Analysis

TOPIC: Amendment to 1964 PA 154, the Minimum Wage Law of 1964

Sponsor: Senate Bill 1 - Senator Loren Bennett & Senator Walter North House Bill 4177 - Representative Robert Emerson, et al

POSITION: The department has no position on the bills.

PROBLEM/BACKGROUND: Michigan's minimum wage has not changed since January 1, 1981, when it matched the federal minimum wage. In 1990 the federal rate increased to $4.25 an hour and in 1996 to $4.75. The federal rate will increase again in September, 1997, this time to $5.15. Meanwhile, the state's minimum wage has remained unchanged.

DESCRIPTION OF THE BILL: SB 1 and HB 4177 amend Public Act 154 of 1964, the Minimum Wage Law of 1964.

House Bill 4177 provides for two increases in the minimum hourly rate payable to employees 16 years of age and over, $4.75 effective May 1, 1997 and $5.15 effective September 1, 1997. Language in HB 4177 also affects the schedule of agricultural piece rates paid to fruit and vegetable harvesters. Piece rates established to equate to the former hourly rate may no longer be valid. Most agricultural workers are covered under federal law. Technical corrections to section 4a regarding overtime requirements for firefighters, and political appointees are also made. The bill allows employers and employees to agree to exchange monetary compensation for overtime for compensatory time off with pay and allows the department to investigate and file civil action to collect minimum wages for all employees in an establishment that do not receive the appropriate rate of pay.

SB 1 defines "gratuities" and increases the rate paid to tipped employees who report gratuities from $2.52 to $2.65 an hour and provides for a youth training wage of $4.25 per hour for the first 90 days of employment. SB 1 is tie-barred to HB 4177 and does not take effect unless HB 4177 becomes law.

SUMMARY OF ARGUMENTS:

PRO: Michigan's minimum wage has remained at $3.35 an hour since 1981. The rate changes, except for the rate applicable to tipped employees, are consistent with changes occurring at the federal level. The youth training wage is similar to the Fair Labor Standards Act's youth opportunity wage.

Tipped workers are covered by the Michigan Minimum Wage Law. Senate Bill 1 provides a modest increase for these workers.

The compensatory time provisions would allow eligible employees the flexibility to take time off for personal or family matters in lieu of monetary overtime compensation.

Currently, the statute allows employers to take credit for meals and lodging provided employees. Few, if any, employers take this credit. The impact of rescission is minimal.

Enforcement of the minimum wage is currently restricted to employees who file complaints. HB 4177 allows the department to investigate and collect unpaid minimum wages for all employees within an establishment. This provides potentially greater protection for low wage earners and ensures a "level playing field" by providing a mechanism for insuring minimum wage compliance for all employees of a business.

CON: The minimum rate paid to employees should be left to the market rather than being prescribed by statute. The increased minimum wage will be a considerable financial burden to those Michigan employers covered by the provisions of the Michigan law. While federally covered employers have had to adjust to a rate increase from $4.25 to $4.75, the adjustment for employers covered under the Michigan law will be from $3.35 to $4.75.

Minimum wage jobs are an entry point into the work force for many younger people. The minimum wage requirements in SB 1 and HB 4177 for workers under 18 may discourage their employment by small businesses who have traditionally provided most of these types of jobs.

The compensatory time provisions of HB 4177 add record keeping requirements for employers. The bill also imposes a condition that compensatory time may be substituted for monetary overtime compensation only in cases where the employer offers at least 10 days paid leave per year. This provision may exclude many employers and employees from taking advantage of the compensatory time provisions.

Senate Bill 1 removes statutory provisions allowing the Director of the Department of Consumer & Industry Services to establish a credit against the minimum wage for meals and lodging provided employees.

SUPPORTER/OPPONENTS:

Supporters: Various labor organizations and the Michigan Catholic Conference testified in favor of the bill in committee.

Opponents: A number of business groups, including the Michigan Chapter of the National Federal of Independent Business, the Small Business Association of Michigan and the Michigan Restaurant Association, opposed the bill in committee.

FISCAL INFORMATION: Although the department estimates an initial increase in complaints when the rate increases take effect, the department does not project that additional staff will be required to administer the amended act. Educational materials to inform employers and employees of changes will be produced within the department to save costs.

ECONOMIC IMPACT: The wage rate changes affect an estimated 100,000 of Michigan's 4.75 million workers. The largest group of employees covered by Michigan's minimum rate are tipped employees, waiters and waitresses. Although young people have historically held the majority of minimum wage jobs, this may be changing. Bureau of Labor Statistics data show that the percentage of minimum wage workers over 25 years of age has increased from 40 percent in 1985 to 46 percent in 1995. Labor costs for employers affected by the Michigan Minimum Wage Act will increase. Local governments are not affected because they are covered by the federal minimum wage law.

ADMINISTRATIVE RULES IMPACT: Rules regarding meal and lodging credits will be rescinded.