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2021 Minimum Wage Rates — Important State and Federal Changes

Minimum wage laws are a mishmash of state and federal statutes and rules. Minimum wage rates and rules beginning in 2021…

Minimum wage laws are a mishmash of state and federal statutes and rules. Minimum wage rates and rules beginning in 2021 are an interesting reflection of this split of jurisdiction, and federal rulemaking under the outgoing administration. This blog highlights some of the more impactful changes.

State Of Michigan

The Michigan Minimum Wage Rate, currently $9.65 per hour, is consistently higher than the federal rate. This is permitted by federal law which allows each state to set a higher minimum wage than federal law requires, but not a lower rate. Michigan’s currently-applicable minimum wage law, the Improved Workforce Opportunity Wage Act of 2018 (“Michigan Minimum Wage Law”), provides for conditional annual increases in the state minimum wage. The scheduled rate for 2021 is $9.87 per hour, however, that rate increase does not go into effect when the state’s annual unemployment rate for the preceding calendar year is above 8.5 percent.

The Michigan Department of Labor (“MDOL”) recently announced that the scheduled 2021 minimum wage increase is unlikely to go into effect because the unemployment rate is likely to be over the 8.5% “threshold when [the Bureau of Labor Statistics] releases the final 2020 unemployment numbers for Michigan.”

Assuming the MDOL prediction is correct, then effective Jan. 1, 2021:

  • Michigan’s minimum wage will remain at $9.65 an hour.
  • The 85 percent rate for minors age 16 and 17 remains $8.20 an hour.
  • Tipped employees rate of pay remains $3.67 an hour.
  • The training wage of $4.25 an hour for newly hired employees ages 16 to 19 for their first 90 days of employment remains unchanged.
  • Overtime requirements remain the same under the Improved Workforce Opportunity Wage Act.

Under the Michigan Minimum Wage Law, Michigan’s minimum wage rate will increase to $9.87 in the first calendar year following a calendar year for which the annual unemployment rate is less than 8.5 percent. Under that statute, future increases in the minimum wage are conditionally scheduled for future years.

Federal Rules

Important changes under federal law include significant modification to “tipped employee” rules and increased minimum rates for certain workers.

Tipped Employee Rule Changes – Again

On December 22, 2020, the United States Department of Labor (“USDOL”) announced its “final rule” revising prior “tipped employee” regulations implemented under earlier language of the federal Fair Labor Standards Act (“FLSA”). Employers subject to these rules need to be very familiar with these changes as this is a fertile area of stringent federal enforcement. The new rules go into effect 60 days after this announcement, or on or about February 21, 2021.

The “general rule” is that tipped employees must be allowed to retain all their tips, unless the employer has adopted a qualified “tip pool.” Rules for such tip pools are complicated and changed significantly in March of 2018; the new rules replace those prior standards.

In brief, the February 2021 rules:

  • Continue to allow mandatory tip pooling arrangements.
  • Continue to allow the employer to pay a lower “tipped employee” rate and take a “tip credit” toward the minimum wage rate the employer would be required to pay if the tip credit is not applicable.
  • If the employer takes the tip credit it may not include in a mandatory tip pool, employees who do not routinely receive tips (such as back of the house staff).
  • An employer that does not take the tip credit but instead pays a set hourly rate at or above the applicable minimum wage for non-tipped employees may include employees who do not routinely receive tips in a mandatory tip pool.
  • Whether or not a tip credit is taken, managers and supervisors (as determined by the FLSA “duties” test) are prohibited from participating in a tip pool.
  • Tip pool funds must be paid out at least as often as the employer pays out base hourly wages.  And,
  • An employer may take a tip credit for employee time spent performing tasks that do not generate tips (such as stocking, rolling silverware) if the non-tip generating duties relate to the tipped occupation and are performed contemporaneously with, or immediately before or after, the duties for which the employee does receive tips.

Federal Contract Workers

Workers performing work on or in connection with covered federal contracts must, effective January 1, 2021, be paid a minimum wage of $10.95 per hour, pursuant to Executive Order 13658.

The Competition for Workers

Due to the COVID slowdown in the economy upward wage pressure is not anticipated during 2021 according to commentators. However, as recently as this month, the following employers have adopted minimum wage rates significantly above those required by law. Some examples of prominent mid-Michigan and state-wide employers include:

  • Bank of America:                        $20
  • JP Morgan Chase:                      $16.50–$18 (based on location)
  • Charter/Spectrum:                    $16.50
  • Huntington National Bank:       $16
  • Hobby Lobby                              $17 (for full-time employees)
  • Costco:                                         $15
  • Target:                                          $15
  • Best Buy:                                     $15

Certain counties, municipalities and economic zones also have adopted minimum wage rates higher than the applicable state rate, although none in Michigan.

If you have any questions, please contact Dave Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or