Arizona minimum wage, tip credit and sick time for restaurants in 2026

Arizona sets its minimum wage by ballot measure, adjusts it for inflation every January, and lets employers use a tip credit of up to 3 dollars an hour for tipped workers. Some cities, including Flagstaff, go further. For a restaurant, bar or cafe, the most reliable approach is to check three levels every year: the state rate, the local rate for your city and the sick time rule that applies on top.

What is the Arizona minimum wage in 2026?

The Industrial Commission of Arizona lists the state minimum wage as 15.15 dollars an hour from January 1, 2026, up from 14.70 dollars in 2025. The rate is adjusted for inflation each January 1 under the Fair Wages and Healthy Families Act, and the Commission announces the new figure in the fall. Sources already disagree on the 2027 figure, so read the Commission's own notice for it and make a note to check it, so payroll is updated in time.

How does the tip credit work?

Arizona allows an employer to pay tipped employees up to 3 dollars an hour less than the minimum wage if the employee's tips make up the difference. In 2026 that means a minimum cash wage for tipped employees of 12.15 dollars an hour, according to the Commission's 2026 fact sheet. If a worker's wages plus tips fall below the full minimum for the hours worked, the employer must pay the shortfall. Tipped employees also keep all their tips, unless they are part of a tip pool, and employers cannot take any part of tips.

Tip credit rules can change by ballot measure or by city ordinance, so confirm with the Commission and your city that nothing has changed since this guide was checked in October 2026.

Do some Arizona cities have higher minimum wages?

Yes. The City of Flagstaff announced a local minimum wage of 18.35 dollars an hour from January 1, 2026, with no separate tipped wage, so servers there are paid the full local wage before tips. Tucson has also set its own rate, reported by compliance summaries at 15.45 dollars an hour, and the City of Tucson's page describes a tip credit limit of 3 dollars. Confirm each figure with the city before you set payroll. If you run locations in more than one city, set each one up separately.

Level	Rate for 2026	Tip credit
Arizona state	15.15 dollars (Industrial Commission)	Up to 3 dollars
Tucson	15.45 dollars (compliance summaries; confirm with the city)	Limit of 3 dollars (City of Tucson)
Flagstaff	18.35 dollars (City of Flagstaff)	None

What is Arizona's earned paid sick time rule?

The Fair Wages and Healthy Families Act also requires employers to provide earned paid sick time. Employees earn an hour of sick time for every 30 hours worked. Employers with fewer than 15 employees must allow up to 24 hours a year, while larger employers must allow up to 40 hours, according to 2026 compliance summaries of the law. Only your Arizona employees count toward the headcount. Sick time can be used for the employee's own illness or injury and for caring for a family member. Employers must not retaliate against employees who use it. Check the Industrial Commission's guidance for the exact rules, including carryover and notice.

For a restaurant, the practical points are to track sick time in the payroll system, to put the policy in writing and to plan for coverage when a team member is out.

How do you handle tip pools and service charges?

Tips belong to the employees. A pool that includes workers who regularly serve customers is generally allowed, and managers and owners should not take part. If you add a service charge that customers might think is a tip, treat it as one. A separate fee that you keep should be described clearly as a fee. Keep records of tips and how any pool is divided. Ask the Industrial Commission or a lawyer before you change a pool.

How do you budget for the January increase?

The wage rises every January 1, so build a yearly cycle:

1. In October, read the Commission's announcement for the new rate.
2. In November, update your labor forecast for the year.
3. In December, review menu prices and, if needed, adjust them with notice to regulars.
4. On January 1, update payroll and the tipped wage in your system.
5. Tell staff what has changed.

Labor is often the largest cost after food, and an hourly increase multiplied across a whole team adds up over a year.

What records should you keep?

Keep time records, pay statements, tip records, tip pool calculations, sick time balances and written policies. Ask the Industrial Commission how long Arizona requires employers to keep payroll records. In a dispute, good records are your best defense.

What are the common mistakes?

• Using last year's wage after January 1.
• Applying the state tip credit in Flagstaff.
• Letting a manager share in the tip pool.
• Not tracking sick time hours.
• Failing to pay the shortfall when tips are low on a slow shift.

What should you do next?

Check your payroll against the state and city rates, review your tip and sick time policies, and set a reminder for the October announcement. This guide is general information, not legal advice.

More guides for your business:

• Arizona restaurant seasons: snowbirds, spring training and the summer slump
• Arizona Transaction Privilege Tax for restaurants: how the TPT works
• Arizona food handler card and food manager rules by county (2026)

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