New Wage Laws – Do you need to comply?

Many employers are struggling with the new higher salary requirements under the Fair Labor Standards Act (“FLSA”). The new law (going into effect December 1, 2016) effectively doubles the required minimum salary amount that must be paid. The old rule required a salary of $23,660 and the new rule requires a minimum salary of $47,476, which is increased every year.

Some employers, particularly non-profits, are wondering if they are excluded from the requirements of the new law since they either have no commercial activity or a nominal amount of commercial activity. This is a valid question. Before an entire organization is subject to the FLSA, there must be “enterprise coverage” which is triggered when a business, whether profit or non-profit, has $500,000 of commercial activity. For a for-profit business, all gross revenue is commercial activity, while for a non-profit business, commercial activity occurs when the non-profit sells products or services. Many non-profits give away their products and services, so they do not have any commercial activity. Technically, for “enterprise coverage” to occur, there must also be at least some “interstate commerce” occurring, but this simply means that your business has at least some products purchased or services used that have come from out-of-state.

However, be aware that even if the entire organization is not subject to FLSA, that certain employees within an organization might be covered by the FLSA. This is known as “individual coverage.” “Individual coverage” applies to only specific employees that are doing certain types of work activities. The types of work activities that trigger coverage are those that involve “interstate commerce.” “Interstate commerce” is occurring merely by making or receiving telephone calls from another state, conducting business via the US mail, and purchasing products that are shipped from another state. Anyone doing any kind of office work would likely be engaged in “interstate commerce”. This type of work must be done more than sporadically, but as a regular part of their jobs.

Here is the final nail in the proverbial coffin – if the FLSA does not apply, the Michigan wage laws apply. The Michigan wage statute does not currently contain the same requirements as the federal statute, but it soon will. In the meantime, the State is going to enforce it the same way. In other words, if the employee isn’t protected by FLSA, they will be covered by the Michigan statute, which will be enforced the same as the FLSA.

The bottom line is just plan on complying with the new FLSA salary basis tests since if the FLSA doesn’t apply, Michigan’s law does and they will be enforced the same. However, through some careful planning, the impact of these new rules can be minimized. It is a good idea to have a FLSA expert review your compensation arrangements since there are a lot of tricks and traps in the wage laws.

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