With Michigan’s Earned Sick Time Act (ESTA) set to go into effect on February 21, 2025, the Michigan Labor and Economic Opportunity Agency (LEO) has issued frequently asked questions (FAQs) indicating how the state plans to interpret the new paid sick leave law to provide guidance to employers and employees. Here are some important concepts clarified in the guidance.
Classifying Employees
With the ESTA covering all employers with one or more employees, it raises the question: Who is considered an employee?
The LEO’s FAQs indicate that the “economic reality test” will determine if a worker constitutes a covered employee or an independent contractor who is not covered. The ESTA isn’t intended to be any broader or narrower in terms of the definition of employee than existing Michigan law.
The LEO has clarified that the ESTA applies to all employees who are physically located in Michigan regardless of where the employer is located.
Accrual of Leave
Under the ESTA, employers must allow up to 72 hours of accrued paid sick time to be used for qualifying purposes. Small businesses, however, can require that 32 hours of the 72 be unpaid. An employer is a small business if it employs fewer than 10 employees. When employment levels fluctuate, if an employer employs 10 or more employees in 20 or more workweeks in the current or preceding calendar year, it is not a small business.
Accrual (one hour for every 30 hours worked) must begin by February 21, 2025. The LEO has clarified that employers may front-load paid sick leave. If an employee leaves employment but has used more time than they would have accrued, an employer may deduct the amount that would not have been earned under the accrual method from the employee’s final paycheck so long as the check is not reduced below the minimum wage and the employer received a voluntary, prior written authorization for the deduction.
Also, note that front-loading cannot be less than what the employee would have received if the accrual method were used. Under the ESTA, accrual is based on the number of hours worked and is not capped. Usage can be capped at 72 hours, but any remaining balance must roll over to the next benefit year.
The LEO’s FAQs state that if an employee doesn’t use all of the sick leave in a given year, all unused sick leave must be carried over to the next year. If there’s a balance upon separation from employment, and the employee is hired back within six months, the unused balance must be reinstated.
Exception for Collective Bargaining
The LEO has clarified that the ESTA won’t apply to employees subject to a current collective bargaining agreement in effect when the Act goes into effect. It will apply at the expiration date, regardless of any extensions or new collective bargaining agreement being entered.
However, the LEO clarified that the collective bargaining agreement exception doesn’t apply if the collective bargaining agreement doesn’t provide a paid sick leave benefit.
Takeaway
Employers with employees in Michigan need to be ready to comply with the ESTA by February 21, 2025, and it doesn’t appear the legislature will act to revise the Act before that date.
Gary S. Fealk is an attorney with Bodman PLC in Troy, Michigan, and can be reached at gfealk@bodmanlaw.com.