News & Insights
Michigan Supreme Court Restores Minimum Wage & Sick Leave Laws: Implications for Local Governments
August 13th, 2024
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By Bethany Verble
By: Bethany Verble, CPA, CFE, CBPA, Senior Manager
On July 31, 2024, the Michigan Supreme Court’s ruling in Mothering Justice v. Attorney General brought about crucial changes to Michigan’s minimum wage and sick leave laws. While much attention has focused on the private sector, these changes are equally critical for local governments, impacting compliance, budgeting, and workforce management across the state.
The governmental experts at Maner Costerisan are here to break down the aspects of this ruling most important to governments and explain how these changes may impact your implementation of upcoming accounting standards.
Improved Workforce Opportunity Act and Minimum Wage Adjustments
One of the most impactful changes, which comes under the Improved Workforce Opportunity Act, relates to the minimum wage in Michigan. The new minimum wage, which will be effective beginning February 21, 2025, will have a base rate each year, with an inflationary adjustment. This inflationary adjustment will be established by the State Treasurer, no later than November 1 each year.
The base rate has been established, as indicated below, for the next five years.
| Effective Date | Minimum Wage |
| February 21, 2025 | $10.00 + inflation adjustment |
| February 21, 2026 | $10.65 + inflation adjustment |
| February 21, 2027 | $11.35 + inflation adjustment |
| February 21, 2028 | $12.00 + inflation adjustment |
| February 21, 2029 | 2028 minimum wage + inflation adjustment |
Action Items for Local Governments: Ensuring Compliance with New Wage Laws
With an annual change in the minimum wage, local governments should promptly review pay rates and personnel classifications. It’s crucial to establish and document a plan for conducting these reviews on an annual basis to ensure continuous compliance. Additionally, local governments must also consider the budgetary impact, particularly for those with fiscal years other than December 31. Because the minimum wage rate won’t be finalized until November
each year, many local units may experience mid-year budgetary changes, making it essential to closely monitor and amend budgets accordingly.
Earned Sick Time Act: Expanding Benefits for Michigan Employees
The Earned Sick Time Act is another crucial component of this ruling that will significantly impact local governments. Effective February 21, 2025, this Act makes substantial modifications to the Paid Medical Leave Act, 2018 Public Act 338, as amended by 2018 Public Act 369. Although the Act is named for sick time, its provisions extend to the broader category of paid time off (PTO). Key differences between the two Acts are outlined below, though this is not an exhaustive list.
| Paid Medical Leave Act | Earned Sick Time Act |
| Applicable to employers with 50+ employees. | Applicable to all Michigan employers. |
| Limited eligibility (employee must live in the State, must work for at least 25 weeks, must regularly work 25+ hours a week). | All employees, regardless of residency, average hours, collective bargaining agreements, etc., are eligible for leave. |
| Minimum time accrued is 1 hour for every 35 hours worked, up to 40 hours in a year(defined as 12 calendar months). The employer may elect to provide additional time over these 40 hours. | Minimum time accrued is 1 hour for every 30 hours worked, up to 72 hours in a year (defined as 12 calendar months. The employer may elect to provide additional time over these 72 hours). Employers with fewer than 10 employees may cap the accrual at 40 hours, but must offer 32 hours of unpaid leave. |
| Employers may choose to provide 40 hours of leave at the beginning of the year, effectively frontloading the leave. | Frontloading of leave time is not allowable. |
| Employees may carry over up to 40 hours of leave. | Employees may carry forward unlimited leave time. |
| Employers do not have to allow staff to take more than 40 hours of leave in a year. | No change. |
| An employer may require an employee to wait until the 90th calendar day of employment to use accrued time. | No change. |
| Employees must take earned time in 1 hour increments, unless otherwise specified by the employer. | No change. |
| Employees must follow the employer’s usual and customary notice and documentation requirements. | No change. |
| Employees must be allowed at least 3 days to provide the requirements documentation for the purpose of the leave. | There is no specific number of days in which to provide documentation. Employees must provide reasonable documentation that the leave time has been used for eligible purposes within “a timely manner”, if 3 or more leave days are used consecutively. Employers must bear the cost, if any, of obtaining this documentation. |
Paid medical leave may be used for:
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Paid medical leave may be used for all of the items eligible under the Paid Medical Leave Act. The definition of “family member” has been expanded to include individuals related by blood OR affinity.
Paid medical leave may also be used for:
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Prepare for 2025: Implement GASB 101 and Earned Sick Leave Act Changes in Your Local Government
The Earned Sick Leave Act will create significant changes in the leave time local governments must offer their employees and, for many, this will be the first time they have ever provided leave time to employees. The Act’s provisions extend eligibility to full-time, part-time, and temporary workers, meaning that previously ineligible staff, such as temporary groundskeepers and election workers, may now qualify for leave.
While there are plenty of things to consider in the Act alone, it’s also important to consider how this ruling may impact the implementation of Governmental Accountant Standards Board (GASB) Statement No. 101 Compensated Absences.
Issued in June 2022 and effective for fiscal years beginning after December 15, 2023, GASB No. 101 mandates that liabilities for compensated absences be recognized for (1) leave that has not been used and (2) leave that has been used but not yet paid in cash or settled through noncash means. A liability should be recognized for leave that has not been used if (a) the leave is attributable to services already rendered, (b) the leave accumulates, and (c) the leave is more
likely than not to be used for time off or otherwise paid in cash or settled through noncash means. This Statement also establishes guidance for measuring a liability for leave that has not been used, generally using an employee’s pay rate as of the date of the financial statements.
As GASB 101 and the Earned Sick Leave Act take effect concurrently in 2025, local governments will face substantial changes, making careful planning and preparation essential.
Conclusion: Navigating the New Landscape
While we expect more information in the coming weeks and months, local governments must take action now. This is a great time to review your employment contracts and consult with your legal counsel. It’s also a great time to reach out to the governmental experts here at Maner Costerisan and talk through how these changes will impact your local unit’s financial health! Contact Bethany Verble, CPA, CFE, CBPA, Senior Manager, at maner@manercpa.com for more information.
FAQ: Key Changes in Michigan’s 2025 Minimum Wage and Earned Sick Time Laws
What are the key changes to Michigan’s minimum wage laws? The new law, effective February 21, 2025, introduces an annually adjusted minimum wage rate based on inflation.
How does the Earned Sick Time Act differ from the previous Paid Medical Leave Act? Unlike the previous Act, the Earned Sick Time Act expands the eligibility for PTO to include part-time and temporary workers.
What steps should local governments take to comply with these new laws? Local governments should review pay rates, establish annual compliance checks, amend budgets as necessary, and consult legal counsel.
What is GASB 101, and why is it important for local governments? GASB 101 requires the recognition of liabilities for unused leave, impacting how local governments account for compensated absences.
When do these new laws and GASB 101 take effect? The minimum wage and Earned Sick Time Act changes take effect on February 21, 2025, while GASB 101 applies to fiscal years starting after December 15, 2023.