Partnering with a professional employer organization (PEO) can help Arizona companies maintain compliance with the state’s labor, payroll, and employment laws while streaming HR operations. This partnership allows CFOs and Finance teams to offload routine administrative tasks so they can focus on core strategic initiatives.
Keep reading to learn how a PEO works and the benefits for your Arizona business.
The role of PEOs in Arizona
Many Arizona businesses use PEO services to handle their HR operations and workforce management. The provider takes responsibility for a range of functions including payroll, taxes, and benefits administration. Meanwhile, the client company can free up more resources to work on meeting key objectives and expansion goals.
Using a PEO is more like entering a partnership than paying for a service. The client company is legally in a co-employment relationship with the provider. That means the PEO assumes many responsibilities and liabilities while the client maintains control over their staff.
Many states regulate PEOs operating within their limits. While Arizona no longer requires providers to get a license, it still monitors their activities. A PEO must notify the Industrial Commission of Arizona (ICA) and the insurance carrier when they partner with a client company.
PEOs in Arizona must also provide workers’ compensation and unemployment insurance on behalf of the client company. They have to use their own business information and payroll data to file reports. All PEO providers and similar services are strictly prohibited from using the client’s information to secure lower unemployment insurance rates under the State Unemployment Tax Act (SUTA).
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Benefits of partnering with an Arizona PEO
Outsourcing HR and payroll processes allows businesses in Arizona to simplify their operations, improve worker satisfaction, and mitigate the risk of compliance issues. Here’s a more in-depth look at the benefits of using a PEO:
Extra efficiency
Outsourcing to a PEO can significantly reduce the time and resources spent on HR tasks. Instead of hiring more personnel, companies can rely on the provider’s expert team for a fixed monthly fee. This strategy often proves more cost-effective than continuing to manage or even expand the processes in-house.
PEOs also provide advanced HR technology that can automate processes like payroll, tax withholding, and benefits enrollment, which means you can save even more time on HR administration.
Access to expertise
Many startups and small businesses face budgetary constraints which prevent them from accessing the right expertise. However, they also don’t have the funds to absorb the penalties or legal fees caused by errors. Partnering with a PEO enables them to mitigate risks, leverage specialized knowledge, and level the playing field between themselves and larger companies.
Affordable employee benefits plans
Businesses can offer more comprehensive and cost-effective benefits by using a PEO. As the provider has a larger aggregate workforce, they can negotiate better deals at volume, which means you get better rates across packages that can include health insurance, retirement plans, and more.
Since the state of Arizona requires you to secure workers’ compensation insurance, a PEO can ensure you get a package that meets legal standards but remains within your budget.
PEOs can also give small businesses a competitive edge in the job market. With the provider’s help, they can offer benefits packages similar to that of large organizations without straining their resources. They won’t be forced to miss out on great hiring opportunities or lose talented workers to rivals.
Compliance
Businesses in Arizona face complex and ever-changing regulations. Without expert guidance, they may unknowingly violate laws and face penalties, lawsuits, and negative press as a result.
For example, Arizona recently concluded a high-profile court case over workers’ compensation. The state ruled that the company owed benefits after an employee likely contracted COVID-19 on the job.
A PEO can help businesses identify and eliminate potential compliance issues. If there are complex cases, they can provide guidance. By delegating these tasks, human resources and finance teams can also keep their focus on core business activities.
Payroll, labor, and employment laws in Arizona
Arizona laws often go beyond federal requirements, imposing additonal regulations and standards for employment. When you partner with a PEO, it becomes their responsibility to maintain continuous compliance with these rules.
Here’s an overview of the main payroll, labor, and employment laws in Arizona:
Payroll and benefits laws
- Minimum wage: Arizona has set the minimum wage at $14.35 USD for 2024. You may pay employees up to $3 lower if they regularly receive tips and gratuities that make up the difference. The state increases the minimum wage by the cost of inflation every year
- Exemptions: If your business earns less than $500,000 in annual revenue, you don’t have to pay workers the Arizona minimum wage. Public sector companies are also exempt
- Disclosure: Employers must print and display a copy of the Fair Wages and Healthy Families Act in an easily accessible place
- Paid sick leave: Employees are entitled to paid sick leave at their standard hourly rate. They should accrue a minimum of one hour’s leave for every 30 hours worked. They can use up to 40 hours of paid sick leave in a year for illness, injury, or emergencies
- Pay transparency laws: Arizona doesn’t currently require employers to disclose salary bands in job descriptions
- Record keeping: Employers must maintain accurate payroll records of hours worked and PTO earned for up to four years. If they don’t, the state will assume they haven’t paid the correct rate. The penalties can range from $250 to $1000 for each offense
- Paydays and pay periods: There must be at least two fixed paydays a month and they can’t be more than 16 days apart. Employers must pay all the wages due up to that date
- Final paychecks: If you terminate workers, you must pay them their remaining wages within seven working days. You can pay all other departing employees on the next regular payday
Labor laws
- Meal and rest breaks: Arizona doesn’t require employers to offer meal or break periods. However, if you have workers on duty, you must pay them for that time. This rules applies whether you permit them to rest or engage in personal activities
- 24-hour on duty: If you require workers to be on site for over 24 hours, you can agree to exclude meal and sleeping periods. You must provide accommodation where they can get a minimum of eight hours of uninterrupted sleep
- Residential employees: In the case where workers live on-site, you don’t have to pay for any time when they can leave the premises
- Workers’ compensation: All employers must provide workers’ compensation regardless of their industry or workforce size. They may choose which doctor the employee visits for the first medical assessment
- Overtime: Arizona defers to federal law on the matter of overtime. You must pay one and a half times the regular rate if employees work over 40 hours in a single week
Employment laws
- Worker classification: Arizona defines an independent contractor based on the hiring company’s level of financial control and oversight. The state’s General Accounting Office (GOA) has a list of factors that can indicate worker status. For example, freelancers can choose where to work and have more than one client or customer
- Declaration of Independent Business Status (DIBS): Employers can ask independent contractors to sign a form acknowledging their status. The aim of DIBS is to clarify the relationship between companies and workers before they agree to work together
- Disability: A disabled worker is entitled to minimum wage provided they can meet their responsibilities without full assistance. They are only exempt if the work only benefits them and not the employer
Manage payroll, benefits, and HR for your US team with Deel’s PEO and US payroll.
Additional requirements and enforcement
One notable law in Arizona is the unemployment tax. All employers must open an account, report their wages, and make contributions. The exact rates depend on the size of their payroll and benefits for the year.
When you use a PEO, they’re required by law to manage unemployment insurance for your workers. The state treats them as the employer in this instance.
Sometimes Arizona state overlaps with federal laws. Employers must always comply with the regulations which afford workers the most rights and advantages.
See also: Your Ultimate Guide to US Payroll in Arizona
How to choose the right PEO in Arizona
Arizona’s complex laws and regulations mean you need to take a strategic approach to choosing a PEO. Here’s a seven-step guide to finding a provider that suits your needs and interests:
1. Define your business needs
Start by analyzing your current HR processes to look for areas of inefficiency or potential cost savings. Think about both your immediate needs and future goals.
Decide which services you’re likely to need from the PEO, for example, payroll processing, benefits administration, and compliance. Again, consider how these needs may change as your company evolves and grows.
2. Research PEOs with Arizona expertise
Look for Arizona PEO services with a strong presence and a proven track record. As the state doesn’t have licensing, they can’t regulate providers as closely as many other states. That’s why it’s essential to verify your PEO’s credentials before committing to a partnership.
To check a potential PEO, search for case studies, client testimonials, and examples of how they’ve handled compliance for other companies.
3. Evaluate the value of services and benefits
Explore the services each PEO offers to see whether they’ll meet your requirements. In particular, check whether the benefits packages provided are comprehensive yet affordable. These packages can help you attract and retain top workers in Arizona.
Also, look at how well the PEO can adapt to your unique setup. For example, is their software user-friendly? Can you easily implement it across your entire company?
4. Assess compliance and risk management capabilities
Learn about how the PEO stays updated with state and federal regulations and communicates with their client companies. They should be able to demonstrate a proactive approach to compliance and risk mitigation. For instance, Deel has a Compliance Hub with essential updates about changing laws and regulations from the US and beyond.
5. Check customer service and support
Research the PEO’s support options, availability, and wait times. Compliance issues often require a fast response and expert guidance so they don’t escalate. Check whether you’ll have a dedicated team or account manager who can familiarize themselves with your business and tailor their support to your needs.
6. Review and negotiate the contract
Carefully read the contract and double-check you understand all the terms of the agreement. Get a legal professional to guarantee everything is in your company’s best interests, if needed. Ensure the contract clarifies your and the PEO’s responsibilities in every scenario, including fees and exit clauses.
7. Plan for implementation and transition
Notify your team about the upcoming changes and explain the benefits of using a PEO service. Give staff opportunities to ask questions and provide feedback.
Agree on a transition timeline with the PEO provider including meetings, updates, and data transfers. You can guarantee a smooth transition while laying the groundwork for a strong partnership.
See also: How to choose a US PEO
Manage your Arizona, US, and global workers with Deel
Deel simplifies payroll and HR management, whether you hire employees in Arizona, across the US, or around the world.
As your PEO*, Deel takes care of payroll, HR, and benefits administration while ensuring state tax compliance and handling sensitive issues by providing:
- Expert payroll administration
- Access to benefit plans from leading carriers and benefits administration
- Robust HRIS with free IT, Finance, and PTO management
- State-specific training, HR policies, and on-demand HR support
- Advanced tax and benefits compliance
- And more
Book a demo to learn more about using Deel PEO in Arizona.
*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.
Disclaimer: This article is intended for informational purposes and should not be considered legal advice. Consult a qualified licensed attorney for help on legal issues.
