In 2016, Arizona voters passed Proposition 206, a law that mandates a steady increase in Arizona's minimum wage through 2020, after which time increases will be pegged to the rate of inflation. Starting on January 1, 2018, Arizonans must be paid $10.50 an hour, up from $10 in 2017. The additional income is designed to help low-income families make ends meet. So far, beneficiaries of the higher wage seem to be spending their additional income, as Arizona's economy remains strong while unemployment went down in 2017 from five to four-and-a-half percent. Still, it remains to be seen how the state will fare as the minimum hourly rate continues its upward climb to $11 in 2019 and $12 in 2020. The warnings by Governor Ducey and Arizona Chamber of Commerce that the higher wage may cost jobs may still prove true.
The construction industry will be particularly interesting to watch. Currently, it should not be feeling the impact of Proposition 206 very much. According to the U.S. Bureau of Labor Statistics, only entry-level construction workers make less than Arizona's minimum wage, namely $9.65 per hour. Their median hourly rate is $14.53. The new wage structure may result in some upward pressure on wages, but the overall effect should be manageable.
Our experts at Foster Financial will be watching the continuing implementation of Proposition 206 very carefully. Any increase in labor costs, even if modest, will have an effect on construction costs and job bids. The legislation also mandates paid sick leave and imposes penalties for violations. The legislature's fiscal analysis cautioned that 206 could impact corporate income tax. Please contact us if you think your business might be affected. Not only can we assist with income tax preparation, we remain ready to consult when your company is putting together a bid so that you can be confident that your cost estimate is correct and the job will bring in a profit.