Department of Labor Introduces New Overtime and Exemption Requirements

On Tuesday, September 24, 2019, the Department of Labor unveiled a new standard for overtime requirements and at what pay rate employees can be classified as exempt. This new standard will create a federal baseline for employers and employees as to how much an employee must earn to be qualified as exempt from certain wage and hour requirements, namely overtime pay.

It is important to understand what the term “exempt” means before discussing the new law. When an individual is “exempt” those individuals are not entitled to certain wage and hour benefits such as overtime pay. All states, including Michigan, and the Fair Labor and Standards Act have certain criteria that must be met for an employee to be classified as exempt. These requirements are generally the wages earned, the type of work (i.e. professional skills and/or trade), and the duties the employee performs.

Michigan law exempts anyone employed in a bona fide executive, administrative, or professional capacity, earning a salary of at least $250 per week, from state overtime pay requirements (MI Stat. Sec. 408.384a; MI Admin. Code Rule 408.701).

In Michigan, an executive employee is defined as an employee:

  • Who are compensated at least $250 per week on a salary basis;
  • Whose primary duty is management; and
  • Who supervises two or more employees.

An administrative employee is defined as an employee:

  • Who is compensated at least $250 per week on a salary basis;
  • Who has primary duties that consist of nonmanual work directly related to:
    • management of a general operations of a business; or
    • administration of an educational institution.

Employees qualify as professional employees if they:

  • are compensated at least $250 per week on a salary basis;
  • have primary duties that consist of either:
    • working in a science field or in a professional that requires knowledge that is acquired through a prolonged course of specialized instruction;
    • working in a recognized artistic field that depends on the employee’s talent; or
    • working as a teacher, tutor, instructor, or lecturer at an educational institutions.

Under the new federal rule, effective January 1, 2020, the standard salary threshold will be set to $35,568 per year or $684 per week for employees to qualify as exempt. As you can see, Michigan has a lower threshold only requiring an employee to earn $250.00 per year.

How this new rule will effect Michigan employers and employees is yet to be seen. Many employers already switched employees to exempt or non-exempt under the previous rule. However, employers must be careful in simply changing an employees status purely based upon their salary. As has been well documented at the state and federal level, misclassification of employers is frequently litigated and can be costly to an employer. Ensuring you have a proper evaluation of your employees, their duties, and the proper pay schedule is critical to keeping your business afloat and out of court. Further, employers must consider if they are able to afford overtime compensation to employees and the effect on their bottom line.

As for employees, it is critical you understand how you are being classified. If you meet the criteria, and you are not being paid overtime, you are potentially losing out on hundreds of thousands of dollars annually.

Whether you are an employer, or an employee, it is critical you speak with an attorney to understand this new law and its effect on you and/or your business. Grewal Law is ready to help with a  deep understanding of drafting employee policies and ensuring employee’s rights are protected.

We’re available 24/7 to take your call. Contact us today at (888) 211-5798 or submit an online contact form to get started immediately.

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