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Michigan's Wage and Fringe Benefits Act: A Pitfall for Employers

Michigan's Wage and Fringe Benefit Act has remained an anomaly for most Michigan employers. Since most employers are governed by the Federal wage and hour law, rather than the comparable state law, they fail to recognize that the Michigan Wage and Fringe Benefit Act still governs many day-to-day employment questions regarding the payment of wages and benefits. In this article, we address the questions which many clients pose.

Can An Employer Require Its Employees To Be Paid By Electronic Automatic Deposit?

No. While the administrative ease of automatic deposit is attractive, Michigan's Wage and Fringe Benefit Act ("Act") prohibits mandatory automatic deposit. The Act provides that the "payment of wages shall be paid in United States currency or by a negotiable check or draft payable on presentation at a Bank." It additionally provides "an employer or agent of an employer shall not deposit an employee's wages in a bank, credit union or savings and loan association without the full, free and written consent of the employee or perspective employee." There are no exceptions to this prohibition for new hires.

Can An Employer Deduct From An Employee's Wages, Educational Assistance Amounts Which The Employee Has Agreed To Repay If He Leaves Employment Before A Specified Date?

No, unless the deduction is provided in a collective bargaining agreement. Except for legally required deductions or those expressly permitted by a collective bargaining agreement, "an employer shall not deduct from the wages of an employee without the full, free, and written consent of the employee."

The fact that the employee consented to the repayment in an educational incentive agreement is irrelevant. The Act provides that, except, in very limited situations, a deduction from wages requires "written consent from the employee for each wage payment subject to the deduction." The employee's consent in the incentive agreement does not constitute agreement to have any amount deducted from a specific wage payment.

Can An Employer Deduct An Overpayment From An Employee's Wages Without The Employee's Consent?

The Act allows a deduction for wage overpayment under limited circumstances:

  1. if allowed by a collective bargaining agreement;
  2. in all other circumstances, if the deduction is within six (6) months after the overpayment, provided the overpayment was due to a clerical error.

Are There Any Other Rules That An Employer Has To Meet In Making Involuntary Deductions For Overpayment Of Wages?

Yes. First, the employer must give the employee a written explanation of the deduction at least one (1) pay period before the wage deduction. Second, the deduction cannot exceed 15% of the employee's gross wages for the pay period in which it is made. Third, the deduction has to be made after all other deductions required by law, a collective bargaining agreement, or authorized by the employee. Four, the deduction for overpayment cannot result in reducing the employee's wages below the state or federal minimum wage. This fourth point and the 15% limitation may result in an employer having to recoup overpaid wages over several pay periods.

Except in those circumstances when a collective bargaining agreement might provide differently, an employer is prohibited from recovering wages through involuntary wage deductions beyond the six month period. In those circumstances where the deduction would be outside the six month period, the employer's only option is to initiate litigation for the overpayment.

Can An Employer Deduct The Value Of Vacation Taken If An Employee Terminates Before He Actually Accrues That Amount Of Vacation?

No, without written authorization by a labor agreement or the employee. The Act allows for the recovery of the value of fringe benefits only when the recovery is due to an overpayment resulting from clerical error. In the situation described in this question, the employee used more vacation than he earned because of an employer practice, and not merely a clerical oversight. Because of the expense and difficulty involved in collecting the value of used vacation which was not earned, an employer should only allow earned vacation to be used.

To Assure That The IRS' Non-Discrimination Tests Are Met, Can An Employer Matching An Employee's Contribution To A 401K Or 403B Plan Require The Employee To Participate In The Plan?

No. Despite the employer's laudable purposes, an employer cannot require an employee to participate in a 401K or 403B Plan if the employee is required to make contribution. Involuntary deductions to a 401K or 403B Plan violate the Act.

When Does An Employer Of A Commission Employee Have To Balance An Employee's Commissions Against His Draw?

Under the federal or state minimum wage law, an employer is required to pay an employee the minimum hourly wage (currently $7.25 federal $8.90 Michigan) for hours worked up to forty (40) in a week. In many commission situations, the employee's wages are basically derived from commissions, with the employer providing a "draw" to an employee at least equivalent to the minimum wage.

In these situations, the employer is free to establish a "monthly payday," bi-weekly, weekly, or twice a month pay period, provided the employer balances the commissions earned against the draw for the defined time period.

Can An Employer Of A Commissioned Employee Offset Amounts Allowed As A Draw Against The Commission Earned?

Yes, but only if the employee will receive wages for the applicable pay period equal to at least the minimum wage, plus overtime, if applicable, at the minimum wage rate.

When Is An Employer Required To Pay Earned Wages To An Employee Who Voluntarily Quits Or Is Discharged?

The Act generally requires that in both voluntary and involuntary termination situations, the employer is to pay the employee "as soon as the amount can be determined with due diligence." The only exception to this rule is when the employee is working under a commission contract, and the amount due cannot be determined until the end of the contract.

This relates only to wages and not to fringe benefits.

Are Incentive Bonuses "Wages" Or "A Fringe Benefit" And Are They Subject To The Wage And Payment Requirements Of The Wage And Fringe Benefit Act?

The Act provides that "bonuses" are fringe benefits and not wages. Therefore an incentive payment made for attaining certain quotas is a fringe benefit, not a "commission," (i.e. wages). As a fringe benefit, incentive bonuses only have to be paid if the employee satisfies the requirement of the incentive plan. As an example, a company has an incentive plan with an annual cap. Any excess over the cap is paid the following year if the employee attains his quota for that year. When an employee quits before attaining that quota, he automatically forfeits his carry over bonus.

Critical to evaluating this example, is the "bonus" characterization applied to the incentive plan. Unlike a commission which is generally a percentage of a sale, an incentive payment will be considered a bonus if it is a "premium or extra or irregular remuneration awarded to an employee at the discretion of the employer pursuant to a written contract or written policy." If the amount is deemed a commission, then that amount is payable to the employee upon resignation or termination.

Does The Michigan Wage And Fringe Benefit Act Apply To Incentive Or Piece Rates Contained In A Collective Bargaining Agreement?

No. In the collective bargaining situation, the Michigan Wage and Fringe Benefit Act is preempted by federal law if the question presented involves an interpretation of the collective bargaining agreement. In these union situations, the Michigan agencies and courts do not have any jurisdiction over wage or fringe benefit claims, like the computation and payment of vacation and sick leave.

Does An Employer Have To Pay An Employee Unused Vacation If The Employee Is Terminated Or Quits During The Vacation Year?

The answer to this question depends on the employer's policy. If the employer's policy accrues vacation on hours worked, then the employer must pay the "vacation accrued" through the termination date. If the employer's policy, however, provides that vacation only accrues on a fixed date, e.g. anniversary date, or the end of the calendar year or that vacation does not accrue and terminating employees are not entitled to vacation pay, then the employer does not have to pay unused vacation for the year in which the employee is terminated or resigns.

Can An Employer Prohibit Employees From Disclosing Or Discussing Their Wages?

No. The Act specifically prohibits an employer from, in any way, prohibiting an employee from disclosing his wages, or enforcing any work rule prohibiting such disclosure.

What Is The Limitation Period For An Employee To Bring A Claim Relating To Unpaid Wages Or Fringe Benefits?

The Act has a twelve (12) month limitation period for bringing claims before the Department of Labor. That provision, however, does not preclude an employee from bypassing or failing to exhaust the Act's administrative procedure and suing directly in court. Since claims for wages and fringe benefits are contract claims, Michigan's six (6) year statute of limitations applies to those claims.

While this article addresses the most frequently asked questions under Michigan's Wage and Fringe Benefit Act, an employer must consider the Act's specific provisions in any situation involving deductions from wages, the payment of wages, and the accrual and payment of fringe benefits.

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