It is not uncommon for employees across various industries to exceed their regular working hours, surpassing the standard workday or the typical 40-hour workweek. In order to comply with labor laws, employers are obligated to compensate these employees appropriately for the extra time they put in. Understanding the eligibility criteria, consequences of non-compliance, and the correct rates of overtime compensation is crucial.
In the state of Michigan, if an employee works over 40 hours per week, they are entitled to receive overtime pay at one and a half times their regular rate of pay, as per Michigan Labor Laws. This guide aims to address common inquiries and provides relevant court cases specific to Michigan, offering guidance on ensuring fair implementation and payment of overtime.
This article covers:
- Michigan Overtime Rates
- Calculating Overtime with Bonuses in Michigan
- Calculating Overtime for Salaried Employees in Michigan
- Compensatory Time instead of Overtime Pay in Michigan
- Overtime Exceptions and Exemptions in Michigan
- Potential Penalties for Noncompliance & Misclassifying Employees in Michigan
- Legal Cases Relating to Overtime Compensation in Michigan
Michigan has its own set of laws regarding overtime requirements and exceptions, in addition to the provisions outlined in the Fair Labor Standards Act (FLSA).
The general rule is that any work done more than 40 hours in a workweek is considered overtime, and must be paid at a rate of 1.5 times the regular pay.
In Michigan, this rate stands at $15.495 per hour for minimum-wage workers. (Michigan minimum wage = $10.33 per hour)
Unlike certain states that establish a daily overtime limit, which mandates overtime compensation for hours worked beyond 8 in a day, Michigan law does not impose such a limit. Instead, it focuses on a weekly threshold for determining overtime eligibility and compensation.
It is crucial to note that overtime pay is retroactive, which means that when an employer provides a bonus, they must adjust the overtime rate for the entire year and compensate the employee accordingly. This can have an impact on employers when calculating or adjusting premium rates.
To calculate overtime when bonuses are offered, employers must first calculate what is known as the regular rate of pay. This is done by adding the total weekly compensation for straight time and the bonus entitlement, then dividing the amount by the total weekly hours.
A non-exempt employee is paid $10 per hour and receives a $50 bonus for the week. The employee worked 43 hours during the week. (Employee has 3 hours of overtime over the 40 hour work week).
The calculation for the regular rate would be:
$10 per hr x 43 hrs = $430 (total weekly compensation for straight time)
$430 + $50 bonus = $480 (total weekly compensation with bonus and/or commission)
$480 ÷ 43 hrs = $11.16 (regular rate of pay)
Once the regular rate is calculated, the overtime pay due can be calculated by multiplying the regular rate of pay by 0.5, then multiplying the outcome by the number of overtime hours worked.
$11.16 x .5 = $5.58 (half-time premium pay rate)
$5.58 x 3 overtime hours = $16.74 (overtime pay due)
The total pay of the employee would then be his total weekly compensation with bonus and/or commission plus overtime pay due.
$480 + $16.74 = $496.74 (total pay due to employee)
In order to calculate overtime for salaried employees, the regular rate of pay must be calculated first. This is done by dividing the salary by the number of hours it is meant to cover.
Assume an employee has a monthly salary of $3,000 and is expected to work 160 hours per month.
Regular rate = $3,000 / 160 hours = $18.75 per hour
Once the regular rate of pay is determined, then there are two scenarios for calculating overtime:
- In cases where the regular hours are fewer than 40: The regular rate is added for each hour up to 40, and any additional hours are compensated at one and a half times the regular rate.
Example: (Regular rate = $18.75 per hour)
Let’s say the employee’s regular work hours are 35 a week and the employee has worked 42 hours.
Since the regular hours (35) are less than 40, the employee will be paid the regular rate for the extra 5 hours worked up to 40 and will receive one and a half times the regular rate ($18.75 * 1.5 = $28.12) for the 2 hours above worked over 40 hours.
5 hours (extra time up to 40) * $18.75 (regular rate) = $93.75 (pay for the extra hours up to 40)
2 hours (extra hours above 40) * $28.12 (1.5x regular rate) = $56.24 (pay for hours above 40)
$93.75 (pay for the extra hours up to 40) + $56.24 (pay for hours above 40) = $149.99 (total overtime rate)
- If the regular hours equal 40: Any hours worked beyond that are paid at one and a half times the regular rate.
Example: (Regular rate = $18.75 per hour)
Let’s say the employee’s regular work hours are 40 a week and the employee has worked 42 hours.
Since the regular hours (40) equal 40, any additional hours worked will be compensated at one and a half times the regular rate ($18.75 * 1.5 = $28.12).
2 hours (extra hours above 40) * $28.12 (1.5x regular rate) = $56.24 (total overtime rate)
There are instances where employees may often opt for compensatory time (comp time) instead of receiving overtime pay.
While only government employers are permitted to offer comp time under federal law, private employers may have the opportunity to do so under Michigan’s overtime pay regulations.
To implement a compensatory time system, an employer must obtain a written agreement from the employee.
In this arrangement, employees are not entitled to overtime pay. Instead, for every hour worked beyond 40 in a workweek, the employee receives one and a half hours of paid time off.
To be eligible for a compensatory time system, an employee must receive a minimum of 10 days of paid time off per year.
Employees can accumulate a maximum of 240 hours of comp time, which is nearly equivalent to one month of paid leave.
However, the employer can restrict the use of comp time if it would cause significant disruption at that particular time.
When an employee leaves their job, whether voluntarily or involuntarily, they are entitled to receive all wages accrued from their accumulated comp time.
In Michigan, certain professions are exempt from the requirement to be paid overtime.
It’s also worth noting that retail and service employees can be classified as administrative, executive, or professional if more than 40% of their workweek activities are of this nature.
The exempted professions include:
- Those who are not covered by minimum wage requirements
- Agricultural workers
- Employees of seasonal amusement establishments
- Public office holders
- Administrative, professional, or executive employees such as teachers or school administrators
Employers should strive to prevent common mistakes when it comes to overtime laws, such as incorrectly categorizing employees or employee types as either “exempt” or “non-exempt.”
In Michigan, failure to comply with such laws can result in various repercussions, including but not limited to:
- Obligation to reimburse employees for unpaid overtime.
- Requirement to pay liquidated damages, which often amount to double the unpaid overtime wages.
- Potential escalation of legal claims, potentially leading to a class action lawsuit.
- Incurrence of legal expenses and the need to invest time in litigation.
Below, we present law cases relating to fair overtime compensation for employees in Michigan:
1. Janitorial Company to Compensate 11 Employees with $10,000 in Back Wages and Damages for Overtime
In the case of Scalia V. Shoreline Building Services case, Michigan-based janitorial services Shoreline Building Services LLC and its owner, Crystal Middleton, were ordered by a U.S. District Court to pay $10,000 in back wages and liquidated damages to resolve overtime violations under the Fair Labor Standards Act (FLSA).
The court’s action followed an investigation by the U.S. Department of Labor Wage and Hour Division, which found that the company failed to pay employees overtime for working more than 40 hours in a workweek.
Rather than compensating overtime every week, the employer calculated overtime wages using a pay period of two weeks or longer, miscalculated overtime for employees with multiple positions at different pay rates, and failed to record or compensate for travel time between work sites.
In 2020, in addition to mandating the payment of owed back wages, the court also ordered the company to comply with the recordkeeping obligations outlined in the Fair Labor Standards Act (FLSA). This entails accurately documenting the hours worked and ensuring the maintenance of necessary time records moving forward.
Key lessons from this case:
- Employers should ensure they properly calculate and pay overtime to employees who work more than 40 hours in a workweek, as mandated by the Fair Labor Standards Act (FLSA).
- Overtime calculations should be accurately determined within the defined workweek, rather than extending it to a longer pay period, such as bi-weekly.
- Employers must maintain accurate records of employees’ working hours, including daily and weekly hours worked, to demonstrate compliance with FLSA requirements. This includes recording time spent traveling between work sites during the workday.
2. Restaurant to Pay $62,000 in Back Wages and Damages to 20 Employees for Minimum Wage and Overtime Violations
In the case, Su v. Tacos El Cunado Alpine, LLC et al, the U.S. Department of Labor initiated a lawsuit against a West Michigan restaurant, Tacos el Cuñado Alpine, based on violations of the Fair Labor Standards Act after the court found that the employer failed to pay the minimum wage of $7.25 to one server and denied overtime wages to both tipped and non-tipped workers.
A federal judge ruled that the restaurant and its owner, Jessica Lopez, must pay over $62,000 in back wages and damages ($31,206 in back wages and an equal amount in liquidated damages) to 20 current and former workers with immediate restitution to the affected employees.
The court’s decision specifically applied to the specific Tacos el Cuñado restaurant situated at 2751 Alpine Ave. NW in Walker.
Key lessons from this case:
- The Department of Labor actively investigates claims of wage and hour violations and takes legal action against non-compliant employers.
- Employers found guilty of wage and hour violations may be ordered to pay back wages and damages to affected employees immediately.
- It is important for employees in all kinds of industries to be aware of their rights to overtime pay and to report any violations to the appropriate authorities.
3. Trial Court Wrongly Imputes Overtime Income When Modifying Child Support
In the case of Olivero v Olivero, the court made a mistake by imputing potential overtime income to a father, impacting his child support calculation.
Imputation of income means assigning or attributing income to an individual even if they are not actually earning it.
The father, who was employed by the Michigan Department of Corrections, had previously worked overtime but had decided to stop doing so because it was causing him significant stress.
In this case, the court wrongly assumed that the father would continue working overtime and included this additional income in the calculation of child support.
Despite his choice to no longer work overtime, the Friend of the Court (FOC) recommended imputing overtime pay to the father when suggesting a modification to his child-support obligation and Washtenaw County Circuit Court adopted the recommendation.
The Michigan Court of Appeals reversed this decision siding with the father, stating that the Michigan Child Support Formula (MCSF) Manual explicitly prohibits the imputation of overtime income. The court noted that the trial court failed to adhere to the clear language of the MCSF Manual and did not provide the necessary findings to deviate from the guidelines outlined in the manual.
Key lessons from this case:
- Overtime payments can have both direct and indirect impacts on employee livelihood beyond simple payment of extra owed fees.
- Courts should take into account an individual’s specific circumstances and choices when determining overtime and child-support obligations.
- It is crucial for individuals involved in legal proceedings to assert their objections and provide necessary information to ensure a fair decision through appeals.
- The guidelines and rules set forth in relevant manuals or regulations require compliance with the plain language of the manual.
Learn more about Michigan Labor Laws through our detailed guide.
Important Cautionary Note
When making this guide we have tried to make it accurate but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for use of this guide.