Opinion: Whitmer should rethink overtime mandate

Charles Owens

Gov. Gretchen Whitmer announced her intention to go around the Legislature and impose a new wage mandate on Michigan employers. She plans to do this by using the state’s rules process through the Department of Labor and Economic Opportunity.

Gov. Gretchen Whitmer holds a news conference in Detroit in this October 24, 2019, file photo.

She thinks it will boost salaries for workers. Here’s the truth: The move would crush small businesses in Michigan and punish the people responsible for creating jobs and keeping Michigan’s economy afloat.

Under current federal law, salaried “white collar” management employees that are paid less than $23,660 a year ($455 per week) are exempt from the requirement to pay overtime for working more than 40 hours per week. The U.S. Department of Labor is implementing a new rule starting Jan. 1 that would increase that overtime exemption from $23,660 to $35,568 a year ($684 a week).

This means that employees making under $35,568 annually would be eligible for overtime pay. This proposed threshold is lower than the threshold of $47,476 that the Obama administration attempted via the federal rules process in 2016. The higher threshold never became effective after business groups led by the National Federation of Independent Business successfully sued to stop the rule.

As with every wage or benefit mandate placed on employers by the government, the message is always that it will “help” workers. In Whitmer’s proposal, the starting point for a new state overtime salary threshold is $51,000 annually; however, at the governor’s press conference it seems a number as high as $61,000 might be more likely.

Efforts by government agencies and politicians to help workers often fall short. When a government mandate on a business, particularly a small business, increases the requirements on what and how they pay their employees, it doesn’t mean revenues for that business will magically rise to cover those costs.

To stay in business, an employer will have no choice but to reduce costs. In most businesses, the biggest cost is labor. To meet the new mandate requirements, they will have to cut hours, benefits and jobs, if necessary, to survive. While some workers may see a benefit from the new mandate, many more will suffer.

This new mandate will force small and family-owned businesses to reclassify many of their salaried management employees to hourly workers. They will cut hours back to 40 or less a week to avoid overtime pay they cannot afford. That means employees will make less than they did on salary and could end up having to work another job to maintain the same earnings level. So much for “helping” workers.

Many employees prefer the flexibility of being a management employee on a salary rather than an hourly worker. It’s also a money and time saver for the employer, as it avoids the hourly record keeping time and expense that would be required under the governor’s proposed mandate. Moving employees from salary to hourly to comply with this mandate will also hurt employee’s morale even though small business owners will have no choice in order to survive.

If the governor’s efforts are successful, Michigan will have one of the highest overtime exemptions in the country. It’s not only small businesses that would be hurt, larger businesses looking for a place to expand or relocate will also reconsider setting up shop in Michigan.

The governor’s proposed overtime mandate on job providers is uncomfortably similar to the policies of the past that were responsible for Michigan’s lost decade of economic malaise.

It will undo the hard work of the last eight years that pulled Michigan out of the ditch and created an economic climate responsible for record employment and rising personal incomes. We hope the governor takes the time to reconsider the long-term implications of this misguided policy.

Charles Owens is the state director of the National Federation of Independent Business in Michigan.