As Flagstaff gears up for a significant minimum wage increase to $18.35 starting January 1, 2026, the local businesses and their employees are preparing for the changes this will bring. Per the ordinance set by Flagstaff voters in 2016, this increase marks another stride above the minimum wage set by the state of Arizona. With these changes, the tip credit, which allowed employers to pay a lower wage to their tipped employees, is set to disappear.
Local employees such as Allison Arzaga, who works at Steep Leaf Lounge, expressed support for the increase, stating to FOX 10 Phoenix, "I feel like it's overall a positive thing, especially for people who are like waiters and stuff." However, the current minimum wage is already posing challenges for local businesses like Mozelle's Bakery. Carragian Knott, who has been involved with her mother's bakery since a young age, shared with AZ Family that they've had to make tough choices, "It’s definitely decreased profit, that’s for sure," Knott explained.
While employees may find relief in higher wages, small businesses in Flagstaff continue to struggle. The rising costs for staples like housing, food, and gas due to the minimum wage increase and the general economic climate are leading to increased pressure on local establishments. According to Sarah Langley, City of Flagstaff Public Affairs Director, ending the tip credit is a part of this year's minimum wage adjustments, as she told FOX 10 Phoenix, "It doesn't matter if you receive tips or not. That wage is the same for all employees. $18.35 per hour."
The outlook for many businesses is cautious. Mozelle’s Bakery’s struggles are emblematic of a wider issue faced by Flagstaff's small businesses. The elimination of the tip credit is but a part of an ongoing saga, as owners grapple with absorbing the increased labor costs or passing them onto consumers. Carragian Knott told AZ Family, "The owner has definitely taken a pay cut. She gets less than minimum wage. I’m getting paid less than minimum wage just to make sure everyone else can get paid minimum wage."
The Flagstaff Vice Mayor has called for further community discussions on the issue, signaling a continued examination of the impacts of this minimum wage initiative.
