In 11th Hour Move, Michigan Legislature Adopts Amended Minimum Wage and Earned Sick and Safe Time Requirements

At a Glance

• The previously reinstated versions of the Improved Workforce Wage Opportunity Act (IWOWA) and Michigan Earned Sick Time Act (ESTA) were set to go into effect on February 21, 2025.
• On the evening of February 20, 2025, the Michigan Legislature passed Senate Bill 8 and House Bill 4002 to amend IWOWA and ESTA, respectively. Governor Gretchen Whitmer signed each bill intolaw, with immediate effect.
• Amendments to IWOWA reduce scheduled increases to the state’s minimum wage law and adopt a scale by which the minimum wage increases to $12.48 on February 21, 2025, and incrementally increases in years following.
• Amendments to ESTA clarify obligations for employers under the law such as carryover of unused time, frontloading options, application of the law for bargained-for and contracted employees, and varying requirements for part-time employees and small business employers. As with the original Earned Sick Time Act, the law provides paid time off for reasons beyond sickness, including related to domestic violence.

Capping off a years’ long saga, and with only minutes to spare, on February 20, 2025, the Michigan Legislature (the Legislature) passed much anticipated amendments to the Michigan Earned Sick Time Act (ESTA) and Improved Workforce Wage Opportunity Act (IWOWA), narrowly in advance of the February 21, 2025, enactment deadline for each.

Procedural and Legislative History

Each law was “adopted and amended” by the Legislature following two 2018 ballot initiatives, which resulted in each becoming law. The Legislature delayed IWOWA’s minimum wage increases until 2030 and narrowed ESTA’s requirements through the adoption of the Paid Medical Leave Act. As previously reported, after a lengthy court battle and numerous appeals, at the end of July 2024, the Michigan Supreme Court ruled that this “adopt and amend” tactic was unconstitutional, reinstating each law as initially drafted and adopted, and setting a February 21, 2025, effective date.

A priority item for the Legislature in the current session, Michigan legislators with the support of Gov. Gretchen Whitmer pledged to address and amend each law following the calls of small businesses, Chambers of Commerce and other affected stakeholders. With Republicans taking control of the Michigan House in the 2024 elections, a compromise was struck with Senate Democrats to amend each together, tie-barring legislation on each, thus requiring enactment of each bill as a condition to enactment of the other. Complementing legislation was introduced in the form of Senate Bill 8, amending IWOWA, and House Bill 4002, amending ESTA. Senate Bill 8 and House Bill 4002 reached final passage late in the evening on February 20 with a two-thirds majority of each chamber voting in favor of the legislation. Both bills have been presented to Gov. Whitmer, who has signed each into law with immediate effect.

Amended Minimum Wage Requirements

The amendments to IWOWA adopted a new scale for minimum wage increases as follows, with the new minimum wage to be effective as follows: February 21, 2025: $12.48; January 1, 2026: $13.73; & January 1, 2027: $15.00.

Thereafter, beginning in October 2027, the state treasurer will calculate a new minimum wage and publish the new rate by November 1, with any increase to be effective as of January 1 of the following year. Calculations will be based on the 12-month percentage increase of the Consumer Price Index for the Midwest Region. Increases will not go into effect in any year for which the unemployment rate was higher than 8.5% in the preceding year.

Additionally, the amendments to IWOWA, addressed the original bill’s increases to the minimum wage for tipped employees, lowering such increases and setting a new timeline for further increases. Effective February 21, 2025, tipped employees must be compensated at a rate of 38% of the general minimum wage. This rate increases by 2% each year thereafter, effective January 1, until reaching a minimum wage requirement of 50% of the general minimum wage for tipped employees, effective January 1, 2031.

Revised Earned Sick and Safe Time Requirements

Along with amending IWOWA, the Michigan Legislature amended ESTA, thereby clarifying employers’ obligations with respect to safe and sick leave for Michigan employees and the measures by which the act will be enforced. Even as amended, most employers must provide covered employees one hour of paid time for every 30 hours worked, or frontload 72 hours of paid time (a prorated amount may be provided to part-time employees).

Notable changes within the amendment include the following.

Covered Employees and Employers

Covered Employees

The amendment excludes employees who set their own schedule, unpaid trainees and unpaid interns. An earlier proposed amendment exempted part-time employees; however, under the final amendment, part-time employees are covered by ESTA.

Small Business Exceptions

An earlier proposed amendment would have exempted small businesses with fewer than 50 employees. Under the final amendment, employers with 10 or less employees are exempted from ESTA until Oct. 1, 2025 (after which, they are to provide 40 hours of paid time, through accrual or frontloading), and are further excluded for an additional three years if they do not have any employees at the time of the bill’s enactment.

Bargaining Unit Employees

Employees covered by a current collective bargaining agreement or other contract are not covered by the act until the expiration of the agreement.

Contract Employees

Under certain parameters, contract employees are also excluded from coverage, if such an agreement is in conflict with ESTA.

Leave Accrual and Usage

Accrual Rates

Accrual rates remain the same, with leave to be accrued at a rate of one hour for every 30 hours worked, the usage of which may be capped at 72 hours of leave per year (and 40 hours for small businesses).

Frontloading

Employers may now elect to frontload all required leave under ESTA, cutting off the obligation to carry over any unused, accrued leave. Additionally, for part-time employees, employers may elect to offer a pro-rated amount of frontloaded leave with a “true up” if they work more hours than expected.

Carryover

Employers may cap the amount of accrued but unused leave that carries over to the next year at 40 or 72 hours per year, depending on the size of the employer.

Payout Upon Termination

Even with the amendment, employers are not required to pay out unused time upon termination.

Paid Time Off (PTO) Policies

The amendment clarifies that PTO policies (including existing policies) can satisfy ESTA’s requirements as long as employees receive at least the same amount of time required under ESTA, the paid time is available for absences covered by ESTA (e.g., absences related to sickness, domestic violence, child’s school closure, etc.), and the policy meets all other requirements of ESTA (e.g., carryover of unused time, notice requirements, etc.). If these policies satisfy these requirements, ESTA does not require any additional leave to be provided. Alternatively, employers may choose to provide separate leave specifically to satisfy ESTA.

Administration of Leave

Increments of Leave

Employers can require paid time for ESTA-covered absences to be used in one-hour increments, or the smallest increment employers can track.

Notice to Employees

ESTA is in effect as of February 21, 2025. However, the amendment provides additional time for employers to meet notice requirements. Specifically, by March 23 (within 30 days of Feb. 21), employers must notify employees of their ESTA-compliant PTO policy or separate leave plan, when it may be used, that retaliation is prohibited, and that they can file a complaint with the Department of Labor and Economic Opportunity. Employers must also display a required poster from the department, which is forthcoming.

Notice to Use Leave

Employers may still require seven days’ notice from employees for foreseeable uses of paid sick and safe leave. For unforeseeable leave, notice must be given as soon as practicable or in accordance with the employer’s policy for requesting or using time (but only if the employee has been provided with the most recent version of said policy and it permits notice after the fact).

Documentation

Employers may still request documentation for leave periods longer than three consecutive days, and upon request employees must provide documentation within 15 days. It is worth noting that for any out-of-pocket expenses incurred in requesting such documentation, employers are required to reimburse employees.

Enforcement of the Act

No Private Right of Action

Employees may no longer bring a lawsuit for violations of the act; instead employees must file a complaint with the Department of Labor and Economic Opportunity, for which the department may investigate, enforce compliance, and seek remedies such as backpay and reinstatement for aggrieved employees. The department may also file a civil action on behalf of employees, including on a class basis.

No Rebuttable Presumption

The rebuttable presumption of a violation of the act by an employer has been removed entirely. However, employers are still prohibited from taking retaliatory action against an employee for taking ESTA-covered time off.

Fines

Employers may be subject to the following fines for violations of the Act: $100 for no poster; $1,000 for retaliation; and a fine of up to eight times hourly wages of affected employees not given leave.

Key Takeaways

After years of uncertainty and a roller coaster of shifting requirements, Michigan employers will have clear guidance and finality on their minimum wage and paid sick and safe leave obligations with the enactment of these latest amendments. Even still, many Michigan employers will need to adjust their policies to comply with ESTA, and Michigan employers should continue to be mindful of this new landscape and further guidance from the Michigan Department of Labor and Economic Opportunity.

For More Information

Michigan employers may wish to contact the authors or their Faegre Drinker employment counsel with questions or concerns about compliance with the Michigan minimum wage and paid medical leave law.