October 27, 2011

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Arizona's Minimum Wage Increases

Arizona's minimum hourly wage will increase by $0.30 per hour on January 1, 2012, from $7.35 to $7.65 per hour. The increase was recently announced by the Arizona Industrial Commission, and reflects a comparable percentage increase in the cost-of-living formula -- specifically, the federal Consumer Price Index for All Urban Consumers -- to which Arizona's minimum wage rate is statutorily tied.
 
Prior to 2006, there was no generally applicable state minimum wage law in Arizona. The only minimum wage rate of concern to most Arizona employers was the one established by the federal Fair Labor Standards Act ("FLSA"). However, in November 2006, Arizona voters approved a ballot initiative, known as Proposition 202, that established a broadly applicable state minimum wage, and provided for annual upward adjustments to that wage to reflect the rate of inflation.
 
The initial state minimum wage, which became effective on January 1, 2007, was $6.75 per hour. Since that time, the state minimum wage has increased steadily, although by varying amounts, every year except 2010, when there was no adjustment in the statutory wage rate because there had been no increase in the applicable cost-of-living index during the preceding year. The $0.30 increase that will become effective in 2012 is the largest annual increase since the state minimum wage law became effective in 2007.
 
While the FLSA still establishes a federal minimum wage, the federal minimum wage is currently, and in 2012 will continue to be, lower than the corresponding state minimum wage. In 2012, for example, the federal minimum wage will be $7.25, as compared to the Arizona minimum wage of $7.65. Employers in Arizona are bound to pay the higher of the two potentially applicable minimum wage rates.
 
Arizona is among 17 other states and the District of Columbia with minimum wage rates higher than the federal minimum wage. In Colorado, for example, a 2006 voter initiative amended the Colorado Constitution to provide for a minimum wage similarly tied to increases in the Consumer Price Index for the Denver-Boulder-Greeley combined area. Although not yet final, Colorado's minimum wage is expected to increase by $0.28 on January 1, 2012, to $7.64.
 
The typical full-time minimum wage employee in Arizona works in the service industry. Assuming an eight hour day and a 260-day work year, that employee will earn slightly more than $15,000 in 2011. Assuming the employee will be retained despite the additional cost to the employer (an issue often debated by economists and others),1 the adjustment in the hourly minimum wage that will become effective in 2012 will increase the employee's annual earnings by approximately $625.
 
The fact that less than 10% of Arizona workers are currently earning the minimum wage (one federal study indicates the percentage may be as low as 2%) has prompted some observers to suggest that annual increases in the minimum wage should be of little concern to Arizona employers. However, the observation ignores the ripple effect caused by increases in the minimum wage, which place pressure on employers to raise the wages and salaries of other, higher paid employees in order to keep pace with the increases employers are required to make to the wages paid to minimum wage employees.
 
In any event, the impending increase in the state minimum wage will require employers with employees who are being paid the currently applicable minimum wage to decide whether to retain those employees at the higher rate that will apply in 2012. The increase also will require all employers to change the posted minimum wage notice they are statutorily required to display, in a form prescribed by the Industrial Commission, in the common areas of establishments in which their employees work and where their other employment notices are posted.
 
If you have any questions concerning Arizona's minimum wage increase, or other employment matters, please feel free to contact Michael D. Moberly, mmoberly@rcalaw.com or any other member of Ryley Carlock's Labor and Employment Practice Group.
 
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1 For a summary of this debate, see Matthew Stoloff, Comment, Minimal Change?: Implications of the "Raise the Minimum Wage for Working Arizonans Act," 39 ARIZ. ST. L.J. 1287, 1295-1302 (2007).

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