The Sophisticated Employer Blog

On Sept. 5, Michigan’s Legislature enacted two significant laws that will affect employers throughout the state by increasing the state’s minimum wage and mandating paid sick leave for qualifying reasons.  

Both the Improved Workforce Opportunity Act (IWOA) and the Earned Sick Time Act (ESTA) were citizen-initiated measures slated to appear on the November ballot. By passing the measures now, the Legislature has not only removed the initiatives from public vote, they increased the timeline they have to amend the measures and the amount of control they will have over any future amendments to the laws before enacted.   

Why This and Why Now?

Why is it that a Republican-led Legislature would pass these measures, and why now?  Once approved by the voters, Michigan law requires a three-fourths majority vote by the Legislature to overturn a ballot referendum. By passing these measures ahead of the November vote, the Legislature will need only a simple majority vote to amend the laws. 

As it currently stands, the Legislature may amend either or both laws as they please up until the effective date of April 2019 (or within 90 days of closing the 2017-2018 session).  Stay tuned for more details.

What Does This Mean for Employers?

Under the Improved Workforce Opportunity Wage Act (IWOWA), the new minimum hourly wage rate requirements will gradually increase from the current rate of $9.25 to $12.00 per hour by 2022. Tipped wage minimums will move from the current rate of $3.25 to 100% of the minimum wage by 2024, or $12.00 (if the rate remains unchanged after 2022).    

The new law currently defines an employer as “a person, firm, or corporation, including this state and its political subdivisions, agencies, and instrumentalities, and a person acting in the interest of the employer, who employs 2 or more employees at any 1 time within a calendar year.” In other words, this new law will apply to essentially all employers in Michigan, whether large, small, public or private entities. 

The newly-approved law mandates that the minimum hourly wage rate will be:

• $10.00 beginning Jan. 1, 2019 (effective date likely April 1, 2019)
• $10.65 beginning Jan. 1, 2020
• $11.35 beginning Jan. 1, 2021
• $12.00 beginning Jan. 1, 2022
• Beginning October 2022, the state treasurer shall calculate any increase to the minimum wage rate based on the rate of inflation.

The law drastically impacts the wage requirements for tipped employees as well. The current rate of $3.25 per hour will increase to 100% of the minimum wage by 2024:

• Beginning Jan. 1, 2019, 48% of $10.00 = $4.80
• Beginning Jan. 1, 2020, 60% of $10.65 = $6.39
• Beginning Jan. 1, 2021, 70% of $11.35 = $7.95
• Beginning Jan. 1, 2022, 80% of $12.00 = $9.60
• Beginning Jan. 1, 2022, 90% of minimum wage (if still $12.00) = $10.80
• Beginning Jan. 1, 2024, and thereafter, 100% of minimum hourly wage

The new ESTA mandates that Michigan employers provide workers with the right to earn paid sick time for a wide range of reasons.  These reasons include personal or family health needs, matters related to domestic violence and sexual assault, school meetings needed as the result of a child’s disability or health issues, and issues due to domestic violence and sexual assault. Events that occur due to building closures for public health emergencies will also qualify. Employers who currently provide paid sick time to their employees will want to pay special attention to the list provided in Section 4 (1)(a-e) of ESTA.

For the purposes of ESTA, an “employer” is defined as any person, firm, business, educational institution, nonprofit corporation, limited liability company, government entity, or other entity that employs one or more individuals. However, the law has exempted the federal government from these provisions. Again, this will apply to essentially all employers within the state with the exception of the federal government. 

ESTA also defines a “small business” as an employer for which fewer than 10 individuals work for compensation in a given week. This includes all individuals performing work for compensation on a full-time, part-time, or temporary basis. Specifics about counting of these types of employees are found within ESTA.

ESTA provides that all employees will accrue paid sick time at a rate of at least one (1) hour of paid sick time for every 30 hours worked. Businesses with 10 or more employees must provide at least 72 hours of paid sick time per year, while smaller employers are required to provide at least 40 hours of paid sick time. Once an employee exhausts his or her 72 (or 40) hours of paid time, the employee will be entitled to an additional 32 hours of unpaid earned sick time. Employees will begin to accrue such time as of either April 1, 2019, or their date of employment, whichever is later. 

ESTA provides that earned sick time shall carry over from year to year, but a qualifying small business is not required to permit an employee to use more than 40 hours of paid earned sick time and 32 hours of unpaid earned sick time in a single year. In its current state, ESTA provides that earned sick time may be used in the smaller of hourly increments or the smallest increment that the employer's payroll system uses to account for absences or use of other time (for example, as few as five minutes).

When the employee’s need to use earned sick time is foreseeable, an employer will be permitted to require advance notice of the intention to use the earned sick time, up to seven days prior. ESTA provides that the use of earned sick time cannot be counted under an employer’s absence control policy.

For earned sick time of more than three consecutive days, an employer may require reasonable documentation that the earned sick time has been used appropriately, as defined by ESTA. However, requiring private details of protected information would not be permitted. Details about employer compliance mechanisms are sure to be a focus of many in the coming months. 

An employer will be permitted to require that a newly-hired employee, after April 1, 2019, wait until the 19^th calendar day after commencing employment before using accrued earned sick time. An employer is not required to provide financial or other reimbursement to an employee for accrued earned sick time that was not used upon the employee’s separation, termination, resignation, retirement, or other reason. 

It’s important to note that ESTA will NOT:

• Prohibit an employer from providing more earned sick time than is required under this act
• Diminish any rights provided to any employee under a collective bargaining agreement
• Subject to Section 12, preempt or override the terms of any collective bargaining agreement in effect prior to the effective date of ESTA
• Prohibit an employer from establishing a policy that permits an employee to donate unused accrued earned sick time to another employee

What’s Next?

Although the Speaker of the Michigan House of Representatives has stated that there is no current plan to amend or modify the laws, the Legislature wanted to make sure that it continued to have “a say” in the process.  

Michigan’s senate Republican majority leader, Arlan B. Meekhof, released a statement claiming the move was to “preserve the ability for this Legislature and future Legislatures to amend the statute to better fit our state and our economy.” He further stated, “The Senators heard from restaurant employees who fear they will earn less under the proposal and business owners who are concerned that they may have to reduce payroll in order to meet these new mandates. The Senate will be looking at options to improve the policies in the coming months.”

The Senate adopted both measures with 24-13 votes, and the House passed the measures with 78-28 votes. Although Michigan’s senate Democrats all voted against the measures, the vote divided party members in the House. While senate and house Democrats have been largely in favor of both ballot-initiatives, fears that the Legislature removing the items from a vote would drastically increase the Legislature’s ability to amend and alter the provisions kept them from supporting the vote. Three senate Republicans voted against the measures, some expressing similar concerns.

Many around the state expect to see quite a bit of action between now and the end of the term on these two laws.  There are a number of areas that Michigan employers would like to see addressed before they measures go into effect in April 2019. 

Key Takeaways

• The new laws have a projected effective date of April 1, 2019.
• New minimum wage requirements will apply to all employers in the state.
• New minimum wage rates will move from $9.25 to $10 beginning Jan. 1, 2019, and to $12 per hour by Jan. 1, 2022.
• Tipped wage employees will go up from $3.52, to 100 percent of the minimum wage by 2024.
• New earned sick time requirements will apply to all employers, with the exception of the federal government. Small businesses have lower requirements with earned hours rolling-over.
• If you already provide paid sick time to your employees, you will want to review the qualifying reasons provided in the new law – Section 4(1)(a-e).
• Compliance mechanisms will be key for employers.