25% less than minimum wage - Yes, its good thing

Many folks have asked why Prop. 138 says it allows employers to pay tipped workers "up to 25% less than minimum wage?" This seems like a bad thing for employees. However, you have to remember that current law allows for employers to pay tipped workers "up to $3 less than minimum wage." This difference is called the "Tip Credit." Prop. 138 is not creating a new tip credit, it is adjusting the current one.

Why is Prop. 138 setting the tip credit at 25% instead of the current $3 per hour?

Arizona’s minimum wage law has an automatic adjustment each year to increase the minimum wage by the increase in inflation as calculated by the Consumer Price Index. The $3 tip credit doesn’t have an adjustment. This means as time goes on and the minimum wage continues to increase, the percentage of the $3 tip credit decreases and will eventually be the same thing as an outright elimination. By switching to a percentage and pegging to the minimum wage

that increases each year, we ensure a standard tip credit for the future.

The $3 tip credit was put into place in 2006 when Arizona moved away from the federal minimum wage and the federal tip credit. Prior to that, Arizona worked under the federal standard, which has a minimum wage of $5.15 per hour (in 2006) with a tip credit of $3.02, resulting in an effective tip credit of 59%. The new Arizona law that went into effect in 2007 set the minimum wage at $6.75 per hour with a $3 tip credit, resulting in an effective tip credit of 44%. Since then, the effective tip credit in Arizona has continued to drop year after year. Prop. 138 stops the decline of the tip credit by switching to a percentage.

Tipped workers want to see the tip credit set as a percentage to protect it into the future. Remember, a functional tip credit is a key component to tipped workers ability to generate and retain their tips. In jurisdictions that have eliminated the tip credit, servers have seen decreased tips, lost jobs, and fewer hours - while customers see fewer restaurants, higher prices, and mandatory service charges.