Flagstaff prepares for minimum wage shift, tip credit to vanish

Flagstaff minimum wage set to increase in 2026, tip credit to be eliminated

Starting Jan. 1, Flagstaff will increase its minimum wage to $18.35, as the ip credit ends. FOX 10's Megan Spector learns more about how this impacts tipped workers.

FLAGSTAFF, Ariz. - The minimum wage across Arizona is set to increase come the new year. 

Local perspective:

But some cities, like Flagstaff, have their own local minimum wage requirements separate from state laws. Flagstaff's own minimum wage was established by voters back in 2016. It increases every year, but 2026 comes with a change.

What we know:

Starting Jan. 1, 2026, anyone working within the city limits of Flagstaff will see the minimum wage increase to $18.35. And for the first time, there’s a true emphasis on "anyone."

"It doesn't matter if you receive tips or not. That wage is the same for all employees. 18.35 per hour," said Sarah Langley, City of Flagstaff Public Affairs Director. "In the past, we've had a tip credit, so if you were earning tips, your minimum wage could be lower. But that's going away this year."

By the numbers:

This will put the Flagstaff minimum wage about $3 more than the state of Arizona’s.

The Flagstaff composite cost of living is about 22% more expensive than the national average. That’s according to the Flagstaff Chamber of Commerce 2024 report that looks at housing, groceries, utilities and more.

What they're saying:

"Everything is expensive. Rent, car insurance. It's just crazy. Gas— it's still hard to like to pay rent every single month," said Allison Arzaga, a Steep Leaf Lounge employee.

As a tipped employee, Arzaga said the minimum wage increase helps with the high cost of living.

"I feel like it's overall a positive thing, especially for people who are like waiters and stuff," Arzaga said.

The other side:

But she also recognizes the strain it could put on businesses.

"For business owners, like small business owners, because the cost of food is so high and trying to pay employees is really crazy and tips just help balance that out," Arzaga said.

And when expenses go up, often so do the prices.

"It'll either fall on the business owner or the consumer, and that's kind of how a lot of things happen right now," Arzaga said. "The consumer, I mean, you go out to eat, it's like at least $20 a person already."

Big picture view:

This change is in addition to challenges already present from tariffs and rising costs in general.

"We are honestly impacted by the tariffs because a lot of our teas come from Asia. It just makes it harder on the consumer. For us, if a tea gets more expensive, we just have to charge the consumer more," Arzaga said.

And while the tip credit is ending with the new minimum wage, Arzaga is hopeful those tips will continue.

"Hopefully people won't tip less because the cost of living here is just so high," Arzaga said.

What's next:

The vice mayor of Flagstaff said she asked this topic be placed on a future council agenda so they can hear from the community about the impact of the minimum wage initiative.