PEOs in Arizona

What makes Arizona different

• Every Arizona employer must run new hires through E-Verify under the Legal Arizona Workers Act (A.R.S. 23-214), with business-license suspension as the penalty scheme. Most states only reach government contractors or large employers.
• Earned paid sick time has been statewide since 2017 under Prop 206 (A.R.S. 23-372): accrual of 1 hour per 30 worked for every employer, capped at 40 hours a year at 15 or more employees and 24 hours below that.
• The 2026 minimum wage is $15.15 statewide with CPI indexing every January, Flagstaff runs its own $18.35 rate with the tip credit fully phased out in 2026, and Tucson indexes a separate city rate above the state floor, so multi-site Arizona payroll can carry three minimum wages.
• For unemployment, A.R.S. 23-614(G) requires a PEO to report client wages under the PEO's own state account number and contribution rate, and 23-614(H) governs how a client's experience rating is set when the contract ends.
• The unemployment taxable wage base is $8,000 (since 2023) with a 2.0 percent new employer rate, so state unemployment tax is a minor line next to the benefits and workers compensation decisions.
• Discharged employees must be paid within 7 working days or by the end of the next regular pay period, whichever comes sooner (A.R.S. 23-353), a tighter clock than the next-payday rule most states use.

PEO regulation in Arizona

Arizona repealed its PEO registration requirement in 2024 (HB 2252, Laws 2024, Chapter 67), so there is no state registry to check. What survives in A.R.S. Title 23, Chapter 3, Article 4: a PEO located in Arizona must keep $100,000 in net worth or an equivalent bond (23-569), and the agreement must allocate employer duties, make the PEO responsible for wages and payroll taxes, state who carries workers compensation, and give each covered employee written notice of the co-employment (23-562). With no registry, vet through federal CPEO certification, ESAC accreditation, and the agreement itself.

What a PEO does and does not solve here

Because client wages ride on the PEO's unemployment account and rate by statute, ask what unemployment cost appears on your invoice versus what the PEO actually pays, and how your experience rating will be established if you leave. Also confirm who tracks the three-tier minimum wage if you have Flagstaff or Tucson employees, and who monitors sick-time accrual caps that shift at the 15-employee line.

Common questions

Does Arizona license or register PEOs?

Not anymore. The Secretary of State registration was repealed effective 2024 by HB 2252, and neither the Department of Insurance and Financial Institutions nor the Department of Economic Security licenses PEOs. Verification falls back on the IRS CPEO public listing, ESAC accreditation, the A.R.S. 23-569 net worth or bond requirement, and the contract terms A.R.S. 23-562 requires.

Do we keep our Arizona unemployment rate inside a PEO?

No. A.R.S. 23-614(G) puts client wages on the PEO's account at the PEO's contribution rate while the contract runs. That can be cheaper or more expensive than your own rate, so compare the unemployment line on the proposal to your current rate notice, and ask how A.R.S. 23-614(H) will set your rate when you exit, before you sign rather than after.