In designing compensation systems, many Arizona employers make the mistake of focusing exclusively on compliance with the federal Fair Labor Standards Act. While an employer may classify positions correctly as exempt from overtime under federal law, it may unwittingly violate Arizona’s minimum wage statute. This is because Arizona’s minimum wage statute does not recognize or incorporate the federal overtime-pay exemptions. An employee’s classification as exempt or nonexempt under the Fair Labor Standards Act does not affect the same employee’s status under Arizona’s requirements.
Under Arizona’s minimum wage statute, every employee must earn the state minimum wage for each hour worked (currently, $7.80 per hour). Therefore, if an employee’s total earnings in a workweek fall below this amount based on the hours worked that workweek, the employer must pay the difference.
This may sound simple, but employers can violate Arizona law without realizing it. Perhaps the most common violation occurs when an employer compensates its outside sales employees through commissions. Federal law does not require an exempt outside sales employee to earn a minimum or base wage. But in Arizona, if an outside sales employee’s total earnings for any given workweek fall below Arizona’s minimum wage for each hour worked, the employer must make up the difference.
A less common violation of Arizona law occurs when an employer pays an exempt employee the federal minimum of $455 (or more) per week and assumes that it is fully compliant with the law, regardless of how many hours the employee works. In Arizona, however, every employee is entitled to earn at least $7.80 per hour. Therefore, if an employee works such hours in a workweek so that his or her hourly rate falls below the minimum wage, the employer must pay the difference between the employee’s salary and $7.80 per hour.
A few simple checks and balances can help employers ensure compliance with Arizona law. If positions are classified as exempt under the federal guidelines for outside sales, make sure those employees report their hours worked for each workweek. Then, for each workweek, divide the outside sales employee’s combined earnings for that time period (commissions + base wage) by the number of hours worked to ensure that the employee has earned at least the minimum wage for each hour worked.
Likewise, employees classified as exempt under the federal administrative, executive, professional, or computer exemptions should be paid at least $7.80 for each hour worked. For federally exempt employees who may come close to the state minimum wage threshold due to working a significant number of hours, employers may decide to have those employees report their hours worked in order to ensure compliance.