The Sophisticated Employer Blog

Just hours before the Feb. 21 deadline, the Michigan Legislature agreed to change the Earned Sick Time Act (ESTA) (HB 4002) and minimum wage law (SB 8).

The final act requires 72 hours of paid sick leave for full-time employees with carve-out exemptions for new and small businesses. Gov. Gretchen Whitmer signed the new legislation today.

Why it matters: Without legislative action, these sweeping and unworkable laws would have gone into effect today as previously written.

The bottom line: The two laws that changed for the better are as follows:

• Minimum Wage – 
• Under SB 8, the minimum wage rate will increase from $10.56/hour (current) to $12.48 today; $13.73 on Jan. 1, 2026; and $15 on Jan. 1, 2027. From there, inflationary increases will follow on Jan. 1, 2028 and each subsequent year using the Midwest Consumer Price Index (CPI).
• For tipped employees, the tipped minimum wage will stay at 38% in 2025 and jump 2% per year beginning in 2026 until it hits 50% in 2031. The legislation also added a $2,500 fine to be assessed to employers who fail to ensure tipped workers get paid at least minimum wage.  
• ESTA – The key changes to ESTA made under HB 4002 include:
• Employee exemptions – Specifies the only employees exempt from the new law are: (1) those who work in accordance with a policy that allows the individual to schedule his/her own hours and has a policy that prohibits the employer from taking adverse personnel action if the individual does not schedule a minimum number of working hours; (2) unpaid trainees or unpaid interns; or (3) individuals employed in accordance with the Youth Employment Standards Act, MCL 409.101-.124.
• Definition of employer – Removes “nonprofit agency” from the express definition of “employer.” However, nonprofit agencies could arguably still be included as an “other entity.” Beyond that, the legislation does not exempt any businesses or organizations, except for the United States government (although see “accrual” for the new rules for small businesses).
• New businesses will have a three-year grace period after forming to comply with the ESTA, and small businesses – defined as those with less than 10 employees – will have until Oct. 1, 2025, to comply with the ESTA requirements.
• Accrual – Specifies employees are eligible to accrue one hour of Earned Sick Time (EST) for every 30 hours worked. While employees may accrue more than 72 hours annually, employers may cap usage at 72 hours in a given year.
• Employees working for small businesses (defined those with less than 10 employees) will accrue at the same rate (one hour for every 30 hours worked) but will only be eligible for 40 hours of paid leave annually (no unpaid leave).
• Carryover – Caps carryover of time at 72 hours (use-it-or-lose it, if time is frontloaded).
• Frontloading – Specifies, as an alternative to the accrual method; employers may choose to frontload 72 hours at the beginning of a benefit year (40 hours for small businesses). Employers only need to track how many hours of paid leave time employees have used annually. No carryover is required.
• Part-time employees: The amended ESTA says employers may frontload the time at the start of a year if: (1) the employer provides the employee with a written notice of how many hours the employee is expected to work in a year at the time of hire; (2) the amount of EST frontloaded, at a minimum, is proportional to the EST that the employee would accrue if they worked all of the hours expected; and (3) if the part-time employee works additional hours, the employer will provide additional hours.
• Waiting period – The amended act says new employees can be required to wait until the 120^th day of employment to begin using EST. (This change should help seasonal employers.)
• Combining ESTA with Paid Time Off (PTO) – The revised act specifies an employer is in compliance with this section if the employer meets either of the following conditions: (1) provides the employer’s employees with PTO not less than the same amount of time off as provided under ESTA (72/40 hours) and (2) may be used for a purpose described under the act OR any other purpose. The employer is not required to allow an employee to use PTO for a purpose described in ESTA in an amount that exceeds the amounts of time off provided under the act.
• Note: While this change seems favorable, we are still working to understand how this change would apply in the real world. It seems to specify other time off that can be used for ESTA purposes is compliant and there is no need to add more EST.
• Rate of pay – Clarifies that an employee’s normal hourly rate (i.e., the rate used to calculate ESTA pay) does not include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips, or gratuities.
• Advanced notice –
• Foreseeable events: Allows up to seven days advanced notice.
• Non-foreseeable events: Says an employer may require the employee to give notice in either of the following manner: (1) as soon as practicable or (2) in accordance with the employer’s policy on requesting/using sick time or leave IF (a) on the date of hire, or the effective date of HB 4002, whichever is latest, provides the employee with a written copy of the policy that includes procedures for how the employee must provide notice and (b) that notice requirement allows the employee to provide notice after the employee is aware of the need for the EST. HB 4002 specifies that an employer requiring notice for sick time that is not foreseeable “shall not deny an employee’s use of earned sick time that is not foreseeable if … the employer did not provide a written policy to the employee … [and/or] … the employer made a change … and did not provide notice of the change within 5 days after the change.”
• Documentation – Says the employer may require the employee to provide documentation related the EST taken within 15 days of the request (but can only require after three consecutive days off).
• Discipline/adverse actions – Specifies an organization can take adverse personnel action against an employee who fails to notify per the employer’s policy or misuses the benefit.
• Abuses – Specifies an employer may take adverse personnel action against an employee if the employee uses earned sick time for a purpose other than a purpose described or violates the notice requirements under this act.
• Rebuttable presumption – Removes the problematic language specifying “[t]here is a rebuttable presumption of a violation … if an employer takes adverse personnel action against an employee within 90 days after that person …” files a complaint, cooperates with the department, etc.
• Private right of action – Removes the ability of an employee to go straight to court if they believe their employer violated the law.
• Penalties – Specifies employers failing to provide EST are liable for a civil fine of not more than eight times the employee’s normal hourly wage.
• Posters and notification to employees – Gives employers 30 additional days to post new posters and provide employees with written notice to each employee about the amount of EST required to be provided under ESTA, the employer’s choice of how to calculate a “year,” the terms which EST can be used, etc.
• Collective bargaining agreements – Expands on the existing CBA language to specify “[i]f an employer’s employees are covered by a collective bargaining agreement on the effective date of this act and the collective bargaining agreement conflicts with this act, this act applies beginning on the stated expiration date in the [CBA] … .”  HB 4002 also provides that employers who participate in a multiemployer collective bargaining agreement and contribute to a multiemployer paid sick leave plan are in compliance with ESTA.

 
Employers should work with their employment counsel to address any ESTA-related questions or concerns. We will continue to monitor this new legislation and provide updates as circumstances may warrant.