State of Michigan Provides Updated Interpretation of the new ESTA Regulations

• 120-Day Waiting Period:  Only employers who accrue earned sick time at 1 hour per 30 hours worked can require new hires to wait 120 hours to use their earned sick time.  Employers who front load must allow new hires to use their earned sick time immediately upon hire.
• Employees exempt from ESTA:  The new regulations indicated that employees who made their own schedules and were not subject to negative consequences (adverse action) if they scheduled no hours were exempt from the law. 
  
  The State’s interpretation of this exemption is extremely narrow, and it is meant to cover highly compensated employees who have no expectations for when they do or do not work. As such, most employees will not be exempt under the State’s definition, as they believe most employees are “punished” when they do not schedule themselves for work by being removed from on-call lists or by employers putting them on the “bottom of the list” for on-call opportunities. Specific workers mentioned as eligible for ESTA: servers, home health workers, on-call firefighters, and election workers.
  
  Bottom line: most employees (except those who work 100% of the time outside Michigan, for the federal government, or who work under the Railroad Unemployment Insurance Act) will NOT be exempt from ESTA.

In addition to the above, we have received questions from clients that were answered in LEO’s seminar.  Answers are contained below:

Can we front load sick time based on the employee’s anniversary (hire) date?
A leave year can be any 12-month period the employer chooses, as long as the years are consecutive (i.e. there is no gap from one year to the next). As a result, employers can choose anniversary, calendar, fiscal, or any other 12-month period of their choosing.

We are going to front load time at the employee’s anniversary date.  How do we accrue time until their next anniversary date?
Employers may front load a prorated number of earned sick time hours based on the time from February 21, 2025, to the employee’s anniversary date.  For example:  If an employee’s anniversary date is in August 2025, the employer could front load 36 hours (72* 6/12) in the employee’s PTO or sick time bank on February 21 and then front load the full 72 hours on their August anniversary date.  As an alternative, employers could accrue 1 hour per 30 hours worked until the anniversary date and then transition to front loading on the employee’s anniversary (mandatory carryover and tracking of accruals under the accrual arrangement would apply for this year).

The State has confirmed that employers can prorate front loaded ESTA for the transition year of 2025 to move everyone (including new hires) to the beginning of the leave year.  For example, if you are using July 1 – June 30 for your leave year, you could provide a prorated portion of ESTA on February 21 that would bridge employees to reach the beginning of your leave year on July 1 when they would receive the full 72-hour sick pay/PTO amount.

Can we accrue differently for different classes of people (ex. hourly vs. salary or part-time vs full-time)?
You can front load for certain groups (ex. full-time) and accrue at 1 hr/30 hours worked for others (part-time). When choosing who is front loaded and who is accrued, it is important that similarly situated people (i.e. based on full/part-time status, years of service, salary vs. hourly) are treated the same.

Are non-profit organizations exempt from ESTA?
No, they are not.  As stated previously, the only companies exempt from ESTA are the Federal Government and those with employees covered by the Railroad Unemployment Insurance Act.

How does ESTA apply to employees who do not work in Michigan?
Earned Sick Time eligibility is determined by where the employee works – not where the employer is located. Therefore, if a Michigan employer has people working from out-of-state locations, those employees are not eligible for ESTA when they are not working from a Michigan location. 

Can we combine PTO, vacation, and earned sick time into one bank of time? 
Yes.  The changes to the new law are very clear:  employers may include any paid time off provided toward the 72-hour (or 40-hour, for small employers) requirement.  Furthermore, under this arrangement, if the employee uses all their paid time off for vacation and later becomes ill, the employer is not required to provide additional earned sick time hours.

Please note: the employer policy needs to be clear that PTO (or whatever the paid leave is called) can be used for ESTA reasons (spell out the ESTA-approved reasons for leave in the policy) and must be administered under ESTA rules when used for reasons covered by ESTA. Examples of these rules: limits on notice required, documentation requirements, that time must be requested by the employee (rather than automatically deducted), employee cannot be denied use of the leave, etc.

If an employee calls in for an absence covered by ESTA, can we automatically deduct their PTO for the absence?
If the absence is for reasons covered by ESTA, employers may NOT automatically deduct PTO/ESTA time. The employee must request that PTO/ESTA be used. (There is an exception to this rule:  if the absence is FMLA and the employer’s FMLA policy requires use of PTO/ESTA, then an employer may automatically deduct the time from the employee’s sick pay/PTO bank).

If we front load earned sick time, we are no longer required to carry over unused time to the following leave year.  Could we pay out employees’ unused earned sick time instead?
Yes, you may pay out unused PTO at the end of the year if you front load earned sick time or you could have a “use it or lose it” policy. (You may also carry over time if desired; the law no longer requires you to do so).

We have an attendance “bonus” for employees who do not call in for a month (or other period of time).  How does ESTA affect that?
Per the State of Michigan, any time covered by ESTA cannot be counted as a “call in” under this type of bonus plan. You cannot retaliate against employees for using their ESTA time, and losing a bonus (or applying attendance points, in the case of attendance policy) would be considered retaliation under ESTA.

Can we still terminate someone for three consecutive days of not calling or reporting for work?
Yes, you may do so.  ESTA does not change that policy. Please note: if there is an extreme extenuating circumstance (ex. employee was in a coma), employers should reconsider the termination based on that circumstance.

How do we calculate “normal rate of pay?”
For hourly employees: the normal rate is equivalent to their hourly rate (for salaried: weekly salary/40 hours or hours they are scheduled to work per week, if less). It does not include overtime, bonuses, commissions, piece rate, tips, holiday pay, or PTO/ESTA pay.

For those whose pay involves piece rate, tips, commissions, or other “non-hourly” pay, the normal pay rate would be their hourly rate or the standard (not tipped) Michigan minimum wage at the time of the earned sick time payment, whichever is greater. Important note: the State admitted that calculating normal rate for employees paid on straight commissions (with or without a draw) is a complicated matter, and the State is working on further clarification of how to calculate normal rate of pay in these circumstances. The State encouraged employers to reach out to LEO regarding commissions and other nontraditional forms of compensation.

When do employers have to implement accruing and the new regulations?
For employers with 11 or more employees, they must implement ESTA accruals/front loading immediately (February 21, 2025).

For small employers (10 or fewer employees), they must comply by October 1, 2025.

Some employers have stated that they have 30 days to implement the new regulations.  This is not correct.  There is an ESTA notice that must be provided to all new hires required by the law.  This notice requirement was provided a 30-day extension for compliance (as notices need to be updated to match the new regulations).  To repeat:  the 30-day extension is for providing the notice only.

What about ESTA posters?  We already posted the ones generated by the State last year.  Do we need to print new posters? 
The State has just revised the English version of the poster to reflect changes to the law, and this is the version employers should be posting.  It can be found on the same webpage which contains the FAQ’s and the State’s ESTA seminar (at the top of this article).

The Spanish version of the poster is not yet available. It must also be posted when it is finalized.

Please note: there is a line at the top of the poster, where employers must indicate their leave year (right under “General Requirements – Earned Sick Time Act.”). Please make sure to indicate your leave year on your posters!

The State of Michigan has indicated they will continue to update their Frequently Asked Questions in the coming weeks. OVD will keep clients informed of any major changes to the Earned Sick Time Act should they occur.

Connect with your Trusted OVD Advisor for Guidance
If you need further clarification or have questions about compliance, please reach out to your trusted OVD advisor.

The information and suggestions contained in this material have been developed from sources believed to be reliable. However, OVD Insurance Agency accepts no legal responsibility for correctness or completeness of this material, or its application to specific factual situations.