Governor Proposes New State Exemption Salary Level Test for Overtime Eligibility

By Michael Burns, courtesy of SBAM Approved Partner ASE

Governor Whitmer has joined seven other states in proposing a higher salary level test for job exemption status. Currently Michigan’s exempt salary level test for executive, professional, and administrative positions is only $250/week or $13,000/year. A very low salary level to meet that particular exemption test. The federal salary level test for those same positions is now $684/week or $35,568/year.

Governor Whitmer’s proposed salary level for Michigan exempt job eligibility is $51,000/yr. or $980/wk. If adopted by regulation, this salary level would exceed the Obama-era proposed rule that sought to increase the federal salary level test to just over $47,000. This salary level test was struck down by a Texas federal court as so high that it was an overreach of authority by the U.S. Department of Labor. The rulemaking process for this change is anticipated to take up to 12 months to reach regulatory implementation. This Whitmer proposal will undoubtedly run into similar challenges as a regulatory initiative.

Some of the other states that are pursuing an increase to their exempt status salary level test more recently are California (what a surprise), New York, Pennsylvania, and Colorado.

Michigan employers that may be adversely affected by this change should prepare to weigh in with their position during the comment period that will be part of the rule changing process. The Michigan Chamber of Commerce has already stated its opposition to this change as costly and unnecessary.

The intent behind changing the salary level test of the Michigan’s employment standards law is to increase the number of employees that would then be eligible for time and one-half overtime pay when they work over 40 hours in a week. It would probably have more of an impact in the lower paying business sectors such as food service, hospitality, and retail than the already higher paying manufacturing and industrial sectors. Governor Whitmer’s office estimated another 200,000 workers would qualify for overtime pay if her proposed salary level is adopted in Michigan. This regulatory change goes to the state’s Department of Labor and Economic Opportunity for development.

Employers should understand that the salary level test is just one of three tests that have to be met in order for a job to be classified as exempt from overtime pay requirements and many of the record keeping requirements that non-exempt positions require. The other two tests are the salary basis test and the more comprehensive job duties tests. All tests must be met for a position to be legally classified as exempt under the executive, professional, and administrative exemptions pursuant to state and federal law. Most employers look to the federal exemption tests for correct wage and hour rule compliance.

As with all employment and labor compliance changes ASE will be monitoring this proposed Michigan regulatory change.