Minimum Wage Increase in Arizona - $7.65 per hour as of January 1, 2012

Any church that has employees is likely affected by the Arizona Minimum Wage Act, which is codified at A.R.S. 23-364, and applies to most employers. There are limited exceptions, and the main exception applies to businesses that have less than $500,000 in gross annual income and are not subject to the Federal Fair Labor Standards Act. Failing to follow Arizona or Federal law could have significant consequences. Therefore, as a best practice, we recommend that all employers, including churches, ensure that they are paying all employees a wage that complies with both the Arizona Minimum Wage Act and the Federal Fair Labor Standards Act.

Practically speaking, the only time that the Arizona Minimum Wage Act will not apply to a church worker is in the following situations: (1) a volunteer worker, and (2) an independent contractor. The church should never assume that a worker is working as a volunteer. This relationship should be clearly defined and agreed upon by the church and the volunteer. Additionally, there are many factors to determine if a worker is an employee or an independent contractor and legal counsel may be necessary to help make this determination. The key element in determining whether a worker is an employee or independent contractor lies in the level of control exercised over the worker by the employer. However, this determination is complex and fact intensive and there is no "one size fits all." Failure to properly characterize a worker as an employee could have significant tax implications and could subject the church to penalties and interest.

If a church is subject to the Arizona Minimum Wage Act (which it likely is), then it will also be subject to the Federal Fair Labor Standards Act (the Federal Minimum Wage). The church, as an employer, is obligated to pay the higher of either the Arizona Minimum Wage or the Federal Minimum Wage. Currently, the Arizona Minimum Wage is higher than the Federal Minimum Wage ($7.35 vs. $7.25), so the Arizona Minimum Wage applies. The Arizona Minimum Wage increases to $7.65 beginning on January 1, 2012. After the first of the year, all employers will be required to pay their employees at least $7.65 per hour. Each employer is required to post the Arizona and Federal Minimum Wage requirements (usually in a poster format) in a conspicuous place that is accessible to all employees. Additionally, each employer must maintain payroll records for four years, which show each day worked by the employee, the hours worked, and the wages paid.

It is important to note that the Arizona Minimum Wage Act applies to all employees, including those employees that are paid a salary, and not paid on an "hourly" basis. This will require the church to ensure that any salaried employees are paid at least $7.65 per hour worked. For example, if a salaried employee works 80 hours in one week, then the employer must pay a salary of at least $612.00 per week after January 1, 2012.

If an employer fails to pay the required Arizona or Federal Minimum Wage, the employer could be subject to numerous penalties. The employee could file a complaint with the Industrial Commission's Labor Department (Arizona) and the Department of Labor (Federal) and a civil complaint could also be filed against the employer. The employer could be assessed thousands of dollars in civil penalties. As you can see, it is much less expensive to simply comply with the Arizona and Federal Minimum wage requirements. It will also lead to happier employees!

If you have any questions regarding this matter, or any other employment matter, please contact Mark Sahl or any other attorney at our firm.