Arizona Payroll Law

As any small business owner can testify, once you’ve grown your business to the point where you need help outside your immediate family, your headaches increase exponentially.  Once you have employees, you have a lot more to worry about.  There are legal requirements that can trip you up, at both the state and Federal levels.  Taxes are the biggest and most visible issue, and payroll tax mistakes have caused too many bankruptcies to count.  After payroll taxes, there is the Fair Labor Standards Act, which mandates (among other things) overtime pay for hourly workers.  The “among other things” in the FLSA could fill volumes, and I will probably write about them in more detail as time goes by, but I’m going to spend the rest of this post talking about the little details of Arizona employment law that can be bothersome, annoying, and occasionally expensive.

Arizona is a very employer-friendly state, compared to others.  Ask any small business owner that operates in California where they’d prefer to be, and they’ll tell you that, other than the weather, they’d much rather be in Arizona.  Compared to some of the bluer states, complying with Arizona employment law is simple and inexpensive.  Last April, the Arizona legislature made some changes to our employment laws that made it even easier for small businesses to meet their obligations, by loosening a couple of deadlines that many employers found difficult to meet.  

As a small business employer in Arizona, here are the main things you need to worry about from the state:

1. State withholding and unemployment insurance taxes.  The application process is easy, and the reporting requirements aren’t overly burdensome, but the penalties for not meeting filing and payment deadlines can get expensive.

2. Verify eligibility for employment using e-Verify.  Arizona requires employers in the state to participate in this otherwise optional Federal program.  The administrative requirements are rather burdensome, and there are deadlines and rules to be observed.  e-Verify requires a case to be initiated within three days of an employee starting work.  

3. New hire reporting.  National efforts in support of child support enforcement have caused each state to initiate new hire reporting procedures, so child support enforcement agencies can send out withholding orders immediately, and custodial parents can get their money faster.  New hires must be reported to the state within 20 days of starting work.

4. Timely payment requirements.  State law requires the following:
   1. Scheduled pay dates no more than seven calendar days from the end of the pay period, on days when the banks are open and employees can access their funds.  Until last year, the deadline was five calendar days, and many employers didn’t meet it.
   2. Regular, scheduled paydays, at least twice per month, no more than 16 days apart (you can pay weekly, biweekly, or semi-monthly).
   3. Payment of all amounts due to any involuntarily terminated employee (including accrued vacation pay) within seven calendar days, or the next scheduled payday (whichever comes first). This deadline used to be three working days, and it was missed quite often.  

Failure to meet a payment deadline can expose you to legal liability.  An employee that isn’t paid on time has the right to sue in small claims court, and recover damages (meaning, pay him on time, or pay him three times - your choice).  If you miss a payday, and your employee incurs bank charges for insufficient funds due to automatic debits, late charges on a mortgage, or gets evicted....damages can mount up fairly quickly.  You expect your employees to show up for work on time, and pay attention to their responsibilities.  You owe them the same consideration, and if you make a mistake, you need to correct it immediately.  Just because your employee is too afraid of losing his or her job to take you to court, doesn’t mean it’s not costing you in lost productivity, disloyalty, and loss of your professional reputation.  

5. Worker’s compensation insurance coverage.  If you have employees and don’t have worker’s compensation insurance, get it covered.  It doesn’t matter how un-hazardous you think your business is, accidents happen, and you really don’t want the consequences if one happens to one of your employees when you’re not covered.  Do you have any idea how much a broken hip costs, and how much you’re going to be paying for the next couple of decades if an employee is permanently disabled on the job?  

The recordkeeping requirements associated with Federal and state employment laws are significant, and if your business isn’t large enough to warrant a full-time human resources and payroll specialist, it’s probably worth your time and energy to consider outside help in meeting those obligations.  Accountingprose can help and can add value to your business in the process.