborer employed or continued in employment through his agency or under his direction or control, a fee, commission or gratuity of any kind as the price or condition of the employment of the workman or laborer, or as the price or condition of his continuance in such employment. Any person charged or entrusted with employment of laborers or workmen for his principal, or under whose direction or control the workmen and laborers are engaged in work and labor for the principal, who violates a provision of this section is guilty of a class 2 misdemeanor.
Obtaining labor by false pretenses; civil liability; classification:
A. A person who employs for wages any person in any occupation, and who at the time of employing him does not have sufficient assets within the county in which the work or labor is to be performed over and above all exemptions allowed by law to cover the amount of wages accruing to the employee for the term of two weeks, and who makes false representations or pretenses as to having such assets, and after labor has been done by the employee under such employment, fails, upon the employee's discharge or resignation, or for a period of five days after the wages are payable, to pay the employee, on demand, the wages due, is guilty of obtaining labor under false pretenses.
B. Upon conviction, and in the same proceeding, judgment shall be rendered in favor of the employee and against the employer for all wages unpaid, together with a reasonable attorney's fee to be fixed by the court. The judgment shall also include compensation to the employee at the same rate at which the wages were agreed to be paid, from the time they became due until the judgment is satisfied.
C. The judgment shall be a first and prior lien against the property of the employer upon which the work and labor was performed.
D. Obtaining labor under false pretenses is a class 1 misdemeanor.
Compulsion or coercion of employee or another to buy from a particular person; classification:
A person who knowingly compels, or in any manner seeks to coerce any employee or any person to purchase goods or supplies from any particular person is guilty of a class 2 misdemeanor.
Designation of paydays for employees; payment; exceptions; violation; classification:
A. Each employer in this state shall designate two or more days in each month, not more than sixteen days apart, as fixed paydays for payment of wages to the employees.
B. Notwithstanding the provisions of subsection A, each employer in this state whose principal place of business is located outside the state of Arizona and whose payroll system is centralized outside the state of Arizona may designate one or more days in each month as fixed paydays for payment of wages to the following employees:
1. Professional, administrative or executive employees or employees employed in the capacity of an outside salesman as those terms are defined under the fair labor standards act of 1938, as amended.
2. Employees employed in a supervisory capacity as defined under the national labor relations act.
C. Each employer shall, on each of the regular paydays, pay to the employees, in lawful money of the United States, or in negotiable bank checks or, in the case of the state or any political subdivision thereof, warrants payable on demand and bearing even date with the payday or, with the written consent of the employee, by deposit on the payday to the employee's credit at a financial institution of the employee's choice which is a member of the federal deposit insurance corporation or of any other comparable federal or state agency, all wages due the employees up to such date, except:
1. In the case of employees remaining in the service of any such employer, with the exception of school district employees, all wages other than overtime or exception pay not to exceed five days of labor may be withheld. School districts may withhold wages during their normal two week payroll processing cycle. An employer other than a school district may satisfy the requirements of this paragraph by any of the following:
(a) Personally delivering the wages to the employee no later than five days after the end of the most recent pay period.
(b) Depositing the wages in the United States mail no later than five days after the end of the most recent pay period for delivery to an address specified by the employee.
(c) Personally delivering the wages to the employee no later than ten days after the end of the most recent pay period for an employer whose payroll system is centralized outside the state of Arizona.
2. In the case of employees of school districts or of the Arizona state school for the deaf and the blind, the annual salary may be prorated in any number of payments, and the employee may select whether to have the salary prorated or paid during the actual months worked. If the employee's salary is prorated, all such payments still due at the close of the school attendance year or fiscal year may at the option of the employee be paid in either a lump sum or paid within a period of two months after the close of the fiscal year.
3. Overtime or exception pay shall be paid no later than sixteen days after the end of the most recent pay period.
D. When an employee's wages are paid by deposit in a financial institution he shall be furnished with a statement of his earnings and withholdings. Any wage deposit plan adopted by an employer shall entitle the employee to one withdrawal for each deposit, free of any service charge to the employee. The consent of an employee for payment of wage by deposit shall not constitute a prior assignment of wages to the financial institution and is revocable at any time prior to the transmittal to the financial institution by the employer. No person shall be denied employment nor discharged for refusal to consent to payment of wage by deposit in a financial institution.
E. Subsection B shall not apply to employees whose salaries are subject to provisions of collective bargaining agreements.
F. Any employer who violates a provision of this section is guilty of a petty offense.
Withholding of wages:
No employer may withhold or divert any portion of an employee's wages unless one of the following applies:
The employer is required or empowered to do so by state or federal law.
The employer has prior written authorization from the employee.
There is a reasonable good faith dispute as to the amount of wages due, including the amount of any counterclaim or any claim of debt, reimbursement, recoupment or set-off asserted by the employer against the employee.
Payment of wages of discharged employee; violation; classification:
A. When an employee is discharged from the service of an employer, he shall be paid wages due him within three working days or the end of the next regular pay period, whichever is sooner.
B. When an employee quits the service of an employer he shall be paid in the usual manner all wages due him no later than the regular payday for the pay period during which the termination occurred. If requested by the employee, such wages shall be paid by mail.
C. Every employer, including the state and its political subdivisions, shall pay wages or compensation due an employee under this section in lawful money of the United States by negotiable check, draft, money order or warrant, in the case of the state or any political subdivision, which can be immediately redeemed in cash at a bank or other financial institution, payable on demand or by deposit in a financial institution of employee's choice and dated not later than the day upon which the check, draft, money order or warrant is given, and not otherwise.
D. A person violating this section is guilty of a petty offense.
About the author: Jerilyn L. Evans-Graff (Jeri) has been an accountant and financial/business manager for over 35 years. Jeri has been involved in the financial, business and general management of a variety of industries, including law firms, construction, churches, and real estate - to name a few.
Presently, Jeri owns and operates Evans-Graff, Inc. (1993), an accounting and bookkeeping business, offering a variety of outsourced services for small and medium businesses.
Workers Compensation Insurance
Most small business owners are unaware of each states requirement for workers’ compensation insurance coverage. This insurance covers an employee whom may become injured in the course of employment. The state laws differ not only in when businesses must carry this coverage, but also as to what constitutes an “employee”.
In the state of Arizona, an employer is any businesses, which employs a worker for work which is in part or process of the trade of the business. So, one worker would qualify a business to carry workers compensation. However, if that one worker is the owner of the company and the only employee of the business, and the owner intends to waive coverage, then coverage is not required.
Under Arizona statute, independent contractors are required to be covered under workers compensations insurance by the business that compensates, unless they carry their own policy. This is one area most employers are grossly misinformed. I hear so many arguments from small business owners who support paying independent contractor wages to avoid paying workers compensation, when in fact; it does not release them from the requirement of coverage. Primarily because the worker’s job does not comply with the statute’s definition of independent contractor (A.R.S. 23-902.D):
1. Does not require the independent contractor to perform work exclusively for the business. This paragraph shall not be construed as conclusive evidence that an individual who performs services primarily or exclusively for another person is an employee of that person.
2. Does not provide the independent contractor with any business registrations or licenses required to perform the specific services set forth in the contract.
3. Does not pay the independent contractor a salary or hourly rate instead of an amount fixed by contract.
4. Will not terminate the independent contractor before the expiration of the contract period, unless the independent contractor breaches the contract or violates the laws of this state.
5. Does not provide tools to the independent contractor.
6. Does not dictate the time of performance.
7. Pays the independent contractor in the name appearing on the written agreement.
8. Will not combine business operations with the person performing the services rather than maintaining these operations separately.
A worker may comply with IRS definition of independent contractor, but not with the state’s definition for purposes of workers compensation insurance coverage.
Another misconception I hear is often from sole proprietors who believe that their health insurance coverage is all they need. Most often, health insurance policies have exception clauses for injuries in the course of employment. Sole proprietors, officers, and owners of business may elect to waive coverage of workers compensation coverage, however, it would be prudent to follow up with your health care provider to make sure there is coverage should the principal experience injury during employment.
Workers compensation insurance in Arizona may be obtained through a private insurance carrier or through Arizona State Fund. More information on Arizona State Fund may be obtained at their website at www.scfaz.com.
About the author: Jerilyn L. Evans-Graff (Jeri) has been an accountant and financial/business manager for over 35 years. Jeri has been involved in the financial, business and general management of a variety of industries, including law firms, construction, churches, and real estate - to name a few.
Presently, Jeri owns and operates Evans-Graff, Inc. (1993), an accounting and bookkeeping business, offering a variety of outsourced services for small and medium businesses.
Employee vs Contract Labor
As an accountant and business consultant, this is probably the number one question I receive from both clients and potential clients. For most small businesses, labor costs comprise one of the largest costs incurred. Most are looking to classify workers as independent contractors in order to save the matching FICA, federal and state unemployment, and workers compensation. The goal is cost containment, the end result is often more costly.
What I see so often is verbal agreement between the employer and employee that compensation will be paid as an independent contractor. The employer needs help and the worker needs employment. The agreement is made hastily and neither wants to spend much time on the subject.
The next year rolls around and the worker owes taxes he or she cannot pay and when IRS begins earnest attempts to collect, the worker begins to make statements to the IRS that the employer agreed to pay the taxes.
IRS publication 1776 defines independent contractor and employee as follows:
§ Behavioral Control
· Instructions. If a worker receives extensive instructions on how work is to be done, the worker is an employee;
· Training. If a worker receives training in procedures and methods, the worker is an employee.
§ Financial Control
· Significant Investment. If a worker has significant investment in his or her work, this may indicate an independent contractor;
· Expenses. If a worker is not reimbursed for some or all business expenses, then they might be an independent contractor;
· Opportunity for Profit or Loss. If a worker can realize a profit or incur a loss, this might suggest an independent contractor.
§ Relationship of the Parties
· Employee Benefits. if a worker receives benefits, such as insurance, this may indicate the worker is an employee;
· Written Contracts. A written contract may be significant in determining the working relationship between employer and worker.
Without a written contract and distinction of the above three categories, it is less cumbersome for the IRS to determine the relationship as employment. Once it is determined that the relationship is one of employment, the employer is liable for the employee’s share of federal income tax, social security, and Medicare, and the employer’s share of social security, Medicare and federal unemployment tax. And the employer will be assessed penalties and interest for late payment and late filing of payroll taxes and reports. Late payment of the employee’s portion of payroll tax liabilities can result in a 100% penalty.
And then there is the state income tax. Once the federal government determines a worker as an employee, most states follow. Then the employer owes the state income tax and the state unemployment…and penalties and interest.
As if this is not enough, every state has different laws regarding workers compensation. In the state of Arizona, a worker may be classified as an independent contractor by IRS, but as an employee under statute governing requirements for coverage. In Arizona, there are very few instances where a worker is not classified as an employee under this statute.
So, the question is very weighted with many aspects to consider. If you question whether a worker is an independent contractor or employee, it may not be worth it to push the independent contractor status. It may come back to bite you at a later date.
About the author: Jerilyn L. Evans-Graff (Jeri) has been an accountant and financial/business manager for over 35 years. Jeri has been involved in the financial, business and general management of a variety of industries, including law firms, construction, churches, and real estate - to name a few.
Presently, Jeri owns and operates Evans-Graff, Inc. (1993), an accounting and bookkeeping business, offering a variety of outsourced services for small and medium businesses.
Identity Theft by Nick Coons, CEO
RedSeven Computer Company
I think it's great how paranoid people are online with their personal
information, and at the same time those people are very free with their
information offline. For instance, some people won't make purchases
or do their banking online, but those same people will go to a
restaurant, leave their credit card with the waiter, let the waiter
walk away with it (who knows what he does with it then; copy the card
number down, take a picture, or perhaps even place a quick order
online), then brings the card back to you.
Only 11% of all identity theft occurs online.. it's simply that the
popularity of the internet has increased the public's awareness of
identify theft. However, almost all identify theft occurs offline.
Nick Coons, CEO
RedSeven Computer Company
602.296.1200 www.red7usa.com
