State wage increase could be unnecessary
Minimum-wage employees would get highest amount if feds pass law
KINGMAN - With the ongoing debate in the U.S. Senate over a federal minimum wage increase to $7.25 over a 26-month period, Arizona's new $6.75 state minimum wage might turn out to have been a waste of time for voters in November.
According to the Department of Labor, an employer is subject to both state and federal laws and is required to pay employees whichever wage is higher.
That means Arizonans will receive the $7.25 an hour if the House bill passes through the Senate. The chance for eventual passage looks good, but not first without some Senate amendments - more than 10 so far - that would close tax loopholes, provide small-business tax relief and incentives, and allow restaurant owners accelerated tax benefits on facility improvements, the Associated Press reported.
So what happens to the state minimum wage if the federal wage surpasses it?
According to the Arizona Industrial Commission, the state agency tasked with implementing the state's minimum wage, which 66 percent of voters supported in the mid-term election, the provisions of the state proposition still apply even if the federal minimum wage trumps the state's.
These provisions include an annual adjustment to account for cost of living increases.
The federal wage, if passed, would take 60 days to take effect, at which point it would reach $5.85, the first of three $0.70 increases.
The other two would occur at 14 months ($6.55) and 26 months ($7.25) after passage.
This means the state minimum wage will actually trump the federal wage until March of 2009, assuming the bill passes by month's end.
As stated, Arizonans will earn whichever wage is higher, and until 2009 the state wage will be. But the benefit to state workers doesn't stop there.
The annual cost of living adjustment required by Proposition 202, the state minimum wage increase, will increase the state's minimum on the first of January every year.
According to Larry Etchechury, director of the Arizona Industrial Commission, the federal wage may pass the state wage, but the state law's indexing will continue to add to the state wage even if Arizonans are receiving the federal wage.
As a hypothetical example, Etchechury said by 2008, if the cost of living adjustment is 3 percent, the state's minimum wage will increase to $6.95 after Jan. 1, 2008.
By 2009, when the third and final $0.70 increase to the federal wage takes effect, Arizonans would then be earning $7.16 an hour.
The federal wage would at that point still trump the state wage, but the indexing will still continue.
Etchechury's 3 percent example is quite accurate, actually.
The cost of living adjustment is generally equal to the Consumer Price Index for Urban Wage Earners and Clerical Workers.
From the third quarter of 2005 to the same quarter in 2006, the CPI-W increased 6.4 points, or 3.32 percent. That is, the average increase is approximately 3.3 percent, according to calculations by the Bureau of Labor Statistics.
By those numbers, when the federal wage reaches its $7.25 minimum in March 2009, assuming it passes through the Senate by month's end, the state wage would be approximately $7.20 an hour because it would have gone through cost of living adjustments on the first of January 2008 and 2009.
By the 2010 indexing, the state wage would then be higher than the federal wage, assuming another 3.3 percent CIP-W adjustment, and Arizonans will receive $7.44 an hour.
But again, if this occurred state wage earners would receive the higher of the two levels.
The Senate already has tagged on more than 10 amendments to the original bill, The Fair Minimum Wage Act of 2007, which the U.S. House of Representatives passed 315 to 116 on Jan. 10.
The state of Arizona used to sit with six other U.S. states in claiming no state minimum.
Instead, it followed the federal minimum wage law and offered $5.15 per hour.
Now it is in the top 16 in highest minimum wages in the United States and sits with 29 other states that have a minimum wage higher than the federal level.