United States: Back From The Dead: Michigan Employers Face Potential Return Of Wage And Salary Increases

Last Updated: March 14 2019
Article by Mark Smith

Two recent developments have resurrected wage and salary increases that Michigan employers thought were dead. These developments will force them to be cautious when determining the cost of labor for purposes of their operations and the cost at which they can sell their goods.

News from Washington Regarding Potential Salary Increase

While salaries paid to white-collar workers are typically a part of overhead rather than a direct product cost, they certainly have an impact on the company's bottom line. As most business owners will recall, the Department of Labor was on the brink of imposing costly new salary rules in 2016 when a Federal District Court in Texas issued an injunction that precluded the new rules from taking effect. Those rules would have changed the minimum amount a salaried employee could be paid from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) for employees falling within the exempt employee classifications (bona fide executive, administrative, professional and outside sales employees). Those rules also contemplated automatic annual changes in the base salary level. Estimates at the time were that roughly 4.2 million U.S. workers would either have their salary increased to the new base level or would be converted to hourly status and paid overtime with an obvious impact on the bottom line for their employers. Once the injunction was issued and the new administration took office, many employers considered the issue to be dead.

Not so fast. To quote from Monty Python and the Holy Grail: "Not Dead Yet!"

On March 7th, the Department of Labor announced a Notice of Proposed Rulemaking that has resurrected the proposed salary increases, albeit in a form that will have a much smaller impact for both employers and employees. The new proposed rules change the base salary level to $679 per week ($35,308 annually) and eliminate the automatic annual updates to that rate in favor of revisiting the rates every four years with changes made only after giving notice of proposed changes and soliciting comments from the public. Under the proposed rules, employers will be able to use nondiscretionary bonuses and incentive payments including commissions that are paid annually or more frequently to satisfy up to 10% of the standard salary level. The new proposed rules are estimated to impact approximately one million U.S. workers, a far smaller number than would have been impacted under the 2016 version of the rules. The proposed rules will soon be published in the Federal Register. Once that occurs, the Department will take comments on the proposed rules for 60 days before issuing final rules. Given that time-frame, it is likely that the rules, if adopted, will impact employers as soon as the fourth quarter of 2019 or the first quarter of 2020.

News from Lansing Regarding Potential Minimum Wage Increase

The wages paid to employees involved in manufacturing has a direct impact on product costs. A 2018 Michigan voter initiative sought to increase Michigan's minimum wage to $12 per hour by 2022. Instead of awaiting potential adoption of the initiative by the voters, the Michigan Legislature adopted the proposed minimum wage increases and then, in its lame duck session after the election, amended it to stretch out the increases to the year 2030. Governor Snyder signed the legislation on the basis that the increases mandated by the voter initiative would have dampened Michigan's ongoing economic recovery.  Under the adopted legislation, the Michigan minimum wage will increase on March 29th to $9.45 per hour, a 20 cent per hour increase over the prior rate. As with the proposed salary increases in 2016, many employers thought the minimum wage issue had been put to rest with any significant increases more than a decade away.

Slow Down. To quote Young Frankenstein "It's Alive!"

Michigan's new Attorney General Dana Nessel has announced a review of the Legislature's action in adopting and then amending the voter initiative on the basis that the process may have been unconstitutional. Regardless of what she decides, it is likely that the issue will then head to the Michigan Supreme Court with public interest groups on both sides of the issue weighing in with Amicus briefs for and against the Legislature's action. The outcome is difficult to predict with former Attorney General's opinions split on the issue of whether the Legislature can adopt and then amend a citizen's initiative in the same legislative terms. The Michigan Supreme Court has also undergone changes with the court's 5-2 Republican majority shrinking to 4-3 after the 2018 elections. Given the time-frame for Nessel to reach a conclusion regarding the issue and then a lengthy appeal process, it is unlikely that employers need to worry about significant changes in the minimum wage issue for at least the next year.

Stay tuned!

The Employment Practice Team at Rhoades McKee will keep close track of these two "back from the dead" issues and will report developments as they occur so that Michigan Employers have the best possible information to plan their budgets and product pricing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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