Publication date: February 21, 2025 

It’s been a nail-biter, and Michigan lawmakers kept us on the edge of our seats until the 11^th hour (literally). But as of late last night, February 20, 2025, Michigan’s sick leave and wage laws got a last-minute makeover. The anticipated changes to the Earned Sick Time Act (ESTA) and the Improved Workforce Opportunity Wage Act (IWOWA) have officially been amended and just hours ago, signed by the Governor of Michigan—taking effect today, February 21, 2025.

We’ve got the scoop on what’s changed, what’s staying the same, and what it means for employers. And if this all feels like a lot—take a deep breath. If you’re ready to raise the white flag or need an extra set of helping hands, we’re here to help you sort it all out!

ESTA Key Changes:

1. Delayed Implementation for Small Businesses

• Small businesses are now defined as those with 10 or fewer employees, and they now have until October 1, 2025, to implement ESTA.
• New businesses (if the business hired its first employee after February 21, 2025) have a three-year runway for compliance.
• Large businesses (more than 10 employees) must still comply immediately.

2. Employer & Employee Definitions Adjusted

• Previously, all private employers with one or more employees were required to provide paid sick leave.
• Now, exemptions have been added for:
  • Employees under 18 years old
  • Unpaid interns and trainees
  • Independent contract workers AND employees who set their own schedules without a minimum number of hours required by the employer.
  • There does not appear to be a clear exemption for non-profits in the draft signed by the Governor on February 21, 2025.

3. Paid Sick Leave Caps & Carryover Limits

• Employees will continue accruing sick leave at 1 hour earned per 30 hours worked.
• However, caps now apply to both use and carryover:
  • Large employers: employees can use up to a maximum of 72 hours of sick leave per year, with a 72-hour carryover cap.
  • Small employers: employees can use up to a maximum of 40 hours per year, with a 40-hour carryover cap. There is no additional 32 hours of unpaid leave for small employers, as previously expected.
• Frontloading is allowed—if an employer frontloads ESTA time, tracking and carryover are not required.

4. Revised Wage, Payout Rules, and Sick Leave Usage

• Clarified definition of “normal hourly wage”: their base rate of pay, but not less than the minimum wage as defined by IWOWA. These types of pay are excluded from ESTA pay rates:
  • Overtime, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips, and gratuities. Notably, shift premiums are still not on this list of exclusions.
• Waiting period: Covered employees begin accruing sick time upon hire, but employers can now require a 120-day waiting period (up from 90 days) before new employees can use their ESTA time.
• Termination payout rules: Employers are not required to pay out earned, unused sick time (but they now can if they want to). If an employer chooses to pay out sick leave at termination, they do not have to reinstate it if the employee is rehired.
• Sick leave usage increments: Employer can now choose if they will offer sick time in 1-hour increments or the smallest increment their employer tracks for absences.
• Employers using one PTO bucket no longer need to adhere to the rule of “usage for the same purposes and under the same conditions.” That means employers can have different rules for vacation usage when that time is offered above and beyond ESTA purposes.

5. Documentation & Reinstatement Adjustments

• If an employer requires documentation for an employee being absent for more than 3 days, employees must provide documentation within 15 days of an employer’s request (previously, the timeframe was open-ended).
• If an employee is rehired within two months (reduced from six months), employees must have their sick leave balances reinstated—unless it was paid out at separation.

6. Retaliation & Compliance Penalties Clarified

• Rebuttable presumption of retaliation removed: Meaning employers are no longer automatically assumed guilty if an employee claims retaliation.
• Employers can take action if an employee misuses ESTA time or violates notice requirements.
• Private Right of Action: The private right of action (i.e., the ability of employes to file a lawsuit directly) has been removed.
• Employees can be disciplined for misuse or policy abuse/violations.
• Fines have been clearly defined:
  • Employers who fail to comply with ESTA could face civil fines of up to 8 times the employee’s normal hourly wage.
  • Retaliation fines of up to $1,000 per violation still apply.

7. Required Notices and Policy Updates

• A written sick leave policy must be provided to new hires at the time of hire and to all employees within 30 days of this amendment.
• Policy changes cannot be enforced for five days after being issued.

Changes to Michigan Minimum Wage (IWOWA)

In addition to the ESTA updates, lawmakers also approved changes to Michigan’s minimum wage structure:

• Standard minimum wage will increase to $12.48 per hour, effective February 21, 2025. It will increase to $13.73 on January 1, 2026, and $15 on January 1, 2027, with future adjustments for inflation
• Tipped wage will remain the same (38% of the minimum wage) for the rest of 2025, then gradually increase to 50% of the minimum wage over the next six years.

What Employers Need to Do Next

Small employers: If you’re a small employer with 10 or less employees, you don’t need to announce or implement anything today. You now have until October 1^st, 2025, to comply. And there are a few changes you can make, like dropping the 32 hours of unpaid sick leave that went along with the 40 paid hours in the initial bill.

Large employers: If you’re a large employer (more than 10 employees), you need to forge ahead as planned, but you can probably wait until next week to announce any changes you decide to make. LEO won’t be conducting audits for at least 30 days. You may want to let employees know there could be some small adjustments to the current policy if you already communicated it. But there’s no reason to halt what you have in motion.

Note, most of the changes aren’t mandatory changes – they are more designed to make it easier for employers to administer ESTA. So, while you don’t HAVE to make most of the changes, you may WANT to.

The changes you decide to make will depend on how your policy is written today, and what updates you choose to make. So today, just let your employees know there have been a few updates, and that you will update your policies to be in compliance shortly.

Feeling overwhelmed? Cooper People Group has your back. Whether you need a policy review, compliance guidance, or just someone to help you make sense of all this, we’re here to help. Let’s chat!

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For Additional Information:

• Small Business Association of Michigan: Earned Sick Time Act FAQs
• Grand Rapids Chamber: BREAKING NEWS: Governor Signs Updates to Earned Sick Time Act & Tipped Wage

 Note: We aren’t attorneys and can’t give legal advice. Please consult with your legal counsel.