Michigan has recently enacted significant changes to its labor laws, affecting minimum wage rates, tip credits, and paid sick leave. These changes are the result of a lengthy legal and legislative process aimed at balancing employer concerns with worker protections. The journey began in 2018 when two ballot measures addressing these issues were adopted as law by the Michigan legislature. However, these laws were later repealed and replaced, sparking years of legal disputes. The Michigan Supreme Court ultimately declared the legislative actions unconstitutional, leading to the reinstatement of the original laws set to take effect in February 2025.
Revised Minimum Wage Standards
Michigan employers were preparing for a minimum wage increase to $12.48 per hour starting February 21, 2025. The new legislative amendments retain this initial change but adjust the subsequent increase schedule to January 1 annually from 2026 onward, providing more predictability for businesses. The wage rates are now set to rise to $13.73 in 2026 and $15.00 in 2027, with future adjustments tied to inflation. This revised schedule aims to help employers plan for wage increases without abrupt financial strain while ensuring workers benefit from a progressive wage increase.
By tying future wage adjustments to inflation, Michigan aims to create a more predictable framework for both employers and employees. This approach ensures that wages keep pace with the cost of living, thereby safeguarding the purchasing power of workers. Employers, on the other hand, can plan their financial strategies with foreseeable adjustments, which can help in maintaining economic stability and workforce satisfaction.
Tip Credit Adjustments
One of the critical concerns for businesses, particularly in the hospitality sector, was the phased elimination of the tip credit. The initial laws had stipulated an end to this practice, which posed significant challenges for businesses reliant on tipped employees. The amendments address this by maintaining the tip credit framework but increasing the minimum cash wage for tipped employees more gradually.
The minimum cash wage for tipped employees will be set at 38% of the minimum wage in 2025, increasing to 40% in 2026, with incremental increases of 2% each subsequent year until reaching 50% in 2031. This gradual approach aims to ease the transition for businesses, allowing them to adapt to the new wage structure without sudden financial burdens. Additionally, to ensure strict adherence to the new standards, a fine of up to $2,500 is introduced for violations concerning tipped employee pay. The state labor department has already updated and published a new minimum wage poster reflecting these changes, providing useful guidance to employers and employees alike.
Paid Sick Leave Amendments
The revisions to Michigan’s paid sick leave laws are extensive and aim to simplify compliance while broadening coverage. The start date for compliance remains February 21, 2025, for most employers, with specific provisions for small businesses to ease the transition. Small businesses with ten or fewer U.S. employees have a later compliance date of October 1, 2025, unless certain conditions are met. New small businesses will begin compliance three years post the hiring of their first employee if that falls after October 1, 2025.
The amendments also introduce broader coverage while refining the list of exclusions. Notable exclusions include nonprofit agencies, individuals managing their own working hours without employer-imposed minimums, unpaid trainees, interns, and minors under 18. Temporary exclusions are also in place for pre-existing employment contracts signed before December 31, 2024. This careful delineation helps address various employment scenarios while ensuring that the core workforce enjoys robust paid leave benefits.
Coverage and Exclusions
Unionized workforces are subject to the amended law post the expiration of collective bargaining agreements (CBAs) effective as of February 21, 2025. This provision applies only if these agreements conflict with the new standards, offering flexibility for ERISA-covered multiemployer plan contributions under CBAs. The definition of “family member” has been refined to include individuals related by blood and those whose association is equivalent to family. This enhanced specificity helps guide employers and employees in understanding leave entitlements under the new regulations.
The amendments maintain the accrual of one hour of leave per 30 hours worked within Michigan. Airline employees, however, are subject to different standards, assuming accrual based on their presumed workweeks. These detailed guidelines aim to cover diverse employment scenarios, ensuring that all workers can avail themselves of paid leave as intended by the law.
Accrual, Carryover, and Frontloading
To simplify compliance and alleviate complexities, employers can now limit leave carryover to 40 hours for small businesses and 72 hours for others. They can also utilize frontloading to avoid annual carryover complexities. This means that employers can grant the full amount of leave at the beginning of the year, rather than having leave accrue over time, though pro-rata frontloading for part-timers includes requisite adjustments if actual work hours differ from projections.
Additionally, the amended law allows employers to offer cash-outs for accrued leave at the year’s end to preclude carryover obligations. Employers are also permitted to recoup any excess unused leave granted to terminating employees, subject to specific conditions like employee consent and non-reduction below minimum wages. These provisions provide a balanced approach, ensuring that employees receive their entitled leave while offering employers mechanisms to manage leave accruals effectively.
Use and Restriction Adjustments
Under the revised regulations, small businesses can cap annual leave use at 40 hours, while larger businesses can maintain the anticipated 72-hour cap. A longer permissible waiting period for new hires, up to 120 calendar days, is also included in the new amendments to help businesses manage new employee integration effectively.
The law clarifies the use increments for paid leave, emphasizing alignment with increments used for other absence types rather than payroll system tracking. This aims to ensure consistency in how leave is recorded and utilized. Additionally, the requirement now specifies that documentation is due within 15 days post-request for leave spanning four consecutive days or more, simplifying the administrative process for both employers and employees.
Employee Notice Requirements
Michigan has recently put into effect significant changes to its labor laws, directly impacting minimum wage rates, tip credits, and paid sick leave policies. This shift comes after a lengthy legal and legislative back-and-forth intended to balance the needs of employers with the protections for workers. The process began back in 2018 when two ballot measures, which aimed to address these labor issues, were adopted into law by the Michigan legislature.
However, shortly afterward, these laws were repealed and replaced, which led to years of legal battles. These disputes culminated with the Michigan Supreme Court ruling that the legislative actions taken to repeal and replace the laws were unconstitutional. As a result, the original laws were reinstated and are slated to take effect in February 2025. This decision underscores the ongoing struggle within the state government to fairly address labor concerns while considering the implications for businesses.
The reinstated laws are expected to bring substantial changes to the workforce in Michigan, especially in terms of how workers are compensated and their access to paid sick leave. Employers and employees alike are keeping a close watch on the implementation of these laws, which aim to improve working conditions and ensure fair compensation across various industries. This landmark development marks a significant step in Michigan’s effort to modernize and strengthen its labor regulations to better serve the workforce.
