Governor Whitmer Signs New Minimum Wage Law

Governor Whitmer Signs New Minimum Wage Law

On February 21, 2025, Governor Gretchen Whitmer signed legislation that preserves Michigan’s tip credit and scales back an increase to the state’s minimum wage. On Wednesday, February 19, 2025, just days before this legislation and the new Earned Sick Time Act (ESTA) were set to take effect, amendments to the minimum wage law received final approval from both the House and Senate. As a result, Governor Whitmer signed both pieces of legislation into law. For more information about changes to ESTA, see Varnum’s advisory here.  

Under the amendments to the minimum wage law, the new minimum hourly wage rate is:

Hourly Rate
Effective Date
$12.48
February 21, 2025
$13.73
January 1, 2026
$15.00
January 1, 2027

The new minimum hourly wage rate for tipped employees is:

Hourly Wage Rate
Effective Date
38% of the minimum hourly wage rate
February 21, 2025
40% of the minimum hourly wage rate
January 1, 2026
42% of the minimum hourly wage rate
January 1, 2027
44% of the minimum hourly wage rate
January 1, 2028
46% of the minimum hourly wage rate
January 1, 2029
48% of the minimum hourly wage rate
January 1, 2030
50% of the minimum hourly wage rate
January 1, 2031

The bill also stipulates that beginning in October 2027, the state’s minimum wage must increase based on the rate of inflation. The state treasurer will calculate the increase by multiplying the otherwise applicable minimum wage by the 12-month percentage increase, if any, in the Consumer Price Index for the Midwest region, CPI-U or a successor index as published by the Bureau of Labor Statistics.

Additionally, the bill transfers oversight from the Department of Licensing and Regulatory Affairs to the Department of Labor and Economic Opportunity. It also subjects employers to a civil fine of no more than $2,500 for failing to pay the minimum hourly wage to employees who receive gratuities in the course of their employment.

Contact your Varnum labor and employment attorney for guidance on compliance with either of these laws. 

Michigan’s Earned Sick Time Act Amended: Employer Takeaways

Michigan's Earned Sick Time Act Amended: Employer Takeaways

On February 20, 2025, Michigan lawmakers voted to amend the Earned Sick Time Act (ESTA) to provide greater clarity and flexibility to both employees and employers with respect to paid time off, taking immediate effect. This action followed earlier votes this week by the Michigan legislature on the minimum wage law. Governor Whitmer has now signed both pieces of legislation into law. For more information about changes to the minimum wage law,
see our advisory here.

Key Changes to ESTA as of February 21, 2025:

  • Employers are expressly permitted to frontload at least 72 hours of paid sick time per year, for immediate use, to satisfy ESTA’s leave requirement. Employers who frontload hours do not need to carry over unused paid sick time year to year and do not have to calculate and track the accrual of paid sick time for full-time employees. For part-time employees, frontloading in lieu of carryover is also an option, including frontloading a prorated number of hours. Employers choosing to frontload a prorated amount must follow notice, award amount, and true-up requirements. 
  • If paid sick time is not frontloaded, employees still must accrue 1 hour of paid sick leave for every 30 hours worked, but employers may cap usage at 72 hours per year. Only 72 hours of unused paid sick time is required to roll over from year to year for employers who provide leave via accrual.
  • New hires can be required to wait until 120 days of employment before they can use accrued paid sick time, which could potentially benefit seasonal employers. This waiting period appears to be permitted for frontloading and accruing employers alike, although the bill’s language with respect to frontloading employers is somewhat unclear. This may be an issue for clarification by the Department of Labor and Economic Opportunity, which under the amendment will be responsible for all enforcement of the law.
  • ESTA now provides several exemptions, including:
    • An individual who follows a policy allowing them to schedule their own hours and prohibits the employer from taking adverse personnel action if the individual does not schedule a minimum number of working hours is no longer an “employee” under ESTA.
    • Unpaid trainees or unpaid interns are now exempt from ESTA.
    • Individuals employed in accordance with the Youth Employment Standards Act, MCL 409.101-.124, are also exempt from ESTA.
  • Small businesses, defined as those with 10 or fewer employees, are only required to provide up to 40 hours of paid earned sick time. The additional 32 hours of unpaid leave, required under the original version of ESTA, is no longer required. Small businesses, like other employers, are permitted to provide leave via a frontload of this entire applicable amount or to provide the time via accrual. If small businesses use the accrual method (1 hour of paid sick time for every 30 hours worked), they may cap paid sick time usage at 40 hours per year and only permit carryover of up to 40 hours of unused paid sick time year to year. Small businesses have until October 1, 2025, to comply with several ESTA requirements, including the accrual or frontloading of paid earned sick time and the calculation and/or tracking of earned sick time.
  • Employers can now use a single paid time off (PTO) policy to satisfy ESTA. Earned sick time may be combined with other forms of PTO, as long as the amount of paid leave provided meets or exceeds what is otherwise required under ESTA. The paid leave may be used for ESTA purposes or for any other purpose.
  • The amendments clarify that an employee’s normal hourly rate for ESTA purposes does not include overtime pay, holiday pay, bonuses, commissions, supplemental pay, piece-rate pay, tips or gratuities
  • The amendments specify that the Department of Labor and Economic Opportunity is responsible for enforcement of the Act. Prior provisions that included a private right of action for employees to sue their employers for possible ESTA violations have been removed.
  • The amendments remove a “rebuttable presumption” of retaliation that was contained in the original Act.
  • ESTA now permits employers to choose between one-hour increments or the smallest increment used to track absences as the minimum increment for using earned sick time.  

The amendments allow a means for employers to require compliance with absence reporting guidelines for unforeseeable ESTA use. To do this, an employer must comply with steps outlined in the amendment including disclosure of such requirements to employees in writing.

  • The amendments specify that employers must provide written notice to employees including specified information about the Act within 30 days of the effective date. This would mean a date of March 23, 2025.
  • The amendments allow for postponement of the effective date of ESTA for employees covered by a collective bargaining agreement that “conflicts” with the Act. The effective date for such employees is the expiration date of the current collective bargaining agreement.
  • The amendments likewise allow for the postponement of ESTA’s effective date for employees who are party to existing written employment agreements that “prevent compliance” with the Act. Reliance on such provisions requires notification to the state. 

Ongoing Ambiguities and Clarifications Needed:

  • The amended law continues to contain a provision requiring the display of a poster from the Department of Labor and Economic Growth, which appears to be effective immediately upon the date the bill is signed into law. Employers are advised to update their posters accordingly.
  • The statute’s reference to “conflict” between a collective bargaining agreement and ESTA is not well defined, including how this provision will apply to a collective bargaining agreement that, perhaps intentionally through prior negotiations, includes no current provisions for sick time. 
  • Whether the amended law is intended to exclude nonprofit organizations from the scope of covered employers is unclear. The reference to nonprofits was stricken, but there is no affirmative language excluding them from the broad “employer” definition that remains in the law.
  • The availability of a 120-day waiting period for a frontloading employer is somewhat unclear, due to the provisions that frontloaded time must be “available for immediate use.”
  • The date employees may first use earned sick time, in relation to the time frame for employers to finalize and issue policies, would benefit from clarification. The amendment states that accrual begins on the effective date of the Act, and time may be used “when it is accrued.” However, employers appear to have a 30-day time frame to finalize and issue policies defining how they choose to provide ESTA’s benefits.
  • The extent of employer recordkeeping and/or inspection obligations are unclear under the current law. Previous provisions detailing such requirements are no longer included.

Varnum’s labor and employment attorneys are continuing to monitor developments with these new and amended laws. Please contact a member of our Labor and Employment Team for guidance on compliance with ESTA, the minimum wage law and best practices moving forward. 

ESTA Amendment Submitted to Gov. Whitmer- What it Means for Employers This Morning

READ THE LATEST ON THE ESTA

The Michigan House and Senate recently agreed on bills to amend both the Michigan Improved Workforce Opportunity Wage Act and the Earned Sick Time Act (ESTA). The bills have been submitted to Governor Whitmer for signature.  

Varnum attorneys are analyzing these changes that are expected to be approved and signed into law. Stay tuned for a more comprehensive advisory regarding these changes to follow.

In the meantime, employers who planned to roll out ESTA policies and programs today should pause their efforts in light of this development. The ESTA amendments may impact many employer policies and approaches to ESTA compliance. More will be clear shortly based on the Governor’s review and analysis of the changes.

Varnum’s Labor and Employment Practice Team will continue to monitor updates and action on these bills.

U.S. Senate Advances KOSMA Bill Targeting Social Media Use by Minors

U.S. Senate Advances KOSMA Bill Targeting Social Media Use by Minors

Varnum Viewpoints:

KOSMA Restrictions: The Kids Off Social Media Act (KOSMA) aims to ban social media for kids under 13 and limit targeted ads for users under 17.

Bipartisan Support & Opposition: While KOSMA has bipartisan backing, critics argue it could infringe on privacy and First Amendment rights.

Business Impact: KOSMA could affect companies targeting minors, requiring compliance with new privacy regulations alongside existing laws like COPPA.

While COPPA 2.0 and KOSA are discussed more frequently when it comes to protecting the privacy of minors online, the U.S. Senate is advancing new legislation aimed at regulating social media use by those 17 and under. In early February, the Senate Committee on Commerce, Science and Transportation voted to advance the Kids Off Social Media Act (KOSMA), bringing it closer to a full Senate vote.

KOSMA Restrictions

KOSMA would prohibit children under 13 from accessing social media. Additionally, social media companies would be prohibited from leveraging algorithms to promote targeted advertising or personalized content to users under 17. Further, schools receiving federal funding would be required to limit the use of social media on their networks. The bill would also grant enforcement authority to the Federal Trade Commission and state attorneys general.

Bipartisan Support & Opposition

KOSMA has received bipartisan support, with advocates such as Senator Brian Schatz (D-HI), who introduced the bill in January, citing the growing mental health crisis amongst minors due to social media use. Supporters argue that while existing laws like COPPA protect children’s data, they do not adequately address the considerations of social media since they predate the platforms. However, much like similar state laws that have come before it, KOSMA is rife with opposition as well. Opponents argue that this type of regulation could erode privacy and impose unconstitutional restrictions on young people’s ability to engage online. Instituting a ban as opposed to mandating appropriate safeguards, opponents argue, infringes on First Amendment rights.

Business Impact

Although KOSMA only applies to “social media platforms,” the definition of this term could be interpreted broadly and potentially include many companies that publish user-generated content within the scope of KOSMA’s restrictions. KOSMA identifies specific types of companies that would be exempt from the definition of social media platforms, such as teleconferencing platforms or news outlets. If KOSMA were to go into effect, companies across the country that are knowingly collecting data from minors or targeting them with personalized content or advertising would have an additional layer of regulatory consideration when assessing their privacy practices pertaining to the processing of data related to minors—on top of existing federal and state laws.

Varnum’s Data Privacy and Cybersecurity team is well-equipped to help companies navigate these challenges, ensure compliance with evolving privacy laws, and safeguard the rights and safety of younger users. Please contact us if you have questions on the myriad of children’s privacy laws and how they may apply to your company’s practices.

Corporate Transparency Act’s Reporting Obligations Revived

Corporate Transparency Act's Reporting Requirements Revived
Visit Our CTA Resource Center

Once again, Beneficial Ownership Information (BOI) reporting obligations under the Corporate Transparency Act (CTA) have been revived. On February 17, a federal judge lifted the stay he had ordered on January 7 in Smith v. U.S. Department of the Treasury, 6:24-cv-00336 (E.D. Tex.), which had prevented the Government from enforcing the BOI Rule on a nationwide basis.

On February 18, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released a notice that announced the following key updates:

  1. Unless subject to a later deadline, the new deadline to file an initial, updated and/or corrected BOI report with FinCEN is now March 21, 2025.
  2. Before March 21, 2025, FinCEN may “further modify deadlines” for entities that do not pose significant national security risks. If FinCEN does so, it will provide yet another update “recognizing that reporting companies may need additional time to comply[.]”
  3. Importantly, “FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.” This is the strongest signal yet that the current Administration will seek formal amendments to the BOI Rule, although no details regarding proposed changes have been publicly released.

Businesses and others impacted by the CTA should prepare now to meet the March 21 deadline.

In the meantime, numerous cases challenging the CTA, including Smith, will continue to work their way through the legal process and Congress might take preemptive action. On February 10, the U.S. House of Representatives unanimously passed H.R.736, which would give FinCEN authority to extend the compliance deadline for pre-2024 reporting companies to January 1, 2026. A companion bill in the U.S. Senate. Bills to repeal the CTA remain pending as well.

Varnum’s CTA Taskforce is closely tracking these developments and will provide updates as they become available. For background on BOI reporting, please refer to Varnum’s CTA Resource Center.

Michigan’s Earned Sick Time Act: What Employers Should Know

Michigan's Earned Sick Time Act: What Employers Should Know
READ THE LATEST ON THE ESTA

As of today, Michigan’s Earned Sick Time Act (ESTA) is slated to take effect this Friday, February 21, 2025. Guidance on the Act as written is available on the Michigan Department of Labor and Economic Opportunity Wage and Hour Division’s website or in Varnum’s recent advisory on Common Questions from Employers regarding ESTA.

However, both the Michigan House of Representatives and the Michigan Senate have proposed amendments to ESTA that, if enacted, would significantly revise the Act. Both sets of proposed amendments differ substantially from each other. The provisions of these competing sets of legislative amendments have been summarized in a recent advisory. So far, the Michigan House has passed its proposed amendments and sent them to the Michigan Senate for consideration. The Michigan Senate has held hearings on its own set of proposed amendments but has not passed its amendments – or the House’s proposed amendments – as of yet.

Governor Gretchen Whitmer has urged both House and Senate leaders to reach a compromise on the proposed changes prior to ESTA’s effective date of February 21. She has also called for a delay in the Act’s implementation date until July 1, 2025, to give the legislature time to work out a compromise and Michigan businesses time to comply. Both House Speaker Matt Hall and Senate Majority Leader Winnie Brinks have expressed a commitment to reaching a compromise by the February 21 deadline, but a compromise on the ESTA amendments may not be possible by the end of this week due to the significant differences between the competing legislative proposals.

Given this present uncertainty, employers should be prepared to comply with the current form of ESTA on Friday, February 21, 2025, but should refrain from formally rolling out any changes to the policy prior to Friday in the event the Michigan legislature does act before that date.

Varnum’s Labor and Employment Team will continue to monitor ESTA as lawmakers attempt to reach a compromise agreement.  

Cafeteria Plan, Meet 401(k) Plan

IRS Allows New 401(k) Contributions through Cafeteria Plans

Varnum Viewpoints

The IRS’s recent ruling offers increased flexibility for employers in structuring 401(k) contributions within cafeteria plans, benefiting both employers and employees.

  • More Employee Benefit Choices: Employers can now make discretionary contributions more ways, including combining some 401(k) and welfare benefit choices.
  • Opportunities for Competitive Benefits: The ruling enables employers to design more tailored, competitive benefits packages, enhancing employee satisfaction and retention.

The IRS has surprised employers with a new interpretation of how 401(k) contributions can be made in connection with a cafeteria plan. Many employers offer cafeteria plans, allowing employees to choose from various health and welfare benefits or taxable compensation. Historically, the IRS’s “contingent benefit rule” has prevented employers from offering a similar choice to employees regarding 401(k) plan contributions, because the rule prohibited other benefits from being contingent on 401(k) plan benefit elections. However, the IRS’s new ruling now allows an employer to make a discretionary contribution that employees may allocate to different plans, including a 401(k) plan, without the contribution being included in the employee’s taxable income.

What Did the Proposed Plan Look Like?

An employer asked the IRS for its ruling on several proposed plan amendments, which would change the discretionary contributions to the 401(k) plan without changing the safe harbor non-elective contribution. Specifically:

  • The proposed amendment to the 401(k) plan allowed eligible employees to choose where to receive an annual, irrevocable employer contribution — in the employer’s 401(k) plan, the employer’s Health Reimbursement Account (HRA), the employer’s Educational Assistance Program (EAP) or the employee’s Health Savings Account (HSA). If no employee election was made during open enrollment, the contribution would be made to the 401(k) plan. Employees could not receive the contribution as cash or a taxable benefit.
  • An amendment to the EAP proposed allowing student loan payments to be made directly from the EAP to the lender if the employee allocated the employer contribution to the EAP.
  • The proposed amendment also allowed employees to allocate the employer contribution to the EAP or as an employee’s HSA contribution but prohibited receiving other benefits from the EAP or making pre-tax payroll contributions to the HSA, until after March 15 of the following year. This timing would prevent contributions greater than the limits set under the Code.

How Did the IRS Respond?

The IRS provided several helpful rulings on the changes proposed by the employer. Specifically, the IRS ruled that:

  • The proposed 401(k) plan amendment would not cause the plan to violate the contingent benefit rule (described above).
  • The employer’s contribution would not be considered an employee pre-tax contribution, which would be subject to the lower elective deferral limit, rather than the much larger annual additions limit.
  • The allocation of the employer contribution to the HSA would be excludable from the employees’ taxable income.
  • The EAP amendment would not affect the treatment of tuition or loan payments made under the EAP as excludable from the employee’s taxable income.
  • The employee’s ability to allocate the contribution between different programs would not prevent the EAP from qualifying as an EAP under section 127 of the federal tax code.

IRS “private letter rulings,” like this one, are technically directed only at the requesting employer and cannot officially be followed as precedent. However, because they often guide practitioners on the IRS’s perspective on issues, this ruling increases flexibility for employers designing competitive benefits packages. If you are interested in considering plan design options using this increased flexibility, please contact your Varnum Employee Benefits attorney.

Insurtech in 2025: Opportunity and Risk

Insurtech in 2025: Opportunity and Risk

The explosion in artificial intelligence (AI) capability and applications has increased the potential for industry disruptions. One industry experiencing recent material disruption is about as traditional as it gets: insurance. While some level of disruption in the insurance industry is nothing new, AI has been accelerating more significant changes to industry fundamentals. This is the first advisory in a series exploring the legal risks and strategies surrounding disruptive insurance technologies, particularly those leveraging AI, known as Insurtech.

What is Insurtech?

Insurtech is a broad term that encompasses every stage of the insurance lifecycle. Cutting-edge technology can be instrumental in advertising, lead generation, sales, underwriting, claims processing and fraud detection, among others. Generative AI can assist in client management and retention. Insurtech can augment traditional forms of insurance such as car and health insurance, and facilitate less traditional forms of insurance, such as parametric insurance or microinsurance at scale.  

Legal and Regulatory Risks of Insurtech

As Insurtech continues to evolve, designers, providers and deployers must be aware of the legal and regulatory risks inherent in the use of Insurtech at all stages. These risks are particularly heightened in the insurance world, where vendors and carriers process an enormous amount of personal information in the course of decision-making that impacts individuals’ rights, from advertising to product pricing to coverage decisions. 

The heavily regulated nature of the traditional industry is also enhanced in the Insurtech context, given overlapping regulatory interests in regulating new technology applications. These additional layers of oversight – which in traditional applications may not be as much of a primary concern – include the Federal Trade Commission, states’ Attorneys’ General and in some jurisdictions, state-level privacy regulators.     

Building Compliance for Insurtech Solutions

Designing, providing and deploying Insurtech solutions requires a multifaceted, customized approach to position agents, vendors, carriers and indeed any entity in the insurance stack for compliance. Taking early action to build appropriate governance for your Insurtech product or application is critical to building a defensive regulatory position. For entities that have an eye on raising capital, engaging in mergers or acquisitions, or other collaborative marketplace activity, such governance will minimize friction that can impede success. 

Additionally, consumers are increasingly attentive to data privacy and AI governance standards. Incorporating proper data privacy and AI governance regimes from day one is not only a forward-thinking business decision to mitigate risk and facilitate success; it is also a market imperative. 

Looking Ahead: Risks and Opportunities in 2025

Over the next few months, we will take a closer look into more discrete risks and opportunities that Insurtech providers and deployers need to keep in mind throughout 2025. Follow along as we explore this exciting area that in recent years has demonstrated enormous potential for continued growth.

Contact a member of Varnum’s Data Privacy and Cybersecurity Practice Team to discuss how your business can ensure compliance.