Earned Sick Time & Wage Act Information

On July 31, 2024, Michigan Supreme Court made the decision to reinstate the Earned Sick Time Act (ESTA) and Improved Workforce Opportunity Wage Act (IWOWA). Below is the current understanding of the changes that accompany these acts.

Updated 8/30/2024

There are still many unknowns; Keweenaw Economic Development Alliance will continue to monitor and update as new information comes out. If you would like to be added to KEDA’s mailing list, please email nikki@kedabiz.com. This is intended to be an informational resource and not legal advice, please contact your legal and financial advisors with any questions.

While nothing needs to change immediately, employers should be prepared for the following requirements to go into effect February 21, 2025:

All covered employers must amend existing paid leave policies or implement new leave policies as applicable that comply with the ESTA. Key elements of the ESTA include:

  • All Michigan employers, except those employed directly by the U.S. government, are covered
  • There are no exemptions moving forward; the new policy applies to salaried, hourly, part-time, full-time, seasonal, and temporary employees
  • Covered employees accrue sick time at a rate of at least one hour of earned sick time for every 30 hours worked for businesses with 10 or more employees and one hour for every 40 hours worked for business with 9 or fewer employees
  • Employers with 10 or more employees must allow employees to use up to 72 hours of paid earned sick time per year
  • Employers with fewer than 10 employees must provide up to 40 hours of paid sick time and 32 hours of unpaid sick time each year (unless the employer selects a higher limit)
  • Employers may not prohibit the carryover of unused earned sick time, but can put policies in place limiting use to no more than 72 hours annually
  • Paid sick leave begins accruing at time of employment, but employers can put policies in place for waiting periods of up to 90 days before new hires can use paid sick leave
  • Employers with less than 10 employees cannot require employees to use unpaid time off before paid time off.
  • The paid benefit rate must match the average hourly rate of the pay period immediately preceding the sick leave.
  • Employers cannot set a minimum amount of sick time taken; the amount used can be as small as the employer is able to track for payroll purposes (i.e. by the minute or 15 minutes increments)
  • Employers cannot require documentation for any leave 3 days or less
  • For those that require documentation beyond 3 days the policy language needs to be adjusted to “signed documentation from a health care professional” and the employer will be required to pay for any employee out-of-pocket costs associated with obtaining said documentation
  • Employers are responsible for maintaining records for a minimum of 3 years; failure to maintain records creates presumption that the employer violated ESTA
  • If an employee is rehired within 6 months they retain all unused paid sick time
  • “Frontloading” of hours is permitted
  • No pay out is required for unused sick leave at year-end or termination of employment
  • Employers do not need to include paid time off as hours worked when factoring accrual
  • Preexisting PTO policies may not need to be changed if the policies meet the ESTA requirements
  • If an employer’s employees are covered by a CBA this act applies beginning on the stated expiration date in the CBA, notwithstanding any statement in the agreement that it continues in force until a future date or event or the execution of a new CBA

*10-employee threshold is determined by evaluating if 10 or more persons are employed in 20 or more work weeks in the current or previous calendar year (the 20 workweeks do not need to be consecutive). Once an employer hits this threshold, they remain within that determination for the remainder of that calendar year.

The minimum wage ballot proposal as originally adopted by the Legislature in 2018, in the form of the IWOWA, is also effective February 21, 2025, subject to a phase in of certain requirements that remains to be determined at this time.  Key elements of the IWOWA include:

  • The following are the assumptions based on what’s been published as of 8/7/24, exact figures won’t be known until the Wage & Hour Division determines and publishes actual amounts:
    • February 21, 2025 – minimum wage = $10 + state treasurer’s inflation adjustment (using 7/31/24 as the end point). Estimated ~ $12.50. Tip credit adjusted to 48%
    • February 21, 2026 – minimum wage = $10.65 (+ inflation adjustment noted above). Tip credit adjusted to 60%
    • February 21, 2027 – minimum wage = $11.35 (+ inflation adjustment noted above). Tip credit adjusted to 70%
    • February 21, 2028 – minimum wage = $12 (+ inflation adjustment noted above). Tip credit adjusted to 80%
    • February 21, 2029 – state treasurer calculates the inflation adjusted minimum wage as set in the 2018 PA 337. The tip credit will officially be eliminated.
  • Employees will have expanded rights as to how they are compensated for overtime work, including “comp time” as an alternative to customary payment of overtime wages.

 

Questions for Employers to Ask Themselves to Prepare:

  • Do your wage or time off policies need to be increased to comply with the new minimum?
  • Do you have CBAs in place and what are their expiration dates?
  • How could these changes increase your labor costs? (Remember the act now applies to part time and seasonal workers)
  • How will the potential for more (or easier to use) paid time off impact you operationally and from a staffing standpoint?
  • How will you structure and administer attendance policies (and discipline) going forward?
  • What benefit year are you using and will you use going forward?
  • If you didn’t have sick leave prior to ESTA requirements do you want to integrate ESTA with vacation leave or combine it into an all encompassing PTO-type policy?
  • How will you communicate this with everyone who needs to know? Written policies for employees, stakeholders notified, connection with temp agencies to ensure they are complying with ESTA?
  • Are your payroll systems capable of tracking for ESTA compliance?
  • If you use a third-party payroll provider, will they be keeping records and how will you access them?

 

Information gathered from Michigan Supreme Court Syllabus (Mothering Justice vs. Attorney General), Michigan Departments of Labor & Economic Opportunity, Warner Norcross + Judd, Small Business Association of Michigan, and Varnum Law.