All employers are generally required to comply with federal and state laws applicable to paying employee wages. There are various nuances and exceptions that need to be discussed with an experienced employment attorney, but here is an overview of state and federal wage law, a look at why start-ups are especially at risk for violating such laws, and a glimpse into the critical area of employee classification.
Overview of Federal and State Wage Laws
As to federal wage regulations, employers need to generally understand the Fair Labor Standards Act (FLSA), as well as the U.S. Department of Labor regulations applicable to the FLSA when it comes to employee wages.
Under federal law, similar to Michigan’s minimum wage statute, employees must be paid a minimum standard for wage compensation. Additionally, covered “nonexempt employees” must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay.
States, however, are entitled to set higher standards. For instance, all states also have their own wage and hour regulations. In Michigan, employers may be subject to the Minimum Wage Law of 1964, which is the corollary to the FLSA’s minimum wage and overtime pay requirements.
Michigan’s Minimum Wage Law applies to employers who employ two or more employees at any one time within a calendar year. But this statute does not apply to any employer who is subject to the FLSA, unless the minimum wage provisions of the FLSA would result in a lower minimum wage than provided under the Michigan act.
Under both state and federal law there are numerous exemptions from minimum wage and overtime requirements that apply to certain employees and these exemptions should be discussed with an experienced employment attorney.
Why Start-ups Need to Understand Wage Laws and Avoid Misclassifying Employees in Violation of those Laws
The risk of misclassification of employees as exempt should be a significant concern for any start-up. This is because in the early days of a start-up company, funding is limited and everyone is working long hours and frequently doing whatever work needs to be done regardless of official job title or core responsibilities.
This means that employees may actually be doing work that is a combination of exempt and nonexempt work. If the nonexempt work dominates the employee’s time and attention, then the employee may be able to argue that he or she is no longer exempt from overtime wages. This situation exposes the company to significant risks and may delay or outright prevent the start-up from going to market.
Proper Classification of Employees under Federal Wage Laws
It is important to note that these exemptions arise under the federal FLSA and may be different than state regulations, including in Michigan.
Since 2001, Jason Shinn has provided employment and business law counseling to companies and individuals. He also routinely represents their interests in state and federal courts. For more information about Mr. Shinn or his law firm, see www.shinnlegal.com. For additional information on legal issues facing businesses visit the Michigan Business Law Center.
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