Labor & Employment Client Alert: Arizona's Minimum Wage Increases

On January 1, 2011, Arizona's minimum wage increased to $7.35 per hour. This increase made Arizona's minimum wage higher than the federal minimum wage, which is currently $7.25 per hour.

Arizona voters enacted a voter initiative, known originally as the "Raise the Minimum Wage for Working Arizonans Act," in 2006 (the "Arizona Minimum Wage Act"). The Arizona Minimum Wage Act, which became effective January 1, 2007, established an Arizona minimum wage and also provided that the minimum wage was subject to annual increase based on the increase in the cost of living. The cost of living is measured by the federal Consumer Price Index for All Urban Consumers, U.S. City Average, for all items during the 12 months ending each August 31. Pursuant to the authority granted by this law, the Industrial Commission reviewed the cost of living information and determined that Arizona's minimum wage would be increased for calendar year 2011.

Under federal law, a state may require a minimum wage that exceeds the federal wage. If there is a difference between the laws, the employer must follow the requirement that is the most beneficial to the employee. Thus, an Arizona employer that is subject to both the federal and state laws must pay the Arizona minimum wage rate. Further, Arizona employers must make sure they are in compliance with both the federal and the state laws. Our labor and employment attorneys can answer questions regarding the laws and regulations, and advise you on compliance issues. As you review your individual compliance, some further information regarding the Act and regulations may be helpful.

Exceptions

The Arizona Minimum Wage Act provides only a few exceptions from its coverage. One exception is for small businesses that generate less than $500,000 in gross annual revenue, if that small business is not covered by the federal Fair Labor Standards Act (FLSA). From a practical standpoint, most employers are subject to the FLSA. Another exception applies to the state of Arizona and the U.S. government. Additionally, the Arizona Minimum Wage Act does not apply to any person who is employed by a parent or a sibling, or who is employed performing babysitting services in the employer's home on a casual basis.

Tipped Employees

"Tipped Employees" have special rules under the Arizona Minimum Wage Act and the regulations relating to the Act. With regard to an employee who customarily and regularly receives tips or gratuities from patrons or others, an employer may pay a wage up to $3.00 per hour less than the minimum wage if the employer can establish by its records that for each week, when adding tips received to wages paid, the employee received not less than the minimum wage for all hours worked. If an employee's tips combined with the employer's direct wages do not equal the Arizona minimum hourly wage, then the employer must make up the difference.

For purposes of the Arizona Minimum Wage Act, it is the employer's responsibility to maintain a record of the tips considered for purposes of asserting a tip credit. Further, if an employer elects to use the tip credit provisions, then the amount per hour that the employer takes as a tip credit must be reported to the employee in writing each workweek. Employees who customarily and regularly receive tips may pool, share or split tips between them, and the amount each employee actually retains is considered the tip of the employee who retains it. Employees may also pool, share or split tips with employees who do not customarily and regularly receive tips in the occupation in which the employee is engaged, including management or food preparers, however, such tips may not be credited toward that employee's minimum wage. Further, a tip credit is available only for the hours spent in the tipped occupation. If a tipped employee is routinely assigned to duties associated with a non-tipped occupation, no tip credit may be taken for the time spent in such duties.

Employers should carefully review the laws and regulations for determining who is a "tipped" employee, the application of tip credit rules and regulations and record-keeping requirements, and consult counsel with any questions.

Each case an employer may face is unique and may require legal advice. If you need further information regarding the Arizona Minimum Wage Act, please contact the author, Jan Hutchison, or one of the other attorneys in our Labor & Employment Department.

About the Author:
Janet Hutchison is a commercial transactional attorney and litigator whose practice focuses on the areas of labor and employment, real estate and general business matters. Ms. Hutchison has extensive experience in employment matters, including discrimination, wrongful discharge and wage and hour matters. She frequently advises clients on employment policies and procedures and represents employers in federal and state court litigation, as well as before the various administrative agencies. Read more... Contact Ms. Hutchison at jhutchison@jsslaw.com or 602.262.5945.