August 17, 2025

Hello Tax Authority clients

Today’s email blast is to update you on Michigan’s Earned Sick Time Act (ESTA)

History

Paid leave in Michigan underwent changes in 2019 with the passage of the Paid Medical Leave Act (PLMA), which required businesses with more than 50 employees to provide paid sick time.  On February 21, 2025 the Earned Sick Time Act (ESTA) went into effect, replacing the PLMA, and broadening the scope of paid leave to include all businesses with one or more employees.

The act expressly exempts a nonprofit agency from the definition of employer

If you have 10 or fewer employees (a small business) this law has been delayed till October 1, 2025

What is a small business

• Small business means it employs 10 or fewer employees. This includes full-time, part-time, and temporary employees including those provided through a temporary service or staffing agency or similar entity
• Once an employer employs 11 or more employees for 20 or more workweeks in the current or prior calendar year, the employer cannot be a small business again until it meets the requirements above
  • Example: Restaurant employs 8 individuals from Jan 2025 thru March 2025, then employs 12 individuals for any 20 weeks from April 2025 through September 2025. Due to staff leaving for school, the business is reduced to 8 employees again starting October 2025 and continues with 8 employees indefinitely.  The restaurant will not be a small business for the remainder of 2025 and all of 2026.  Starting in January 2027 the restaurant can again be considered a small business.

Basics rules are

• Does not apply to employees under the age of 18, as they are covered under the Youth Employment Standards Act
• Applies to both hourly employees and salary employees
• Accrues at a rate of 1 hour for every 30 hours worked and unused paid sick time rolls over up to 72 hours, or 40 hours for small business
• As an alternative to the accrual method, employers can choose to frontload at least 72 hours of paid sick time for immediate use, or 40 hours for small business, which eliminates the requirement for carryover or accrual tracking for full-time employees
• Salary employees are assumed to work 40 hours in a workweek unless the employee’s normal workweek is less than 40 hours, in which case earned sick time accrues based on that normal workweek, 30 hours if employed by a small business
• An employer that employs a part-time employee may frontload if all the following occur
  • Employer provides the part-time employee a written notice of how many hours they are expected to work for a year at the time of hire
  • The amount of sick time provided at the beginning of the year is, at a minimum, proportional to the earned sick time that the employee would accrue if they worked all of the hours expected as provided in the written notice
  • If the employee works more hours than what was expected as provided in the written notice, the employer must provide additional earned sick time in accordance with the accrual requirements
• Employers may limit the “use” of earned sick time to 72 hours, or 40 hours for a small business, in the 12-month period
• New hires earn immediately but employers may have a policy requiring these employees to wait up to 120 days before using accrued sick time. If front loading, hours are available for immediate use
• Employers may choose to use either one-hour increments or the smallest increment for tracking sick time usage
• Employers can use a combined paid time off (PTO) policy to meet the ESTA requirements, as long as the total paid leave meets or exceeds the necessary amounts and may be used for the same purposes
  • So if you already give your employees 72 hours of PTO, or 40 hours for a small business, you have met the requirements and no additional changes are required.
• The Department of Labor and Economic Opportunity (LEO) is responsible for enforcing ESTA
• New businesses will have a three-year grace period after forming to comply to ESTA
• Penalties for failing to provide earned sick time will be a civil fine of not more than eight times the employee’s normal hourly wage
• At time of termination, neither small nor large employers are required to pay out unused time
• Employer can use different methods of providing paid time off to different groups of employees

With less than two months remaining until small businesses must comply, now is the time to begin issuing written notification to employees regarding the changes.  Specifically, notices to employees should include

• The amount of earned sick time they must be provided
• How a year is calculated by the employer
• The terms under which earned sick time can be used
• The anti-retaliation provisions of the ESTA
• How an employee can file a complaint for alleged ESTA violations

These are the major points that you can reference but feel free to call the office if you have a unique situation occur and we can work it out or call the state for guidance.

QuickBooks can manage the sick time accrual and the tracking of unused hours, call to confirm your system is set up properly.

Shari, Sue, Jen, Ellen and Rich

The Tax Authority, P.C.