New Michigan Sick Time and Minimum Wage Laws: What You Need To Know

Voter-approved initiatives changing Michigan’s minimum wage and guaranteeing workers paid sick time were set to take effect on February 21, 2025. Over the past few weeks, the Michigan legislature argued numerous proposals to curb the scope of both the Improved Workforce Opportunity Wage Act (IWOWA) and the Earned Sick Time Act (ESTA).

The resulting Senate Bill 8 and House Bill 4002 amended both laws. Here’s what you need to know about what each law guarantees employees and requires of Michigan employers.

Which Employers and Employees Are Subject to the New Laws?

• The IWOWA applies to most individuals and business entities with at least two employees at one time in a calendar year.
• Michigan’s ESTA applies to most individuals and business entities with at least one employee physically located in Michigan.

Neither law protects independent contractors. However, employers risk fines, penalties, and other legal action if they misclassify workers as independent contractors rather than employees. Michigan’s Labor and Economic Opportunity Agency (LEO) uses the IRS’s 20-factor “economic reality test” to evaluate a worker’s proper classification and eligibility for protection under Michigan laws.

Other categories of workers not covered by the new laws include federal employees, certain employees covered by a current collective bargaining agreement (CBA), certain employees who set their own schedules, and unpaid trainees or interns.

Changes to Michigan Minimum Wage

• The minimum wage will rise to $12.48/hour, effective February 21, 2025.
• It will increase to $13.73/hour in January 2026 and $15/hour in January 2027.
• Beginning in October 2027, the state treasurer will calculate annual increases to adjust for inflation, which will take effect on January 1 of the following year.

Employers may pay workers who regularly receive gratuities a lower hourly rate as long as those tips make up the difference to meet or exceed the minimum wage. This is called a “tip credit.” Although previous versions of the IWOWA phased out the tip credit, the amended law retains the offset.

However, the law also raises the tipped minimum wage. Tipped workers must be paid at least $4.74/hour in 2025, rising to $5.49/hour in 2026 and $6.30/hour in 2027. It will gradually increase on a sliding percentage scale until it is 50% of the ordinary minimum wage on January 1, 2031.

Protections Under the Updated Michigan Earned Sick Time Act

All employees protected by the ESTA will accrue one hour of earned sick time for every 30 hours they work. They must be compensated for paid sick time at their normal hourly or base wage or the applicable state minimum wage, whichever is greater. Employers are not required to include tips, bonuses, supplemental pay, overtime, holiday pay, piece-rate pay, commissions, and other “extra” compensation when calculating an employee’s “normal” hourly wage or base pay.

Effective Date – Grace Period for Small Businesses

The ESTA does not require businesses with 10 or fewer employees to track, accrue, or allow use of earned sick time or take any other action to comply with the law until October 1, 2025.

Current employees of larger businesses begin to accrue earned sick time immediately and can use it as it accrues. Employees hired after February 21, 2025, will begin to accrue earned sick time immediately but may be required to wait 120 calendar days before using those hours.

Yearly Usage Caps and Carryover of Earned Sick Time Hours

Although the law doesn’t cap the amount of leave an eligible employee could accrue, it limits how much they can use and carry over from year to year. The ESTA does not require an employer to pay out or compensate employees for unused earned sick time hours that exceed the carryover allowance.

• Maximum yearly use. Employers with 10 or fewer employees may cap the paid sick time an employee can use in a year to 40 hours (or may select a higher limit). Larger employers may cap sick time use at 72 hours per year (or may set a higher limit).
• Unused earned sick time will carry over to the following year, but small businesses may cap the number of allowed carryover hours at 40 (72 for larger employers).
• Employers may instead give employees paid leave hours upfront at the beginning of each year. If a business chooses to frontload, it is not required to allow carryover of unused hours but cannot implement a waiting period before use. The amount of time an employer must frontload depends on the size of the business and each employee’s full- or part-time status.
• Incremental use. Employers may allow workers to use their earned sick time in hourly increments or the smallest increment that the employer’s payroll system uses to account for absences or use of other time (for example, half or full days). (Note: Employers covered by FMLA must remain compliant with that law’s smaller incremental use requirements.)

Employees may use their sick time as it accrues. However, an employer’s incremental use choice may prevent them from doing so until they have amassed the requisite amount.

How Can Earned Sick Time Be Used?

Earned sick time can be used in many situations for the employee or their covered family member, including:

• Medical conditions. Diagnosis, care, management, and treatment of mental or physical illness, injury, disability, or health condition, including preventive care.
• Domestic violence or sexual assault. Absence due to domestic violence or sexual assault.
• Public health closures. Closure of their place of business by order of a public official due to a public health emergency or to care for a child whose school or place of care has been closed by order of a public official due to a public health emergency.

Covered family members include the employee’s spouse, children, grandchildren, parents, grandparents, siblings, children for whom the employee stands in loco parentis, domestic partner, and “any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship.”

Providing Notice and Documentation for Absences

The ESTA provides direction on how employees can provide notice of the absence and when supporting documentation may be requested by an employer.

• Advance notice. An employer may require an employee to provide up to seven days’ notice before taking “foreseeable use” of earned sick leave, such as for a doctor’s appointment. In unforeseeable situations, the employer may require the employee to provide notification “as soon as practicable” or in accordance to the employer’s written sick leave request policy.
• An employer may not require an employee to find a replacement worker or attempt to “cover their shift” to use earned sick time.
• If an employee uses earned sick time for three or more consecutive days, their employer may require reasonable documentation that the absence was for a covered purpose. However, it can’t require documentation to explain the nature of an illness or medical condition or provide details related to domestic violence or sexual assault. The employer can require the worker to provide the requested documentation within 15 days. Employers are required to pay any expenses connected with obtaining the requested documentation.

Disputes related to the sufficiency, compliance, and timeliness of notice and documentation will likely form the basis of many future legal proceedings. An experienced wage-and-hour attorney can help you understand your rights and pursue a claim against your employer if warranted.

What Happens to Unused Sick Time Hours When Employment Ends?

The ESTA doesn’t require employers to compensate an employee for any unused accrued sick time when their employment ends. However, an employer may be bound to do so if it has internal policies regarding the payout of leave and other benefits.

If an employee transfers to a separate division, entity, or location of the same employer, or if another entity takes over for an employer, the employee retains all their previously accrued sick time. If an employer rehires an employee within two months after separation, it must reinstate their previously accrued time (unless it previously compensated the employee for that time).

Existing Leave Policies May Comply With ESTA Requirements

Many employers already provide paid leave, such as vacation time, personal days, or other types of PTO. If these policies comply with the amount, accrual rate, and usage requirements under the ESTA, an employer doesn’t have to offer additional leave. Employers should review the law carefully to comply with its accounting, notice, and posting requirements.

Notifying Employees of Their Rights

Employers must notify employees of their rights under the IWOWA and ESTA. This includes posting a notice in a conspicuous place accessible to eligible employees in English, Spanish, and any language that is the first language spoken by at least 10% of the employer’s workforce (if the LEO has translated the notice into that language).

It must further notify employees of the amount of leave they are entitled to, how their employer calculates a year for purposes of the ESTA, and how they can use their sick leave. Employers must also notify employees of their right against retaliation and how to pursue administrative claims with the LEO for violations.

Employers must comply with the notice requirements by March 23, 2025.

Discrimination or Retaliation Is Prohibited

Although the last-minute amendments weakened the ESTA’s protections against discrimination or retaliation, employees are still protected against adverse action if they exercise their legal right to take leave. They are also protected if they participate in an investigation, proceeding, or hearing related to the ESTA. “Adverse action” includes threats of demotion, reduced hours, termination, and other acts of retaliation.

Pursuing Claims for Violations of the IWOWA and ESTA

Workers may file a claim with the LEO for IWOWA or ESTA violations. The LEO may impose fines on an employer who fails to pay its employees minimum wage or unlawfully withhold tips. If the LEO finds an employer violated the ESTA, it can fine the business up to eight times the employee’s standard hourly wage and award other applicable fines, penalties, and remedies to the claimant.

Contact Kreis Enderle for IWOWA and ESTA Claims

Kries Enderle’s experienced employment law team stays on top of every change affecting Michigan employers and employees. We can help you understand the rules and protections that apply to you and work with you to pursue a claim against your employer if your rights have been violated.

We handle wage-and-hour claims and many other employment law issues, including harassment, wrongful termination, discrimination, retaliation, FMLA, and whistleblowing claims. Contact our employment law team today to schedule a consultation.