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In 2018, you may recall there were two employment-related ballot initiatives set to appear on the general election ballot. One of them, the Improved Workforce Opportunity Wage Act (“IWOWA”), aimed to raise the minimum wage and eliminate the tip credit for tipped employees. The other, the Earned Sick Time Act (“ESTA”), sought to provide paid sick time to virtually all Michigan employees. In September of 2018, the Michigan Legislature adopted the ballot initiatives before the election, then amended them, making both initiatives less burdensome on employers. When the Legislature amended the ESTA, the Legislature replaced it with the Paid Medical Leave Act (“PMLA”), which is the law currently in effect as of this writing.

The “adopt and amend” strategy was challenged in court, with the Court of Claims and the Court of Appeals reaching different decisions on whether those ballot initiatives should be made law as originally drafted or whether the employer-friendly amendments were legitimate. On July 31, 2024, the Michigan Supreme Court ruled 4-3 that the “adopt and amend” tactic is unconstitutional because the Legislature circumvented the petition initiative process in 2018. Under the opinion issued Wednesday, increases to Michigan’s standard minimum wage, tipped minimum wage and an expansion of the state’s earned sick time laws will take effect in February of 2025.

The reinstated ESTA will replace the PMLA as of February 21, 2025. The ESTA requires all Michigan employers to provide paid sick time to their employees. When an employee uses paid sick time under the ESTA, they must be paid their normal hourly wage.

Most employment laws impose some restrictions on who is entitled to benefit from the law. The ESTA, however, does not impose any such restrictions. The most notable feature of the ESTA is how broadly it applies. Unlike most other employment laws that only apply to employers of a certain size, the ESTA applies to all Michigan employers, regardless of how many employees they have. Even if a company has only a few part-time staff, the ESTA imposes paid sick time obligations on those operations.

Under the ESTA, employees will be entitled to one (1) hour of paid sick time for every thirty (30) hours they work. Importantly, the ESTA allows any paid leave to count towards the minimums, such as paid sick time, vacation, personal time, and general PTO. Therefore, an employer who provides an all-purpose paid time off (“PTO”) bank is not required to create an entirely new sick leave system if the PTO accrual already meets the minimums set by the ESTA. However, for employers with no paid leave options, this new law requires significant action.

The ESTA departs from the PMLA in a number of important ways.

• PMLA only applied to employers with 50 or more employees, but ESTA applies to all employers.
• PMLA did not allow all employees to accrue and use paid sick time, but ESTA allows all employees, regardless of how many hours they work, to accrue and use paid sick time.
• PMLA capped accrual at 40 hours. ESTA caps paid leave accrual at 40 hours for “smaller” employers but allows up to 32 hours of unpaid leave for small employers. For “larger” employers, the cap is 72 hours of paid sick time.
• Under the PMLA, employers could follow their normal procedures to request documentation from absent employees. Under the ESTA, employers can only request documentation if the absences are for more than three consecutive days.

We recommend employers immediately begin preparing for the ESTA effective date of February 21, 2025.

• First, assess whether you’re a small (fewer than 10 employees) or large employer (10 or more employees). Smaller employers have fewer ESTA obligations.
• Next, determine how much paid leave you currently offer. If you do not already meet the hourly thresholds described above (at least 40 hours for small employers; at least 72 hours for larger employers), then you must plan to increase your paid leave allowances.
• Ensure that you have a plan to track accrual and use of paid sick time for all employees. If your current policies only permit paid sick time for certain employees, those will need to be greatly expanded to cover all employees. Your payroll processing company may be able to assist here.
• Determine whether you will offer a separate paid sick time bank or an all-purpose leave such as PTO.
• Familiarize your decision makers with the permitted reasons to take paid sick time. Some of the permitted reasons go beyond what was traditionally allowed for sick time.

In addition to reinstating the ESTA, the Michigan Supreme Court also reinstated the ballot version of the IWOWA. One of the biggest changes resulting from the ruling for private sector employers is the eventual elimination of the tipped minimum wage ― the lower hourly wage paid to workers like servers and bartenders who currently make the bulk of their earnings through tips.

Michigan’s minimum wage is currently $10.33 an hour. In their ruling, justices directed the state treasurer to set a new wage scale that accounts for inflation between 2018 and 2024. Minimum wage will be $10 an hour plus an inflation adjustment in 2025, with the tip credit rising to 48% of the minimum wage. It increases to $10.65 plus an inflation adjustment in 2025, with the tip credit rising to 60%. In 2027, it will be $11.35 plus an inflation adjustment, with the tip credit rising to 70%, before minimum wage finally rises to $12 plus an inflation adjustment, with the tip credit at 90%.

All employers, private and public sector, should be prepared to pay employees an increased minimum wage as of February of 2025. Employers with tipped employees will need to evaluate the new tipped minimum as of February 2025 as well.

We will continue to monitor developments in this area and provide updates as warranted. We are also prepared to assist you in updating policies, training your management teams, and preparing you and your employees for all of these upcoming changes. If you have further questions, contact one of the labor and employment law experts at Fahey Schultz Burzych Rhodes PLC.