The Current Impacts of Michigan’s Mandatory Earned Sick Time, Minimum Wage Law Changes

Key Takeaways

• While the Michigan Supreme Court’s decision was based on how the new regulations were implemented, three significant changes will affect sick time policies, overtime regulations, and the minimum wage starting in February 2025.
• An overwhelming slew of new, mandatory changes to paid leave will affect all businesses in Michigan.
• Because of the delayed effect, business owners can contact their elected officials to ask for amendments to these impacts.

On July 31, the Michigan Supreme Court ruled that the Michigan legislature’s adoption and amendment of a 2018 proposal was unconstitutional. The decision encompasses three aggressive key changes, all of which will have substantial consequences for Michigan businesses across industries:

• Many complex adjustments to earned sick time benefits.
• An increase in the regular minimum wage.
• A phase-out of the tipped wage credit.

Related: Chamber Perspective on “Adopt and Amend” Michigan Supreme Court Decision

New requirements are scheduled to take effect on Feb. 21, 2025, followed by additional annual changes through Feb. 21, 2029.

Watch: Earned Sick Time and Minimum Wage Updates with Dykema

The largest and currently most ambiguous changes from this ruling are regarding paid leave for Michigan employees, making it ripe for abuse and litigation issues. Under the new ruling, the Earned Sick Time Act (ESTA) will be enacted on Feb. 21, 2025, replacing Michigan’s Paid Medical Leave Act (PMLA). As it currently stands, ESTA will be the most aggressive time-off mandate in Michigan’s history with its broader coverage scope, more complex usage rules, and not being concurrent with the Paid Family Leave Act.

Under ESTA, all employees not employed by the federal government, regardless of type, must have paid leave. This includes temporary, seasonal, and casual employees, as well as employees outside the state of Michigan who are selling services in Michigan.

Further, this also includes an individual who hires an individual or a company to perform a service, such as a landscaper or a babysitter; that person needs to ensure that the company provides sick leave for the employee, or else the customer could also be held responsible. ESTA will also apply to employees covered by a collective bargaining agreement on the contract’s initial expiration date.

Under the Earned Sick Time Act (ESTA), employees accrue one hour of paid time for every 30 hours worked, up to 72 hours a year. Employers with less than 10 employees can cap accrual at 40 hours and must offer 32 hours of unpaid leave. Unlike the Paid Medical and Leave Act (PMLA), ESTA does not allow frontloading. There is no credit for prior service or accruals for those gone for at least six months, but those who return within six months can use any prior accrued time immediately while also accruing new time.

Employers must provide paid leave based on the number of employees and for specific purposes under ESTA guidelines. The leave should accrue at a consistent rate, covering vacation days, personal days, and other paid time off. Employees can use this leave in small increments, but not exceeding one hour at a time. Additionally, employees must give at least seven days’ notice for leave or as soon as possible if it’s short notice.

ESTA allows leave for meetings at a child’s school related to the child’s health, disability, or domestic violence. The definition of “family member” has been expanded to include individuals related by blood or association. Pets are not included in this definition. Moreover, employers can request generic statement documentation after three consecutive days off, and employees are responsible for the associated out-of-pocket costs, such as doctor’s visit co-pays.

Employees can carry over unused leave from year to year. However, if the employer has more than 10 employees, they can limit the use of carried-over leave to 72 hours per year. The limit for employers with less than 10 employees is 40 paid and 32 unpaid hours.

At the time of hiring, an employer must provide notice of the amount of earned sick time to be provided, how a year would be calculated, the terms of use, the prohibition on retaliation, and the right to a private suit. Further, any poster notices will need to be in English, Spanish, and any other language used by at least 10% of employees in the workplace.

Employers must maintain timekeeping records for three years, which the state can inspect at any time. This is an increase from the previous requirement of one year under PMLA.

Under ESTA, an employer is prohibited from taking retaliatory action if the employee has exercised their ESTA rights, including using earned sick time, filing a complaint about any alleged employer ESTA violation, and the right to inform any person of their ESTA rights. Paid leave may not be treated as an absence under your attendance policy. An employee also has the right to file a claim for payment for unused earned sick time, rehiring or reinstatement, back wages, restoration of benefits, liquidated damages, and attorney fees.

If an employer takes adverse action within 90 days or a question about an employer’s compliance with an employee’s right to earned sick time under ESTA and the employer does not have or grant access to records, there is a violation presumption, which can only be rebutted by clear and convincing evidence. If found guilty, an employer must pay a $1,000 fine for each violation, including retaliation, failure to provide leave, or failure to post or distribute notice.

Before the ruling, minimum hourly wage rates would have increased from $9.65 in 2020 to $10.56 in 2025. However, the Michigan Supreme Court created a new, expedited schedule for minimum hourly wage starting on Feb. 21, 2025, if the ruling stands as is:

• Feb. 21, 2025: $10.00, plus the state treasurer’s inflation adjustment, using July 31, 2024, as the calculation’s endpoint. Though estimated to be around $12.50, the actual rate will be determined by Nov. 1, 2024.

• Feb. 21, 2026: $10.65, plus the state treasurer’s inflation adjustment, using July 31, 2025, as the calculation’s endpoint.

• Feb. 21, 2027: $11.35, plus the state treasurer’s inflation adjustment.

• Feb. 21, 2028: $12.00, plus the state treasurer’s inflation adjustment.
• Feb. 21, 2029: The state treasurer will calculate the inflation-adjusted minimum wage annually, as outlined in 2018 PA 337, section 4(2), provided that the state unemployment rate does not reach 8.5% or higher for the year before the next scheduled increase.

However, the special rate for minors ages 16 and 17 will still be 85% of the standard minimum wage, as will the $4.25 training wage for those under 20 during their first 90 days of employment.

An additional challenge restaurants and tipped-waged employers will also need to deal with is the removal of the tipped wage credit, which is currently at 38%, and the increase in the minimum wage simultaneously. With the ruling remaining as is, the tipped minimum wage phase-out is based on the following new court-ordered schedule:

• Feb. 21, 2025: 48% of tipped employees’ minimum wage, which will likely be over $6 from the current $3.93.

• February 2026: 60% of the wage.

• February 2027: 70% of the wage.

• February 2028: 80% of the wage.

• February 2029: Tipped wage will no longer exist and must follow regular minimum wage rates.

Remember, ESTA does not go into effect until Feb. 21, 2025. So Michigan business owners still have time to prepare and advocate for modifications to these severe impacts, including immediately assessing their current wage and benefits structures based on the ruling’s current status.