The New Michigan Law is More Than a Minimum Wage Increase for Employers

On March 28, 2006, Governor Granholm approved Public Act 81 of 2006, raising Michigan’s minimum wage to $6.95 by October 1, 2006; to $7.15 by July 1, 2007; and to $7.40 by July 1, 2008. In addition to the obvious increase in the cost of hourly labor for Michigan businesses, a potential consequence of the change could cause employers to lose certain exemptions under the overtime regulations of the federal Fair Labor Standards Act (“FLSA”).

Michigan’s minimum wage rate is currently the same as that required by federal law – $5.15 per hour. Therefore, Michigan’s overtime requirements do not apply to employers covered by the FLSA. With the increase in Michigan’s minimum wage on October 1, 2006, however, employers covered by the FLSA’s overtime regulations must also comply with Michigan’s Minimum Wage Act and its overtime requirements. Those Michigan requirements are more favorable to employees and might effectively eliminate several overtime exemptions that employers presently rely upon for executive, professional, and administrative employees.

Among the major differences between the Michigan and federal overtime exemptions are:

  • Lawful deductions from salaries under the FLSA might jeopardize an employee’s exempt status under Michigan law and require payment of overtime.
  • Though the minimum wage for tipped employees remains unchanged, employers might nevertheless be required to increase the guaranteed hourly minimum to ensure that tipped employees are paid at least the minimum wage.
  • The new “Highly Compensated Employee” exemption under the FLSA is not available under Michigan law. The FLSA exemptions would also not apply for commissioned or outside sales employees whose overtime rate would be based upon both wages and commissions.
  • Michigan law requires overtime to be paid based upon a 40-hour workweek. The FLSA, on the other hand, permits certain employers, including larger healthcare providers, to calculate overtime eligibility and pay based upon an 80-hour biweekly pay period.
  • Dozens of job classifications specifically exempted under federal law are not exempt under Michigan law, entitling these employees to overtime pay. These job classifications include: Certain over-the-road truck drivers, Domestic caregivers and babysitters, Employees of smaller media outlets, and Taxi and limousine drivers.

We anticipate that the Legislature will revisit Michigan’s present overtime requirements in the coming months to address the apparently unintended consequences of the minimum wage increase. Although no immediate action is necessary, should the Michigan Legislature fail to rectify this issue before October 1, 2006, Michigan employers will be required to revisit their exempt employee classifications and job descriptions to ensure their compliance with Michigan law. Attorneys in Berry Moorman’s Labor and Employment Group will continue to monitor this issue closely as October 1 approaches and will be available to help employers properly evaluate and implement any necessary changes to their payroll practices and exempt classifications.

For additional information or for assistance with other labor and employment issues affecting your workplace, please contact one of our attorneys in the Labor and Employment Group.