Understanding Michigan’s Minimum Wage: A Guide for Business Owners
If you own a business in Michigan, you’ve likely heard about the Improved Workforce Opportunity Wage Act (IWOWA). This law sets the standards for how much you need to pay your team, how to handle overtime, and what records you need to keep. To help you stay compliant and confident, we’ve put together this quick FAQ to answer your most common questions.
EMPLOYMENT LAW & COMPLIANCE
6/8/20262 min read
What is the Improved Workforce Opportunity Wage Act?
Think of this as the main rulebook for wages in Michigan. It sets the minimum hourly wage, prohibits wage discrimination, and provides the framework for overtime and enforcement. It officially supersedes previous laws, including the 2014 Workforce Opportunity Wage Act.
Does this law apply to my business?
In Michigan, you are generally considered an "employer" subject to this act if you employ two or more employees at any one time within a calendar year. An employee is typically defined as someone 16 years of age or older working at your place of business.
What are the upcoming minimum wage increases?
The minimum wage is scheduled to rise over the next few years. Starting in 2025, here is the schedule you should mark on your calendar:
$12.48 per hour starting February 21, 2025.
$13.73 per hour starting January 1, 2026.
$15.00 per hour starting January 1, 2027.
After 2027, the rate will be adjusted for inflation every October, provided Michigan's unemployment rate is below 8.5%.
How do I handle pay for tipped employees?
If your employees receive tips, you may be able to pay a lower hourly rate as long as their tips make up the difference to meet the full minimum wage. However, the percentage you are allowed to pay is changing:
Starting February 21, 2025, you must pay at least 38% of the standard minimum wage.
This percentage increases every year until it reaches 50% in 2031.
Note: You must inform your tipped employees of these rules in writing and receive their written consent at or before the time of hire.
Can I pay a "training wage" to new or younger workers?
Yes, there are two specific exceptions for younger workers:
New Hires (Under 20): You can pay a training wage of $4.25 per hour for the first 90 days of their employment.
Minors (Under 18): The minimum wage for these employees is 85% of the standard minimum wage.
It is important to remember that you cannot displace or fire current employees just to hire someone at these lower training rates.
What are the rules for overtime?
Most employees must be paid 1.5 times their regular rate for any work exceeding 40 hours in a workweek. While there are exceptions for certain managers, professionals, and seasonal workers, the 40-hour rule is the standard for most staff.
Alternatively, you and your employee can agree in writing to "compensatory time" (paid time off) instead of overtime pay, as long as it is provided at a rate of 1.5 hours for every hour of overtime worked.
What record-keeping is required?
Transparency is key. For every pay period, you must provide your employees with a statement that lists:
Hours worked.
Wages paid.
Deductions made.
You are also required to post a copy of the Act and its regulations in a conspicuous place in your workplace where employees can see it. If you have tipped employees, you must keep these records for at least three years.
What about wage discrimination?
The law is very clear: you cannot discriminate based on sex. You must pay employees of the opposite sex the same rate for equal work on jobs that require equal skill, effort, and responsibility, unless the difference is based on a seniority system, merit system, or production quality.
Source:
Improved Workforce Opportunity Wage Act (Act 337 of 2018)
Disclaimer: This article provides a general overview based on the Improved Workforce Opportunity Wage Act (Act 337 of 2018). For specific legal advice regarding your business operations, it is always best to consult with a legal professional.
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Disclaimer: We are neither a licensed tax nor accounting firm and do not provide tax advice. Additionally, we are not a staffing agency or a Professional Employer Organization (PEO) and cannot offer legal guidance. For legal inquiries, please seek advice from a licensed employment law attorney.
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