It shouldn’t come as a shock that throughout the United States the minimum wage often falls short of the living wage — the hourly wage an employee needs to provide for their family. While the federal minimum wage continues to stagnate at $7.25 an hour, data shows that a single adult needs to make over $11 an hour just to provide for their own needs. Adding a partner and children only serves to widen the gap, making it increasingly difficult for minimum-wage earners to adequately provide for their household. 

Fortunately, legislators in Arizona recognized this problem and drafted the Fair Wages and Healthy Families Act (FWHFA) to help Arizonans keep up with the rising cost if living. The measure passed at the ballot box in November 2016, triggering the first minimum wage hike in January 2017. The state minimum wage has continued each year, and will continue to increase under the provisions of the FWHFA.

Minimum Wage Increase Schedule

In January 2019, the minimum wage in Arizona rose to $11 an hour. The minimum wage is scheduled to increase to $12 an hour in January 2020. After that, the minimum wage will rise each year based on the annual increase in the cost of living. The increase in the cost of living will be measured by the percentage increase in the Consumer Price Index from August of the immediately preceding year over the level from August of the previous year (ARS 23-363).

For example, let’s say that in determining the minimum wage increase for 2021 the commission calculates an increase of 2% in the Consumer Price Index from August 2019 to August 2020. Considering the minimum wage will be $12 an hour in 2020, that means the 2021 minimum wage must increase by $0.24 to $12.24. Per that calculation, the minimum wage would be set at $12.24 an hour beginning January 1, 2021.

What is The Consumer Price Index?

The Consumer Price Index (CPI) is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services” (US Bureau of Labor Statistics). The Consumer Price Index is managed by by the Bureau of Labor Statistics, a division of the US Department of Labor. 

While Arizona’s minimum wage law refers to the aggregate index for the entire United States and all urban consumers, the BLS calculates several indices for the United States, the four Census regions, nine Census divisions, two sizes of city classes, eight cross-classifications of regions and size-classes, and for 23 local areas.

In addition to the aggregate index, indices are available for major groups of consumer expenditures such as recreation, medical care, transportation, apparel, housing, food and beverages, and education and communications. Indices are also available for items within each group, and for special categories like services.

Minimum Wage for Tipped Employees

The minimum wage is fairly straightforward with hourly employees, but what about employees who earn tips?

On the one hand, it might place an undue financial burden on an employer to pay the minimum wage to an employee who makes a significant portion of their income in tips. On the other hand, the very nature of tips means that they’re not guaranteed, so how do you ensure a tipped employee receives fair pay with fluctuating income?

Under Arizona’s minimum wage laws, an employer can reduce a tipped employee’s base wage up to $3 less than the minimum wage providing their total pay surpasses the minimum wage. As of 2019, that means a tipped employee’s base salary cannot be less than $8 an hour. That will rise to $9 an hour in 2020, and will continue to rise with the cost of living each year after that.

When establishing the value of tips that contribute towards a tipped employee’s reduced base salary, an employer may reference the business’s record of charged tips and/or the employee’s FICA declaration. Employers are encouraged to calculate an average tip value over the established pay period, though the employer may choose another period so long as it complies with state regulations.

How do you know if you’re a tipped employee? For starters, your employer is obligated to inform you when you are hired, promoted, or transferred to a position that qualifies for the tipped minimum wage. Furthermore, the employer is required to indicate your reduced base pay on each paycheck (so you can verify it’s more than $3 less than the minimum wage) along with confirmation that your tipped income brought your total pay above the minimum wage.

Exceptions To The Arizona Minimum Wage

Tipped employees aren’t the only exception under Arizona minimum wage laws. Employees who work for a parent or sibling are not protected by the minimum wage law, as family businesses are given some leeway to pay their immediate family members less than the minimum wage. Babysitters are also exempt from the minimum wage, though the law clearly differentiates between a casual babysitter and a regular nanny.

Some small businesses are also exempt from the Arizona minimum wage. Qualifying small businesses must have $500,000 or less in gross annual revenues and merit exempt status under USC 29 § 206(a).

Finally, state and federal government employees are exempt from the Arizona minimum wage law. Government employees fall under the jurisdiction of federal employment laws, not state laws.

Wage Disputes

While most employers are well-aware of the minimum wage law (they’re obligated to display an ICA disclaimer in the workplace as a reminder, so it’s tough to miss), wage disputes regarding the minimum wage arise from time to time. Should you discover that your employer has not been paying you the minimum wage, you have two options to recover unpaid wages:

  1. File a wage claim – employees who have accumulated less than $5,000 in unpaid wages over one year or less can file a wage complaint with the Industrial Commission of Arizona (ICA). The ICA will perform an investigation and issue a Determination that can only be appealed to the Arizona Superior Court. When an employer fails to comply with an ICA Determination within 10 days, the damages awarded to the employee are tripled.
  2. File a civil lawsuit – while taking your case to court will take more time and effort than a simple wage claim with the ICA, it’s the only option for cases involving more than $5,000 in unpaid wages. Most successful civil suits result in a private settlement outside of court.

Receive Help With Wage Disputes

The state of Arizona is a great place to live and work, but knowing the employment laws will help you a lot, especially if it comes to having to dispute your wages against your employer.

Employment law issues can cause distress and affect productivity on the job. Consider talking to our AZ employment law team to help you settle your case.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

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