With much talk around changes to the Earned Sick Time Act and minimum wage law, the changes have officially been signed by Governor Gretchen Whitmer. Bill 4002 was passed by the House and Senate and has been signed into effect by the Governor as of Feb. 21, 2025.

While several important changes were made, the below includes some of key changes businesses need to note:

Employee exemptions – As with previous changes, nearly all employers are subject to these requirements. However, in addition to employees of the federal government, exempt employees now include: employees 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, plus unpaid trainees or unpaid interns or individuals employed in accordance with the Youth Employment Standards Act.

Grace period – New businesses (as of Feb. 21, 2025, or after) will have a three-year grace period after forming to comply and small businesses (those with less than 10 employees) will have until Oct. 1, 2025, to comply with the requirements.

Accrual – As included in the changes already planned, employees are eligible to accrue one hour of earned sick time (EST) for every 30 hours worked. Employees working for small businesses (less than 10 employees) will accrue at the same rate but will only be eligible for 40 hours of paid leave annually with no unpaid leave. If employers opt to use the accrual method, carryover of 72 hours or 40 hours is required.

Frontloading – 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 if employers opt to frontload. For part-time employees, employers may prorate the amount of paid leave frontloaded.

Waiting period – New employees can be required a 120-day waiting period to begin using their paid sick time.

Combining ESTA with paid time off (PTO) – If an employer’s PTO policy satisfies the ESTA requirements, they are not required to create a separate paid sick time policy.

Rate of pay – An employee’s normal hourly rate does not include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips or gratuities in calculating the rate for paid sick leave.

Minimum wage – The minimum wage rate will increase from $10.56/hour to $12.48 on Feb. 21, 2025, $13.73 on Jan. 1, 2026, and $15 Jan. 1, 2027. From there, inflationary increases will follow 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.

Required posters and notice – Employers have 30 days from Feb. 21, 2025, to post posters consistent with the amended ESTA and provide written notice to employees as required by the ESTA.

No private right of action – Employee’s right to file private cause of action related to ESTA was eliminated.

Background

In Fall 2024 ruling, the Michigan Supreme Court elected to reinstate a ballot initiative previously adopted by the state legislature, and subsequently, watered down. This ruling marks a significant shift for Michigan employers and reinstates the 2018 voter-initiated version of the ESTA, which generally provides more paid sick leave and requires compliance from smaller employers who were previously exempt. The ESTA will replace Michigan’s Paid Medical Leave Act (PMLA). The ESTA is set to become the broadest paid leave law in Michigan’s history, given its extensive coverage and complex usage guidelines. Effective Feb. 21, 2025, all covered employers must either amend their existing paid leave policies or implement new ones to comply with the ESTA.

Here to Help

Working with a payroll software that can be configured to manage the updated accrual for benefit time ensures you stay in compliance with ESTA. Our software can automate the process, aligning with your unique defined policy.

By preparing for these changes and considering its implications carefully, businesses can better navigate the transition and continue to thrive in a changing regulatory landscape. If you need further clarification on the legislation or have questions on how this may impact your business, our payroll advisors stand ready to assist you. Contact us today to get started.