New Minimum Wage in Arizona
Effective January 1, 2026, Arizona's Minimum Wage will increase from $14.70 to $15.15 per hour and the tipped wage calculation will remain the same.
The Details of the New Rate
The 35-cent increase is tied directly to the Consumer Price Index (CPI), an annual adjustment mechanism designed to help wages keep pace with inflation and the rising cost of living. This rate is significantly higher than the standing federal minimum wage of $7.25 per hour, which has not changed since 2009.
Tipped Employees
For employees who customarily and regularly receive tips, employers may pay a reduced base wage, provided the total compensation (base wage plus tips) meets or exceeds the standard minimum wage for all hours worked.
- Tipped Minimum Wage (2025): $11.70 per hour
- Maximum Tip Credit: $3.00 per hour
Employers must keep accurate records to ensure that if an employee's tips fall short, the employer makes up the difference.
Local Ordinances
It's important to note that two cities in Arizona have passed their own minimum wage laws that mandate higher rates than the state minimum:
- Flagstaff: The minimum wage increased to $17.85 per hour on January 1, 2025, the highest in the state.
- Tucson: The local minimum wage increased to $15.00 per hour on January 1, 2025.
Employers in these areas must comply with the higher local rates.
Impact on Arizona's Economy
The annual minimum wage adjustment has a ripple effect throughout the state.
- For Workers: The increase aims to provide fair compensation and help workers manage rising expenses. Arizona's minimum wage currently ranks among the highest in the nation.
- For Employers: Businesses, particularly small operations and those in the service industry, must adjust payrolls and budgets to accommodate higher labor costs. Some strategies to offset these costs might include reevaluating pricing or optimizing staffing plans.
Staying Compliant
To ensure compliance with the latest laws, employers should take proactive steps:
- Update Payroll Systems: Ensure payroll software reflects the correct 2025 minimum wage, including proper calculations for tipped employees.
- Post Current Notices: Employers are required to conspicuously display updated minimum wage posters in the workplace. The official posters can be downloaded from the Industrial Commission of Arizona website.
- Maintain Records: Keep accurate records of hours worked and wages paid for a period of four years to avoid potential legal issues.