Understanding Arizona Overtime Laws: A Complete Overview

The Fundamentals of Overtime Pay in Arizona

Arizona overtime law is governed by the federal Fair Labor Standards Act (FLSA) and supplemented by the Arizona Wage Statute. The general rule is that unless the employee is exempt, overtime must be paid for hours worked in excess of 40 hours in a work week. The wages due may be affected by a handful of Arizona statutes. Arizona law does not have a daily overtime requirement .
The FLSA also includes a recordkeeping and reporting requirement regarding hours worked and payment of wages. In Arizona, an employer is required to maintain personnel records and to keep time cards. Another major difference between the Arizona law and the FLSA is that Arizona has a wage claim statute that permits employees to bring a claim for wages due owed. That statute has a different statute of limitations or a different amount of time period in which to sue than the FLSA.

Who Is Eligible for Arizona Overtime Pay?

According to the Fair Labor Standards Act (FLSA), non-exempt workers are entitled to receive time-and-a-half their regular rate of pay when working more than 40 hours in a workweek. Arizona follows these same regulations, meaning most employees are in fact owed overtime pay.
Any Arizona employee who gets paid on an hourly basis, receives a salary at the "regular rate" of pay, is paid based on a piece rate, or is employed as a commission worker without a minimum salary is subject to the FLSA’s overtime requirements. Because salary employees are paid on a pre-determined basis, receiving overtime may seem unlikely—but it does happen. For example, retail managers on an hourly basis are a common form of salary-paid workers who may receive overtime.
Most employers in the state of Arizona are required to pay their employees for overtime after they have worked over 40 hours in one week. Exceptions to this rule are employees of certain non-public agencies and commissioned sales workers for non-retail services, such as real estate brokers, travel agencies, or financial service jobs. Additional exemptions include outside salesmen, employees that have a professional license such as doctors, lawyers, or teachers, farm laborers, many taxicab drivers, and casual babysitters or companions for the elderly.

How to Calculate Overtime Pay

Overtime calculation typically begins with what’s known as the standard workweek. An employee’s standard workweek can be 40 hours per week or can be a shorter workweek determined by their employer (the "Workweek"). For most Arizona employers, the Workweek is considered to be 40 hours per week. Overtime hours occur when the total hours an employee worked exceeds the Workweek, and overtime wages are therefore work at a higher rate.
The following is an example of how overtime pay is applied. Suppose that Jim works a 40-hour workweek but sometimes puts in an extra hour or two each day. For instance, in one week he puts in 45 hours at $10 per hour. For that week, Jim is entitled to his normal rate of pay ($10) for the first 40 hours and $15 for the five hours of overtime (1.5 times the regular rate). So, in total, Jim is entitled to $475 that week ($400 for 40 hours at $10 plus $75 for 5 hours of overtime).
In contrast, suppose that Julie puts in exactly the same hours offering the same service, but she’s a salaried employee. Suppose she has a salary of $350 per week. If Julie’s annual salary is below the minimum income threshold for exempt employees, her employer would not be able to claim that she was exempt. This is so because her annual salary would be less than the annual minimum salary for the 2018-19 period — $547.20 per week x 52 weeks = $28,486.40.
Julie’s employer must thus pay her an additional compensation to equal the overtime she would have earned if she were not exempt. Note, however, that the employer does not necessarily need to pay Julie at one-and-a-half times her hourly rate of pay (typically referred to as "half-time" or "extra time"). Instead, the employer could use the "fluctuating workweek" method of overtime calculation. In our example, this means that the employer will pay Julie one-half of her normal rate for each overtime hour. Using the above example, we conclude that Julie is entitled to $475 for the week (her salary of $350 and the $125 in overtime pay for the 10 overtime hours worked). The employer satisfies its obligation to Julie by paying the same amount, but using a different payment method. Despite the different payout methods, both Jim and Julie are paid the same amount and are entitled to the same amount of overtime compensation.
Note also that if the employer’s policy allows employees to vary their schedule from week-to-week, the Workweek may also vary. For instance, an employee may work 36 hours in one week and 44 hours in another. The employee will not receive overtime pay for the 36-hour week and will receive overtime for the 44-hour week. The employer could nonetheless use the 40-hour workweek standard for the purposes of computing overtime. Other than as above stipulated, the employer cannot average 40-hour workweeks (or 45 hours, or 50 hours, or any other number), compute the average and pay the employee overtime if they worked in excess of that average.

Overtime Pay Exemptions in Arizona

Exceptions to the Arizona Law Overtime Rule
For the most part, employees in Arizona are entitled to overtime pay. However, exceptions do exist. These exceptions, which apply to some but not all employees, allow for exemption to the law. Here are some of the exceptions that you should know about as an Arizona business owner who does business in the state or has employees in the state.
Executive Employees
These are generally employers in business who are responsible for managing their business. So this means they have to make decisions that shape direction and policy, including how to run the business and what policies and procedures are in place. They typically have employees who report directly to them, and supervise those employees, which means that they can hire and fire.
Administrative Employees
Administrative employees, like those in Arizona, typically have pertinent information about the administration and operations of the business where they are employed and can exercise judgment in order to decide how to best perform their job. Their job can be sales, human resources, purchasing, or something similar.
Professional Employees
These types of employees engage in work in an area of science or learning, and perform work that requires advanced degrees, including such areas as accounting, engineering, biology, and other professional fields. They also make serious choices and independent judgments for the business where they work.
Computer Employees
Computer employees are those who both develop and design, analyze, and modify computer systems that are applied to programming and control systems, security systems, and similar computer-related work. They can also work in a supervisory role, such as leading computer programmers, making decisions as needed.
Outside Sales
Outside sales employees go out into the world and solicit new business for their employer. These employees are typically the only one working in the outside sales role, so they will not have others working under them.

How Arizona Overtime Laws Differ From the Federal Regulations

Arizona’s overtime laws are largely similar to federal overtime laws as both laws generally require employers to pay time-and-a-half for hours worked over 40 in a workweek. However, because many businesses are governed primarily by the U.S. Department of Labor’s federal laws, many businesses do not pay attention to the fact that Arizona deviate from the federal rules some.
Arizona does allow an employee, who is expected to be paid on a salary basis, to work more than 40 hours without receiving overtime pay. But, there are some restrictions. If the employee is not an executive, administrative, or professional employee, the employer may not require the employee to work more than 40 hours without overtime pay. If the employee is an executive, administrative, or professional employee, the employer may require the employee to work more than 40 hours without overtime pay if:
The employee is expected to be paid on a salary basis. But, the Arizona law has the same exceptions as the federal law. In other words, even if the employee is expected to be paid on a salary basis, an employer cannot require an employee to work more than 40 hours per week if the employee is primarily responsible for selling not more than 20 percent of the products sold at retail or wholesale establishments, including service establishments such as banks or insurance companies .
Arizona also has a different requirement with regard to non-discretionary compensation. Under the federal law, if an employer pays commissions or other incentive pay in addition to the regular salary, such payment would be considered a part of the regular rate of pay and overtime must be paid on the commissions or incentive pay.
But the Arizona law, takes in another issue and provides that an employer is not required to pay overtime on commissions, piece-rate compensation, or bonus payments if the employer and the employee have a written agreement that all gratuities or similar payments are received only as a gratuity and the commissions, piece-rate compensation, or bonus payments are based on competing or related enterprises.
In addition to these requirements, the federal law requires employers to pay overtime on all hours that an employee works. But Arizona employers do not have to pay overtime for hours worked in excess of 40 for the following employees:
With the wide range of statutory, administrative, and judicial sources that regulate overtime pay, employers and employees can run into several twists and turns in trying to identify their rights under federal and state law. Since the overtime law changes from time to time, the best approach is for both employers and employees to monitor the fairness of their pay policies and practices.

How to Bring a Complaint for Overtime Pay

If an employee believes that he or she has not been paid correctly for overtime work in Arizona, the first step is to send a written demand to the employer requesting payment. The demand should be sent to the employee’s immediate supervisor with a copy to the company’s Human Resources Department, and by certified mail to the company’s Registered Agent.
If the employer does not pay the outstanding overtime wages within the next few weeks, the employee can file a complaint with the Arizona Industrial Commission, which regulates overtime payment compliance in the state. The complaint should be submitted within one year of the employer’s last overtime payment to the employee and should include documentation demonstrating that the employee worked more than 40 hours per week without overtime compensation.
The Industrial Commission will then determine whether it has jurisdiction to hear the complaint and whether the employee’s allegations of unpaid overtime are valid. If so, the Industrial Commission will issue an order based on its initial review of the evidence. While this Order is not final and the employee may still pursue a court action, it will stand as prima facie evidence (a legal term meaning "sufficiency of evidence") that the employee was entitled to overtime wages. This may give the employee an edge in any court proceedings.
If the employee disagrees with the Industrial Commission’s Order, he or she can file an appeal with the Industrial Commission itself. The appeal must usually be filed within 35 days of the date of the Order. If the Industrial Commission denies the appeal, the employee can file a complaint and initiate a civil action in court.
If the employer does not respond to the complaint within 20 days, the employee can file a lawsuit. However, the employer’s failure to respond may encourage the employee to accept a settlement offer from the employer in order to avoid further litigation.

Recent Developments

Considerable recent changes and developments have taken place over the past few years that impact Arizona’s overtime laws, including a ruling in the Arizona Supreme Court on whether a computer professional who was allegedly misclassified was due overtime pay. In December 2016, the Arizona Supreme Court ruled that an employer cannot simply treat its employees who perform technical or analytical work related to computers as exempt from overtime merely because they are classified as "computer professionals." The court held that the employee failed to state a claim for overtime pay since those employees must be paid overtime unless all of the requirements of the law exempting them from premium pay were established. Notably, the court also granted the employer in this case the right to amend its complaint in order to include evidence of how the claimant’s job duties actually fit into the statutory definition of exempt employees.
In late 2016, a federal judge also granted the U.S . Department of Labor’s request to enjoin pending litigation related to its rule expanding overtime protections. The court’s injunction was based on its finding that the department has a strong likelihood of success on the merits of its challenge to the rule. The rule, which was set to go into effect on December 1, 2016, would have doubled the salary level for workers to be deemed exempt from overtime pay. That rule was expected to have significant impacts on the manufacturing, health care, and retail workers in Phoenix and the rest of the state based on annual salary increases.
The Arizona Department of Economic Security announced in August 2016 that in April of that year 90 percent of state employees would receive a four percent pay increase. The increase would be given to 26,000 state employees who work as child protective service workers, case specialists, social workers, and quality assurance managers, both inside and outside of the 13 group homes run by the Department of Child Safety.