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Wage and Hour Law 101 for Employers

Wage Folder HR DepartmentEvery employer and HR department has reviewed wage and hour laws, but even for the most experienced companies, a few common questions always come up.

  • How much do I have to pay?
  • What will wages look like in the next few years?
  • Does a bonus affect overtime?
  • What type of damages could I face if I don’t pay employee's properly?
  • How do I stay out of the crosshairs of the government?

Some of the answers might not be as straightforward as you’d think. Below, we’ve put together some of the most important points on the basics of wage and hour laws and what employers need to know.

Minimum wage in Michigan

Effective on January 1, 2022, the statewide minimum wage in Michigan was increased to $9.87/hour for regular hourly workers, a 22-cent raise over 2021. Exceptions to the law are for tipped workers, the rate is $3.75/hour, as long as reported tips average $6.12/hour, and 17-year-olds, whose rate was increased to $8.39/hour, and training wages for 16-19-year-olds for the first 90 days of their employment, which stands at $4.25/hour.

Employers are currently doing everything they can to hire staff, resulting in the average hourly wage for Michiganders being about $14/hour.

Basic hourly wages may seem simple, but countless employers across the state don’t keep up with wage changes and open themselves up to risk as a result.

Raising the wage

Raising the minimum wage has recently emerged as a prominent issue in national political circles that has also made its way into Michigan politics.

Advocates’ most recent attempt is taking the form of a ballot initiative, “Raise the Wage Michigan,” which is a proposal that would raise the wage $1/hour every year until 2027, when it would max out at $15/hour. The raise would begin with $11 in 2023. Under Michigan law, if the legislation got enough signatures the legislature would have to adopt the measure into law within 40 days. If it failed to do so, the measure would be put onto the following general election ballot.

The most notable change that the initiative would bring is it would raise the wage for all employees, regardless of industry. For employers that rely on tipped business, the move would be an enormous shock to their business model, because the salary would come out of their pockets instead of their customers.

Overtime

It’s the bane of existence for companies that are short-staffed and a blessing for employees that have to work a couple of extra hours this week.

Overtime is based on the “regular rate” that an employee is paid -- meaning the normal hourly rate that was named when the job was offered, not including things like truly discretionary bonuses or “other similar compensation”.

However, bonuses that are non-discretionary -- for example, a bonus awarded after hitting a certain number of hours or a certain number of sales -- do have to be included in regular compensation and divided by the total number of hours for an employee, and also applied to overtime.

Therefore, after an employee has worked over 40 hours in a work week, the employee is entitled to be paid “time and a half,” or 150% of their normal rate. So, if an employer pays $10/hour normally, for the 41st hour and every hour after, the rate becomes $15/hour. If the employee receives $1,000 at the end of the fiscal year for working a certain number of hours, divided by the 2,000 hours they worked this year, their regular rate will amount to $10.50/hour, and therefore their overtime rate would be $15.75/hour.

The overtime is also retroactive -- so after giving a bonus, an employer must go back and adjust the overtime rate for the entire year. So, if your company is paying premium rates or giving bonuses, make sure you’re working with a payroll company or advisor that helps you make sure you’re compensating correctly.

One of the greatest sources of wage and hour violations is the misclassifications of employees as exempt. It is important to review the strict exemption requirements for overtime for each employee. Who is exempt is not based on what you and the employee agree, not on what a job description says, but what the law says and what the employee actually does. 

What type of damages could I face if I don’t pay employee’s properly?

Failing to pay employees wages and overtime can result in not only having to repay the employee, but being required to pay liquidated damages, meaning double damages. In addition, you could be required to pay attorneys fees if you are sued and penalties. In most cases, the statute of limitations under federal law is two years, but it can be extended to three years if you are found to have not paid intentionally. And even if you have an employee you believe is agreeable to your terms, or even signed an agreement, it does not matter. You cannot waive overtime and minimum wage violations in an agreement, even a settlement unless the Department of Labor or a judge agrees. There is also the possibility that an employee can file a class action for a wide class of employees, even if they do not care or know of a violation. Defending even a close case can be expensive and time consuming.

What employers should do

The number one takeaway for all employers is to conduct a self-audit, before the government gets called to conduct one for you. Alongside your payroll company or employment counsel, take a hard look at payment practices, overtime, premium pay, and other compensation policies, and even open up the handbook to see what’s inside. Make sure that all of the policies written in black and white comply with state and federal wage laws.

Wage and hour laws might seem straightforward, but the reality is far from it. To avoid legal risk employers need to be 100% sure that what is in the handbook, matches what’s in their paychecks, and matches what the government requires.

If you have further questions about your organization’s compliance with wage and hour laws, contact Cliff Hammond or another member of Foster Swift’s Labor & Employment law team.

Categories: Audits, Employment, Labor Relations, National Labor Relations Board, Overtime, Wage and Hour


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