What is Arizona's Minimum Wage in 2023?

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How Is Minimum Wage Determined in AZ?

The minimum wage in Arizona is determined by the Industrial Commission of Arizona (ICA). ICA has the option to increase the rate on Jan. 1 of each year. That decision is made based on the increase in the cost of living, which is measured by the Consumer Price Index (CPI).  

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Specifically, Arizona looks at the change in the cost of living from August to August to decide how much to raise the minimum wage.

Arizona Minimum Wage vs. Federal Rate

Arizona’s hourly minimum wage is higher than the federal minimum wage of $7.25 per hour, which is mandated by the U.S. Department of Labor in the Fair Labor Standards Act (FLSA).

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However, Arizona doesn’t have the highest minimum wage in the United States.

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Washington is the state with the highest minimum wage in 2023 at $15.74 per hour.

How Much Does Someone Making Minimum Wage Earn in Arizona? 

An employee who works a full-time workweek of 40 hours will make $554 per week at the state’s minimum wage. If that employee works full-time, and 52 weeks in a year, they’ll receive an annual salary of $28,808 before taxes. 

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So, what will they take home after taxes?

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Starting in 2023, Arizona has a flat state income tax of 2.5% for everyone.

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In total, here are the income and payroll taxes someone earning minimum wage in Arizona has to pay in 2022: 

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• Federal income tax: $995 + 12% of income earned over $9,950
• State income tax: 2.5%
• Employee’s half of FICA (Medicare and Social Security tax): 7.65%

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After deducting income and FICA taxes, an employee working full time and earning minimum wage in Arizona will earn $21,432.03 in a year if they work all 52 weeks. Employees who work fewer than 40 hours per week or 52 weeks in a year will earn less.

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Arizona’s labor laws also state that employees are entitled to overtime pay (of at least time and a half) when they work more than 40 hours in one week. That’s $20.77 per overtime hour ($13.85 + $6.93).

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So, if you have an employee that works 45 hours in one week, they will earn $554 for the first 40 hours ($13.85 per regular hour x 40). 

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They’ll earn $103.88 per hour for the last five ($20.77 per overtime hour x 5).

What Happens if You Don’t Comply with Minimum Wage Laws in Arizona?

If you forget (or fail) to change your payroll to reflect increases in the minimum wage, your employees can file a complaint using the state’s Minimum Wage Claim Form with the Arizona Industrial Commission.

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The Commission will review complaints and ask you to pay the employees two or three times their wages owed if you skipped out on paying them. 

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Keeping up with minimum wage increases and tax withholdings can be tedious. But you can take the manual work out of payroll with Hourly, which automatically deducts taxes and pays them for you.

Does Arizona Have a Tipped Minimum Wage?

Arizona state law says employers can take a $3.00 credit on the minimum wage for tipped employees, making the tipped minimum wage $10.85. 

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But you can only use this rate if the employee’s total pay (with tips) is equal to or more than what they would’ve made with the full minimum wage. If their pay is lower than that for any period, you have to cover the difference. 

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Let’s say you own a restaurant in Arizona and pay a server the tipped minimum wage. They work 20 hours in one week. If they were earning the regular minimum wage of $13.85 per hour, their gross pay would be $277.

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However, their tipped minimum wage is $10.85 times 20 hours, which is $217. So, they need to earn at least $60.00 in tips so that their total pay is $277.

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So, if the server only makes $40 in tips that week, you have to pay the $20 difference to make sure their total pay is at least equal to the minimum wage rate.

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Also, you can only use the tipped minimum wage to pay employees who regularly receive tips from customers, such as servers, bellhops, bussers, hairdressers, car wash attendants, and valets. 

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On top of that, Arizona state requires you to provide a disclaimer upon hiring or assigning them to a role that lets employees know their position follows the tipped minimum wage.

Arizona Minimum Wage Exemptions

Some types of employees may be exempt from the regular minimum wage in Arizona and eligible to be paid at a lower rate. 

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Let’s dig in.

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• New workers under the age of 20: You can pay them $4.25 per hour during training, which can last up to 90 days. 
• Full-time students: You can pay high school and college students working part-time at qualified programs (such as work-study) 85% of the hourly minimum wage for up to 20 hours per week. That rate is $11.77 per hour as of Jan. 1, 2023.
• Some employees with disabilities: Arizona employers generally cannot pay employees with disabilities subminimum wage. However, if the employee is doing work for their own enrichment (and not for the benefit of the employer), they may perform the tasks without compensation. This may be the case if you participate in a disability employment initiative meant to provide jobs for individuals with disabilities who may otherwise not be able to find work. 
• Tip workers: You can pay tip workers a lower cash minimum wage of $10.85 per hour as long as their total income (cash plus tips) averages out to $13.85 per hour.

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Any time you offer a subminimum wage for a position, you must disclose that information upon hiring or assigning someone to that position.

Does Arizona Have Local or City Minimum Wage Rates?

While Phoenix follows the minimum wage rate of the state of Arizona, Tucson and Flagstaff have their own set of labor laws—including a separate minimum wage—for workers in those cities.

What Is the Minimum Wage in Tucson? 

The minimum wage in Tucson is $13.85 per hour per for standard employees and $10.85 per hour for tipped employees, as per the Tucson Minimum Wage Act (TMWA).

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Like elsewhere in the state, the city of Tucson also lets you take a $3.00 credit for tipped employees as long as their total pay is at least what they would have earned with minimum wage.

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The city’s minimum wage will continue to increase each year on Jan. 1 as follows:

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• January 1, 2024: $14.25 ($11.25 tipped)
• January 1, 2025: $15.00 ($12.00 tipped)

What Is the Minimum Wage in Flagstaff?

Effective Jan. 1, 2023, Flagstaff's minimum wage is $16.80 for standard employees and $14.80 for tipped employees. 

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After 2023, the city can continue to raise the minimum wage each year on Jan. 1. The increase will either correlate to a rise in the cost of living or a flat rate of $2.00 above the state minimum wage, whichever is higher.

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Flagstaff is also gradually lowering the wage credit for tipped workers so they will eventually earn the regular hourly minimum wage plus their tips. 

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The tipped minimum wage in the city will be as follows: 

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• Jan. 1, 2024: $1.50 less than the hourly minimum wage
• Jan. 1, 2025: $1.00 less than the hourly minimum wage
• Jan. 1, 2026, and after: the same as the hourly minimum wage

Complying With Arizona’s Minimum Wage Laws

Besides updating your payroll to reflect minimum wage increases, you’ll also need to hang a minimum wage poster (in English and Spanish) where your employees can easily read it. Here are the 2023 posters:

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Update Your Payroll at the Beginning of Every Year

Now that you know how minimum wage works in Arizona, make sure to update your payroll in time for each Jan. 1 increase. For 2023, that’s $13.85 per hour for non-tipped employees and $10.85 for tipped employees. Or use payroll software like Hourly that will automatically do it for you!