LAW MATTERS TO BUSINESS
Arizona Minimum Wage Increase: Facts and Misconceptions New increase to go into effect January 1 by Ivy N. Voss
On January 1, 2021, the minimum wage for Arizona employees will increase to $12.15 per hour, up from $12.00 per hour in 2020. This increase is based on the passage in 2016 of the Fair Wages and Healthy Families Initiative, which provided for a gradual increase in the minimum wage each January, from $10.50 per hour on January 1, 2018, to $11.00 per hour on January 1, 2019, then to $12.00 per hour on January 1, 2020, and now to $12.15 in 2021. Going forward, on January 1 of each subsequent year after 2021, as described in A.R.S. 23-263, the state’s minimum wage will be adjusted by a formula based on the inflation index rounded up to the nearest multiple of $.05. Essentially, after 2021, depending on the economy and the rate of measurable inflation, there may be additional increases, or no increase in years when inflation is stagnant. There are exemptions for certain employees in the Arizona minimum wage law, based on the nature of the employer. State and federal government employees are not covered, nor are persons employed by a parent or sibling. Anyone performing childcare services on a casual basis in the employer’s home (i.e., a babysitter) is not covered, although domestic workers performing childcare as part of their regular duties are covered, and employers may pay tipped employees $3.00 per hour less than the state minimum wage, based on how tips are calculated and paid. Arizona’s minimum wage law is distinct in several ways from the federal minimum wage. An Arizona employer must pay at least the state’s minimum wage for every hour worked in a week, even if that would not be required by the federal Fair Labor Standards Act. In Arizona, some employees who would not be covered under the FLSA, such as outside commissioned salespersons, must receive at least the state’s minimum wage anytime the weekly commission is less than minimum wage. Arizona statutes include provisions for an employee to file a complaint with the Arizona Industrial Commission, based on A.R.S. 23-263, to recoup lawfully earned wages that were not paid under this law, with the possibility of double the amount of unpaid wages. Claims for unpaid wages must be filed within two years of the date wages should have been paid, or within three years for willful violation of the law. Increasing the minimum wage is popular with employees but is not an unmixed blessing to the economy. Since the minimum wage applies to lower-wage workers, increasing it boosts the income of some employees, but often causes employers to reduce the size of that segment of the
workforce. Exactly how much incremental increases in the minimum wage will impact overall employment levels and jobless numbers is hard to calculate, but when looking at proposed changes in the federal minimum wage, the Congressional Budget Office calculated in 2019 that an increase to $15 per hour by 2025 would have the effect of lifting some 1.3 million people out poverty but, due to the increased jobless numbers caused by workforce reduction in the low-wage sector, it would have the unanticipated consequence of reducing real family income in this wage group overall by about .01 percent. In February 2019, the Economic Policy Institute published a study of the impact that increasing the federal minimum wage to $15 per hour would have on certain sectors of the workforce. Contrary to a popular misconception, the primary beneficiaries are not youth, but established workers. The study concluded the average age of affected workers to be 35 years, and that more workers aged 55 and older would benefit (14.6%) than teens (9.3%). The same study also found more than half the recipients of the proposed change would be in their prime earning years, aged 25 to 54. Additionally, although men comprise a larger portion of the workforce, the majority of those affected by the proposed increase in the federal minimum wage would be women (57.9%). A corollary to an increase in federal or state minimum wage is the impact on the community as whole, and not just the affected workers. Regardless of the demographics and despite the acknowledged reduction in the lower-wage workforce, a pay increase in the lower-wage sector creates a positive ripple effect in the community. Since minimum age is paid to workers with the smallest discretionary incomes, a pay raise for these workers is not generally tucked away in stocks, bonds, and investments, but is typically spent in the local economy on goods and services.
The minimum wage in Arizona may be increasing to $12.15 per hour in 2021, but the state’s overall rank will drop from fifth to ninth with the change, as other states adopt higher increases. A number of states and even certain metropolitan areas will go to $15 per hour (including Flagstaff), while 21 states share the bottom tier as they use the federal minimum wage rate of $7.25 per hour.
Ivy N. Voss, Esq.., is a staff attorney in the Arizona regional office of Employers Council. A practicing attorney for 25 years, Voss has worked for public agencies and private companies advising about many areas of business law that include employment law, discrimination, benefit plans, commercial lending and real estate finance, entity formation, franchises, commercial leases, and business transactions. She served as an Assistant Attorney General for the State of Arizona for seven years. employerscouncil.org
DEC. 45 2020 INBUSINESSPHX.COM
