Michigan Minimum Wage and ESTA Updates

Late on February 20, 2025, the Michigan Legislature passed changes to the Earned Sick Time Act (“ESTA”) and minimum wage law. Governor Whitmer is expected to sign the amendments into law today, February 21, 2025. The original versions of these laws would have created significant challenges for employers. The revised versions of these laws still take effect on February 21, 2025 (subject to a delay for small businesses and new businesses as to paid sick leave requirements). 

Key Changes:

Minimum Wage (SB 8):

• The regular minimum wage increases from $10.56 per hour to $12.48 per hour, effective February 21, 2025.  It will further increase to $13.73 on January 1, 2026, and $15 on January 1, 2027.
• The minimum wage will be adjusted for inflation beginning on January 1, 2028 and each year thereafter.
• The tipped minimum wage remains at 38% of the regular minimum wage for 2025, increasing 2% annually until reaching 50% in 2031.

Earned Sick Time Act (HB 4002):

• Employee Exemptions:  As before, nearly all employees are subject to the ESTA requirements.  The only employees exempt are: (1) employees of the federal government, (2) employees who work in accordance with a policy allowing the individual to scheduled his/her own hours, where the employer has a policy that prohibits adverse action if the individual does not schedule a minimum number of working hours; (3) unpaid trainees and unpaid interns; and (4) individuals employed under the Youth Employment Standards Act.
• Grace Period for New and Small Businesses:  There is a grace period of three years for new businesses to comply with ESTA.  Small businesses (those with 10 or fewer employees) have until October 1, 2025 to implement ESTA policies.
• Accrual and Usage:  Employees must accrue 1 hour of sick time per 30 hours worked, and employers can cap usage at 72 hours annually.  Small businesses can cap usage at 40 hours of paid leave annually.
• Frontloading:  Instead of hourly accruals, an employer can frontload the maximum amount of paid sick leave that an employee can use per year.  For part-time employees, employers can prorate the amount of time frontloaded.
• Carryover: Employees must be allowed to carryover up to 72 hours of unused paid sick time at the end of the benefit year (40 hours for small businesses).  Carryover is not required if the employer uses a frontloading system.
• Waiting Period:  New employees can be required to wait 120 days to use paid sick time instead of 90 days.
• Use of PTO Policies:  As before, employers may use a PTO policy to comply with the law, so long as it satisfies the ESTA requirements.  Specifically, the PTO policy must: (1) provide employees with PTO that is the same or higher than the ESTA requirements (72/40 hours); and (2) allow employees to use the time for a purpose described under ESTA or any other purpose. 
• Rate of Pay:  In calculating the rate of pay for paid sick leave, employers can exclude overtime, holiday pay, bonuses, commissions, supplemental pay, tips, gratuities, or piece rate pay.
• Documentation:  As before, employers can require documentation after three consecutive days off.  Under the amendment, employers are still required to pay for employee’s out-of-pocket costs associated with obtaining the required documentation.
• Increments:  ESTA time can be used in 1-hour increments or “the smallest increment that the employer uses to account for absences of use of other time.”
• Discipline:  Employees can receive adverse action, up to and including termination for misuse or policy violations.
• Reinstatements:  An employee’s unused ESTA time must be reinstated if they return within two months after the termination of the employment relationship.
• Private Right of Action:  The private right of action (i.e., the ability of employes to file a lawsuit directly) has been removed.  Enforcement will be handled by the Michigan Department of Labor and Economic Opportunity.
• Posters and Notifications: Employers have 30 days to comply with the posting and notification requirements.

The amendments to Michigan’s Earned Sick Time Act and minimum wage law introduce significant changes that employers must address promptly. Employers should assess their current policies and make necessary updates to align with the new requirements. If you have any questions about these changes, please contact one of Honigman’s Labor and Employment Attorneys here.